Item 1. Business
Overview
We are a
clinical-stage biopharmaceutical company focused on improving the lives of patients who face challenges associated with their existing treatments for rare and serious chronic diseases. Employing our proprietary Transient Permeability Enhancer, or
TPE, technology platform, we seek to develop oral medications that are currently available only as injections. We are currently conducting an international Phase 3 clinical trial MPOWERED of oral octreotide capsules, conditionally
trade-named MYCAPSSA and referred to herein as octreotide capsules, for the maintenance treatment of adult patients with acromegaly to support a potential submission of a Marketing Authorization Application, or MAA, to the European
Medicines Agency, or EMA. Octreotide capsules, which we developed utilizing our TPE platform, is an oral formulation of octreotide, an analog of somatostatin, a natural inhibitor of growth hormone secretion. Acromegaly is a debilitating condition
caused by a benign tumor of the pituitary gland that results in the bodys production of excess growth hormone. Octreotide capsules, our sole
TPE-based
product candidate in clinical development, has been
granted orphan designation in the United States and the European Union for the treatment of acromegaly.
In 2014, we completed a multinational,
single-arm,
open-label Phase 3 clinical trial of octreotide capsules for the treatment of acromegaly. In June 2015, we filed a New Drug Application, or NDA, with the U.S. Food and Drug Administration, or FDA,
seeking approval for the marketing and sale of octreotide capsules for the maintenance therapy of adult patients with acromegaly. In August 2015, we received notice from the FDA that our NDA was accepted for filing to permit a substantive review. In
April 2016, the FDA issued a Complete Response Letter, or CRL, which indicated that the review cycle for our application was complete and that our NDA was not ready for approval in its present form. In the CRL, the FDA advised us that it
did not believe our NDA had provided substantial evidence of efficacy to warrant approval, and advised us that we would need to conduct another clinical trial in order to overcome this deficiency. The FDA expressed concerns regarding
certain aspects of our
single-arm,
open-label Phase 3 clinical trial and strongly recommended that the we conduct a randomized, double-blind and controlled trial that enrolls patients from the United
States and be of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment. In addition, the FDA advised that, during a site inspection, certain
deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval. In June 2016, we participated in an End of Review meeting with FDA. In the End of Review meeting minutes, the FDA
reiterated
its strong recommendation for a randomized, double-blind and controlled trial, and introduced the concept of a placebo control as a design element that could potentially address some of the
FDAs concerns. We acknowledge FDAs feedback contained in the CRL and in the End of Review meeting minutes, and we continue to evaluate pathways forward to potentially secure approval in the United States for octreotide
capsules.
The FDA also stated in the End of Review Meeting minutes that it considers pathways alternative to its recommendations to be less ideal and
ultimately more risky to our efforts to secure approval of our NDA for octreotide capsules in acromegaly. The FDA strongly recommended that we work with the FDA to reach a common understanding of expectations prior to initiating and executing any
alternative plans. The FDA has advised us that the MPOWERED clinical trial will not be sufficient to address the concerns identified by the FDA in the CRL. We cannot provide any assurance that even if we conduct a new clinical trial consistent with
the strong recommendations of the FDA, or pursue any other alternative development pathway, whether acceptable or unacceptable to FDA, we will receive U.S. regulatory approval of octreotide capsules for acromegaly. We believe that octreotide
capsules, if approved by regulatory authorities, may be the first somatostatin analog available for oral administration to patients with acromegaly.
Acromegaly is a condition caused by a benign tumor of the pituitary gland that releases excess growth hormone, or GH, which in turn elevates insulin-like
growth factor 1, or
IGF-1.
These elevated hormone levels result in a number of painful and disfiguring symptoms, including some acute, such as headaches, joint pain and fatigue, and some long-term, such as
enlarged hands, feet and internal organs, as well as altered facial features. If not treated promptly, acromegaly can lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. According to data
published by the Mayo Clinic in 2013, the mortality rate of people afflicted by acromegaly who go untreated is two to three times higher than that of the general population. Recent data from a published study presented at the Endocrine
Societys Annual Meeting in 2015 suggest that the global prevalence of acromegaly may be between 85 and 118 cases per million people.
The current
standard of care for patients diagnosed with acromegaly and not otherwise cured by surgical removal of the pituitary tumor consists of lifelong, once-monthly injections of an extended release somatostatin analog, primarily octreotide or lanreotide.
These products contain a viscous formulation and are typically administered by a healthcare professional with large-gauge needles into the muscle or deep subcutaneously, that is, deeply under the skin. While injectable somatostatin analogs are
generally effective at reducing GH and
IGF-1
levels and therefore providing disease control, the injections are associated with significant limitations and patient burdens, including suboptimal symptom
control, pain, injection-site reactions and other injection-related side effects, inconvenience, lost work days and emotional issues. The worldwide market for injectable somatostatin analogs is approximately $2.3 billion annually, of which we
estimate approximately $750 million represents annual sales for the treatment of acromegaly.
Octreotide capsules is the first somatostatin analog
formulated for oral administration to complete a Phase 3 clinical trial. In our initial Phase 3 clinical trial, we observed that patients treated with octreotide capsules maintained reduced levels of GH and
IGF-1,
or biochemical disease response, and improved symptom control. In this
155-patient
Phase 3 clinical trial designed to evaluate octreotide capsules in acromegaly
patients previously controlled on injectable somatostatin analogs, 65% of patients receiving octreotide capsules twice a day for up to seven months achieved the primary endpoint, maintenance of biochemical response. This biochemical response was
durable and 86% of patients who completed the seven-month core treatment period of the trial elected to continue on oral therapy during the
six-month
extension phase for up to a total of 13 months of treatment
after first dosing, rather than switch back to injections. The majority of patients in our trial achieved comparable biochemical response and reduced incidence and severity of acromegaly symptoms relative to injectable somatostatin analogs currently
used to treat this disease. The safety profile of octreotide capsules was similar to injectable somatostatin analogs, but without injection-site reactions. Based in part on the data from this completed Phase 3 clinical trial, we submitted an NDA in
June 2015 seeking approval for the marketing and sale of octreotide capsules for the maintenance therapy of adult patients with acromegaly. In April 2016, the FDA issued a CRL to our NDA.
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To support the potential approval by the EMA, in March 2016, we initiated an additional international Phase 3
clinical trial of octreotide capsules in acromegaly MPOWERED designed to show parallel comparative safety and effectiveness as required by the EMA. Assuming we receive favorable results from this second Phase 3 clinical trial, we
expect to submit an MAA to the EMA. In light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules in acromegaly and following the FDAs position that the MPOWERED clinical trial will not be sufficient to
address the concerns in the CRL, in late 2016, we modified certain elements of the MPOWERED trial in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional Phase 3 trial addressing the FDAs
concerns and produce data packages that could be suitable for submission in both the United States and the European Union.
We believe that approximately
8,000 adult acromegaly patients are chronically treated with somatostatin analogs in the United States, and that approximately 90% of these patients are managed by fewer than 1,000 accounts. Patients with acromegaly undergoing treatment in the
United States are treated by endocrinologists at a small number of academic institutions with pituitary experts (pituitary centers), regional academic centers or hospital systems (regional referral centers) and some community
endocrinologists.
We retain worldwide rights to develop and commercialize octreotide capsules with no royalty obligations to third parties. We may
commercialize octreotide capsules ourselves in the United States and we plan to explore the strategic merits of collaboration opportunities for commercializing octreotide capsules in Europe and the rest of the world. Octreotide capsules are
currently protected by issued patents lasting until at least 2029 in the United States, United Kingdom, Japan and several other jurisdictions and by a patent in Europe we expect to be granted in March 2017, and by pending patent applications in
additional jurisdictions that will last until 2029, if granted. We are also pursuing additional patent applications relating to particular uses, dosages and packaging for octreotide capsules.
We have an experienced team with drug development capabilities.
Strategy
Our goal is to become a successful
patient-focused biopharmaceutical company by developing and commercializing, ourselves or through others, octreotide capsules for acromegaly. Our strategy to pursue this goal includes the following elements:
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Obtain U.S. regulatory approval of octreotide capsules for the treatment of acromegaly.
We acknowledge the FDAs feedback regarding our NDA contained in the CRL and in the End of Review meeting
minutes, and we continue to work with the FDA on pathways forward, including the possibility of conducting a trial consistent with the FDAs recommendations, to further develop and potentially secure approval in the United States for
MYCAPSSA.
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Obtain European regulatory approval of octreotide capsules for the treatment of acromegaly.
To support approval in Europe, we initiated an additional Phase 3 clinical trial in March of 2016, with a
protocol that has been accepted by the EMA, to evaluate the comparative safety and efficacy of octreotide capsules in adult acromegaly patients. Following completion of the trial, assuming favorable results, we expect to submit our MAA to the EMA.
In light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules and following the FDAs position that the MPOWERED clinical trial will not be sufficient to address the concerns in the CRL, we recently modified
certain elements of this trial in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional Phase 3 trial addressing the FDAs concerns and produce data packages that could be suitable for
submission in both the United States and Europe. These modifications will likely delay the timing of our submission to the EMA.
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Explore collaboration opportunities in Europe and the rest of the world for octreotide capsules in acromegaly.
We intend to explore collaborations to commercialize octreotide capsules in acromegaly outside
of the United States. However, depending on our evaluation of the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets and undertake commercialization preparation and activities ourselves,
if required regulatory approvals are obtained.
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Our Product Candidate, Octreotide capsules (MYCAPSSA) in Acromegaly
Product Candidate Overview
Octreotide capsules is
a novel formulation of octreotide developed utilizing our TPE platform. We are developing octreotide capsules as a liquid-filled solid gelatin capsule formulation which is intended to be taken twice a day. We expect that acromegaly patients who are
prescribed octreotide capsules, if approved, will receive a
28-day
supply of pills, which may be stored at room temperature by the patient for up to one month. Based on the data from our clinical trials in
healthy volunteers and acromegaly patients, we believe octreotide capsules have the potential to induce biochemical response (inhibition of GH and
IGF-1)
while improving symptoms and reducing the burden of
disease and treatment in patients afflicted with acromegaly.
Our product candidate, octreotide capsules, has completed one Phase 3 clinical trial for the
treatment of acromegaly and 11 pharmacology and PK Phase 1 studies. In June 2015, we submitted our NDA for octreotide capsules as a maintenance therapy for acromegaly in the United States. In August 2015, we received notice from the FDA that our NDA
was accepted for filing to permit a substantive review. In April 2016, the FDA issued a CRL to our NDA. In the CRL, the FDA advised us that it did not believe our NDA had provided substantial evidence of efficacy to warrant approval, and
advised us that we would need to conduct another clinical trial in order to overcome this deficiency. The FDA expressed concerns regarding certain aspects of our
single-arm,
open-label Phase 3
clinical trial and strongly recommended that we conduct a randomized, double-blind and controlled trial that enrolls patients from the United States and be of sufficiently long duration to ensure that control of disease activity is stable
at the time point selected for the primary efficacy assessment. In addition, the FDA advised that, during a site inspection, certain deficiencies were conveyed to the representative of one of our suppliers that would need to be
resolved before approval. In June 2016, we participated in an End of Review meeting with FDA where the FDA reiterated its concerns raised in the CRL. In the minutes from the End of Review Meeting, the FDA indicated that some of its
concerns could potentially be addressed through a placebo-controlled study design. We acknowledge FDAs feedback contained in the CRL and in the End of Review meeting minutes, and we continue to evaluate pathways forward to potentially secure
approval in the United States for MYCAPSSA.
The EMA has advised us that a clinical trial demonstrating
non-inferiority
of octreotide capsules compared to injectable somatostatin analogs as active controls will be required prior to regulatory approval. We have agreed on the Phase 3 clinical trial protocol with
the EMA and we initiated this trial named MPOWERED in March of 2016. In light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules in acromegaly and following the FDAs position that the MPOWERED clinical
trial will not be sufficient to address the concerns in the CRL, we have modified certain elements of the MPOWERED trial in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional Phase 3 trial
addressing the FDAs concerns and produce data packages that could be suitable for submission in both the United States and the European Union. Certain adjustments to the MPOWERED study will likely delay the expected timing of an
MAA filing with the EMA, which we previously estimated to occur in 2019.
Overview of Acromegaly
Acromegaly results from the overproduction of GH, most often due to the growth of a benign tumor in the pituitary gland in middle-aged adults. GH, in turn,
stimulates the production of
IGF-1
in the liver which stimulates the growth of bones and other tissues. Progression of acromegaly can result in significant health problems such as hypertension, enlargement of
the heart, or cardiomyopathy, sleep apnea,
type-2
diabetes, and
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abnormal growths in the colon and uterus. Acromegaly is associated with a number of symptoms, some acute, such as headaches, joint pain and fatigue, and some long-term, such as enlarged hands,
feet and internal organs, as well as altered facial features. Because acromegaly is uncommon and physical changes occur gradually, the condition is often not recognized immediately, sometimes not for years. If not treated promptly, acromegaly can
lead to serious illness and is associated with premature death, primarily due to cardiovascular disease. However, both surgical and drug treatments are available for acromegaly that can reduce the risk of complications and premature death and
significantly improve symptom control.
Surgery is often the first line of therapy for acromegaly and, in most cases, surgical removal of the pituitary
tumor can result in normalization of GH and
IGF-1
levels. In many other cases, however, the levels of GH remain elevated even after surgery due to residual tumor and many patients therefore also require a
therapeutic intervention. The bodys natural inhibitor of excess GH secretion is somatostatin, a peptide hormone. Octreotide and lanreotide, analogs of somatostatin with a significantly longer half-life in the blood than natural somatostatin,
have achieved widespread adoption by physicians treating patients afflicted with acromegaly. These somatostatin analogs are routinely administered by injection by a healthcare professional. If not administered with proper technique, the injection
may not effectively deliver the medication. There is currently no oral formulation of a somatostatin analog on the market and none, we believe, in clinical development except octreotide capsules.
Incidence and Prevalence of Acromegaly and Current Treatment Landscape
There are an estimated 69,000 individuals with acromegaly worldwide. The U.S. National Institutes of Health, or NIH, estimates that there are roughly 20,000
individuals with acromegaly in the United States, based on its published prevalence of an estimated 60 cases per million. In 13 studies of acromegaly prevalence since 1980, an average of approximately 75 cases per million was determined, suggesting
roughly 24,000 individuals with acromegaly in the United States. However, recent data presented at the Endocrine Societys Annual Meeting in 2015 suggest that pituitary tumors may be more prevalent than previously thought, and that the global
prevalence of acromegaly may be higher, between 85 and 118 cases per million people. NIH also cites an annual incidence of three to four new cases per million each year.
According to publicly available financial reports, injectable forms of octreotide and lanreotide generate worldwide sales of approximately $2.3 billion
annually for the treatment of acromegaly and neuroendocrine tumors, as well as some smaller indications. We believe approximately $750 million of this total represents the annual sales for the treatment of acromegaly. The great majority of
these sales come from once-monthly long acting formulations that must be administered by intramuscular or deep subcutaneous injections with large-gauge needles. Although we are targeting acromegaly with octreotide capsules, we believe that this
product candidate, if approved in acromegaly, has the potential to become a standard of care in other indications currently treated with injectable somatostatin analogs.
Current Therapeutic Options and Their Limitations
For acromegaly patients not cured by surgery, the current standard of care involves injectable somatostatin analogs. These therapies are associated with
significant patient limitations and burdens. Currently, the first therapeutic treatment options are octreotide, marketed by Novartis AG, or Novartis, which is administered monthly and intramuscularly using a large gauge needle, and lanreotide,
marketed by Ipsen SA, or Ipsen, another long-acting analog of somatostatin, which is administered monthly using a deep subcutaneous injection. For patients not controlled on these somatostatin analogs, the typical second line of treatment options
includes pegvisomant daily injections, marketed by Pfizer, Inc., or Pfizer, and pasireotide LAR, marketed by Novartis, which is another somatostatin analog administered monthly via intramuscular injection.
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Current Injectable Treatment Options for Acromegaly
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Product
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Company
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Route
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Needle
(length/gauge)
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Status
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Octreotide LAR
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Novartis
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Intramuscular
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1.5/19 or 20 G
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Marketed
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Lanreotide
Depot
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Ipsen
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Deep
Subcutaneous
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0.79/18 or 19 G
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Marketed
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Pasireotide LAR
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Novartis
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Intramuscular
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1.5/20 G
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Marketed
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Pegvisomant
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Pfizer
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Subcutaneous
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1/21-27
G
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Marketed
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Injections of these somatostatin analogs present several issues related to patient comfort and convenience as well as
breakthrough, or returning, symptoms of the disease near the end of the dosing cycle prior to the next scheduled injection. These issues include:
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Suboptimal control.
In a published patient-reported outcomes survey that we conducted in 195 acromegaly patients receiving injected somatostatin analogs, or our patient survey, 52% of patients reported
that the treatment effects begin to wane near the end of the monthly cycle prior to the next injection, and 32% of controlled patients still experienced some symptoms.
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Pain.
Injections with somatostatin analogs require a large-gauge needle to slowly inject a viscous solution into the muscle or deep into subcutaneous tissue. Patients report these injections to be very
painful. Often, this pain persists for several days after the injection. In our patient survey, 70% of patients said they experienced pain during the injection and approximately half of these patients experienced continuing pain days later.
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Injection-site reactions.
Patients frequently experience hardness, nodules and swelling at the site of the injection as well as bruising and inflammation.
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Lack of convenience.
The treatment effectiveness is dependent on proper delivery technique and thus the injections are typically administered by a healthcare professional. The monthly injection schedule
for injectable somatostatin analogs and the associated travel to the healthcare provider is inconvenient for many patients.
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Emotional impact.
In our patient survey, 36% of patients said that they felt a loss of independence due to the requirement for chronic injections that typically require them to visit a healthcare
professional.
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Lost work days.
In our patient survey, 16% of patients said that the treatment burden associated with the injectable therapies caused them to regularly miss work for injections. These patients missed an
average of 11 days a year.
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Since injectable somatostatin analogs are used in other diseases beyond acromegaly, these limitations and
burdens are also associated with the treatment of the other indications that we may pursue with octreotide capsules, if approved in acromegaly.
Clinical Program for Octreotide Capsules in Acromegaly
Regulatory Pathway
We previously sought regulatory
approval of octreotide capsules for the maintenance therapy of acromegaly in the United States utilizing the FDAs 505(b)(2) regulatory pathway. The 505(b)(2) pathway enables us to rely, in part, on the FDAs prior findings of safety and
efficacy of an approved product, or published literature, in support of an NDA. In the case of octreotide capsules in acromegaly, the approved product to which our prior NDA
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submission refers is the short-acting subcutaneous injectable formulation of octreotide that was the original product approved by the FDA before the long-acting formulation was developed. Since
this formulation of octreotide was approved by the FDA in generic form and is therefore no longer proprietary, we are not aware of any third party from which we would be required to obtain any license or acquire any rights to commercialize
octreotide capsules, if approved. As described in more detail below, we have conducted a series of Phase 1 clinical trials, including a trial to demonstrate that the systemic octreotide exposure from octreotide capsules, developed utilizing our TPE
technology, is comparable to that of octreotide administered in the short-acting subcutaneous injectable formulation. We have also conducted a Phase 1 clinical trial to evaluate the bioactivity of octreotide capsules in healthy subjects, and a Phase
3 clinical trial to evaluate the safety and efficacy of octreotide capsules in patients with acromegaly, consisting of seven months of treatment plus an optional
six-month
extension phase.
In December 2014, we met with the FDA to discuss our clinical development of octreotide capsules, including the full
13-month
data from our Phase 3 clinical trial. At this meeting, the FDA advised us that it had not identified an issue that would preclude us from submitting an NDA for review. However, the FDA did advise us
that interpreting efficacy from a voluntary long-term extension study is subject to limitations and therefore the data at the seven-month time point in our Phase 3 clinical trial would carry more weight in the efficacy evaluation than the extension
data. The FDA has also informed us that, in its view, a
single-arm
study was not as informative as a controlled study, such as an active control trial using a
non-inferiority
design, and that the interpretability of the efficacy findings we submitted from our
single-arm
study, and whether these findings are robust enough to
warrant approval, would be review issues as the FDA evaluated our NDA. Following this meeting, we submitted our NDA for octreotide capsules for maintenance therapy in acromegaly to the FDA in June 2015. In August 2015, we received notice from the
FDA that our NDA was accepted for filing to permit a substantive review.
In April 2016, the FDA issued a CRL to our NDA. In the CRL,
the FDA advised us that it did not believe our NDA had provided substantial evidence of efficacy to warrant approval, and advised us that we would need to conduct another clinical trial in order to overcome this
deficiency. The FDA expressed concerns regarding certain aspects of our
single-arm,
open-label Phase 3 clinical trial and strongly recommended that we conduct a randomized, double-blind and
controlled trial that enrolls patients from the United States and be of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment. In addition,
the FDA advised that, during a site inspection, certain deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval. In December 2016, we were informed that the supplier had
recently received its Establishment Inspection Report (EIR) from FDA. The receipt of the EIR is an indication that FDA has concluded its inspection of the supplier and as of the date of its report considers outstanding deficiencies resolved. In
June 2016, we participated in an End of Review meeting with FDA where the FDA reiterated its concerns raised in the CRL. In the minutes from the End of Review Meeting, the FDA indicated that some of its concerns could potentially be
addressed through a placebo-controlled study design. We acknowledge FDAs feedback contained in the CRL and in the End of Review meeting minutes, and we continue to work with the FDA to evaluate pathways forward to potentially secure approval
in the United States for octreotide capsules.
We also intend to seek regulatory approval of octreotide capsules for the treatment of acromegaly
in Europe utilizing the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway in the United States. In addition to the clinical data we previously submitted to the FDA, the EMA has advised us that a clinical trial
demonstrating
non-inferiority
of octreotide capsules compared to injectable somatostatin analogs as active controls will be required prior to regulatory approval by EMA. Our MPOWERED Phase 3 clinical trial
protocol has been accepted by the EMA and we initiated this trial in March of 2016. In light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules in acromegaly and following the FDAs position that the
MPOWERED clinical trial will not be sufficient to address the concerns in the CRL, we have modified certain elements of the MPOWERED study in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional
Phase 3 trial addressing the FDAs concerns and
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potentially produce data packages that could be suitable for submission in both the United States and the European Union. Certain adjustments to the MPOWERED study will likely
delay the expected timing of an MAA filing with the EMA, which we previously estimated would occur in 2019.
Completed Phase 3 Clinical Trial
In March 2012, we initiated a Phase 3 multi-center, open-label, baseline-controlled clinical trial to evaluate the safety and efficacy of
octreotide capsules in patients with acromegaly who responded to and tolerated treatment with somatostatin analogs. We completed this trial in November 2014 and the results were published in the
Journal of Clinical
Endocrinology
& Metabolism
in February 2015 and presented at the Endocrine Societys Annual Meeting in March 2015. In addition, the results were submitted with our NDA for octreotide capsules in June 2015, and in
the FDAs CRL to our NDA, FDA expressed concerns regarding certain aspects of the companys
single-arm,
open-label Phase 3 clinical trial and strongly recommended that the company conduct a
randomized, double-blind and controlled trial that enrolls patients from the United States and be of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy
assessment. In the minutes from our End of Review Meeting, the FDA indicated that some of its concerns could potentially be addressed through a placebo-controlled study design. We acknowledge FDAs feedback contained in the CRL and in
the End of Review meeting minutes, and we continue to work with the FDA to evaluate pathways forward to potentially secure approval in the United States for octreotide capsules.
Trial Design
A total of 155 patients with acromegaly,
each of whom was classified according to the study parameters as a responder to a long-acting injectable somatostatin analog, were enrolled in the trial. Two weeks after their last monthly injection of the long-acting injectable somatostatin analog,
patients were reassessed to obtain baseline
IGF-1
and GH levels. Both the screening and baseline measurements were performed while patients were still on active injection therapy. The 155 patients enrolled in
the trial are referred to as the intent to treat, or ITT, group.
After baseline levels were obtained, no less than one month following their last monthly
injection of the long-acting injectable somatostatin analog, a core treatment period with octreotide capsules was initiated. This core treatment period consisted of a dose-escalation phase of at least two months in duration, designed to find an
appropriate dose of octreotide capsules for each individual patient, and a fixed-dose phase of up to five months in duration, during which period the appropriate therapeutic dose identified in the dose-escalation phase was maintained. Since data
from our prior clinical trials demonstrated a significant reduction in bioavailability when octreotide capsules is administered with a
high-fat
meal, patients in this Phase 3 clinical trial were required to
fast for at least one hour before and at least one to two hours after each dose.
Patients who entered the core treatment phase of the trial initially
received a 40 mg daily dose (administered in two pills a day), which was increased to daily doses of 60 mg or 80 mg on an
as-required
basis to maintain biochemical response and/or symptom control, at the
discretion of the investigator. For each patient, the core treatment phase lasted for seven months after his or her first dose of octreotide capsules. Patients could then opt to continue treatment with octreotide capsules during an extension period
of up to an additional six months, with a
two-week
period for final
follow-up.
Four patients dropped out of the trial after receiving at least one dose of octreotide
capsules but before a biochemical response could be measured, resulting in a modified intent to treat, or mITT, group of 151 patients.
The primary
objective of the trial was to determine the efficacy of octreotide capsules in patients with acromegaly, as measured by effect on
IGF-1
and GH levels, with responders defined as patients who achieve an
IGF-1
level less than 1.3 times the upper limit of normal, or ULN, adjusted for age and an integrated GH level over two hours less than 2.5 ng/mL. Secondary objectives included assessment of safety and tolerability
of octreotide capsules, and comparison of efficacy of octreotide capsules versus long-acting injectable somatostatin analog.
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Phase 3 Clinical Trial Design
Trial Results
Of the
155 patients enrolled, four were not evaluable and of the 151 in the mITT group, 49 patients discontinued, the majority during the dose-escalation phase. Of the 151 patients in the mITT group, patients discontinued for a variety of reasons,
including treatment failures because the patient could not be controlled in the study on 80 mg, the highest dose available (24); withdrawals due to adverse events (18); or patient choice, sponsor request and lost to follow up (7). Of the 110
patients that completed the dose-escalation phase, 52 patients, or 47%, were receiving the 40 mg daily dose, 25 patients, or 23%, were receiving the 60 mg dose, and 33 patients, or 30%, were receiving the 80 mg dose.
After completion of the dose-escalation phase, the remaining 110 patients entered the fixed dose phase of the core treatment period and continued on
octreotide capsules at their respective doses until seven months after first dosing. A total of 102 patients completed the fixed dose phase of the trial, 88 of whom, or 86%, voluntarily chose to remain on octreotide capsules during the
six-month
extension phase, for a total of 13 months of treatment after first dosing. A total of 82 patients completed the
six-month
extension phase of the trial.
Overall, 65% of patients in the mITT group were classified as responders at the end of the seven-month core treatment phase, which was the primary endpoint
for the trial. Applying a worst-case imputation method, whereby all patients who withdrew from the study prematurely (regardless of reason) are treated as
non-responders,
53% of patients were classified as
responders at the end of the seven-month core treatment phase. By the end of the
six-month
extension phase, or 13 months after first dosing, the responder rate was 62% in the mITT group. Of the 110 patients
that completed the dose-escalation phase, and therefore received an optimized dose of octreotide capsules, 75% were classified as responders. For all 151 patients included in the mITT group, the responder rate on long-acting injectable somatostatin
analogs was 89% at baseline, prior to initiation of octreotide capsules. Endocrinologists indicated to us that effectiveness in at least 50% of patients treated would be sufficient for an oral treatment to generally be prescribed by physicians.
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Overall Phase 3 Response in mITT Group vs. Baseline
We further assessed the quality of the responses to octreotide capsules in the patients studied. The quality of the patient
responses on octreotide capsules was comparable to the quality of the responses on injectable therapies. In the mITT group, mean GH levels for patients on octreotide capsules were below the baseline values on injectable therapies at all time points
assessed through the end of the extension phase. The median GH level in the mITT group at baseline was 0.77 ng/mL, which dropped to 0.40 ng/mL within two hours of the first dose of octreotide capsules and 0.49 ng/mL by the end of the extension
phase, 13 months later.
IGF-1
levels were stably maintained below 1.3 times the ULN for up to 13 months in the mITT group.
GH and
IGF-1
Response in mITT Group Throughout the Duration of the Phase 3 Trial
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We also assessed control of acromegaly symptoms, the incidence of symptoms, and the severity and number of symptoms in
patients using octreotide capsules in a retrospective analysis performed after completion of the trial. At baseline, 81% of patients in the mITT group, the majority of whom were classified as responders, still had acromegaly symptoms, such as
headaches, excessive perspiration, muscle weakness and/or joint pain and swelling. Patients who completed 13 months of treatment reported significantly fewer acromegaly symptoms at the conclusion of the trial than at the time of their baseline
screening, and this result was statistically significant, with
p-values
of less than 0.020.
P-value
is a conventional statistical method for measuring the statistical
significance of clinical results. A
p-value
of 0.05 or less is generally considered to represent statistical significance, meaning that there is a less than
1-in-20
likelihood that the observed results occurred by chance. There was also a reduction in the severity of symptoms reported. In addition, a questionnaire conducted in a subset of the patients in the
clinical trial reported that breakthrough symptoms of acromegaly were experienced by 36% of patients receiving injections at baseline compared to 22% at 13 months on octreotide capsules.
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Reduced Number of Acromegaly Symptoms at Conclusion of Phase 3 Trial
(Fixed Dose Population (n = 110))
The safety profile of octreotide capsules in the trial was consistent with the known safety profile of octreotide and the
disease burden of acromegaly, with the most common adverse events observed in the gastrointestinal system, such as nausea and diarrhea, the nervous system, such as headaches, and the musculoskeletal system, such as joint pain, but without adverse
injection-site reactions. No new or unexpected safety signals were observed in the study. While the FDA did not note any safety concerns related to octreotide capsules in the CRL, it subsequently indicated in the End of Review meeting minutes that
the size, duration, dropout rate and absence of a control group in our Phase 3 clinical trial were factors limiting an overall safety assessment.
We only
performed statistical analysis on the symptom reductions for our Phase 3 trial of octreotide capsules in acromegaly and did not perform statistical analysis related to the biochemistry, specifically the reduction in GH and
IGF-1
levels.
Initiated European Phase 3 Clinical Trial
In addition to the clinical data submitted to the FDA with our NDA, the EMA has advised us that a clinical trial demonstrating that octreotide capsules is not
inferior to injectable somatostatin analogs included in the same study as active controls would be required prior to regulatory approval. Comparative effectiveness is an
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important regulatory consideration in Europe. After agreeing to the clinical trial protocol with the EMA, we initiated an international Phase 3 clinical trial of octreotide capsules in acromegaly
in March 2016 to show parallel comparative safety and effectiveness.
This trial is called MPOWERED,
M
aintenance of Acromegaly
P
atients with
O
ctreotide Capsules Compared
W
ith Injections -
E
valuation of
Re
sponse
D
urability. This trial is an open-label, randomized, active-controlled study of octreotide capsules in patients who have been classified in the
study as responders to a
once-a-month
injectable somatostatin analog based on criteria comparable to the criteria utilized in our completed Phase 3 clinical trial. The
new trial is intended to demonstrate
non-inferiority,
comparing efficacy responses as between two randomized groups of patients who demonstrated response to octreotide capsules. We currently expect to enroll
up to 150 patients in the trial in the United States, Europe, Russia and other foreign countries in order to ensure that at least 80 patients are randomized as described below. The patients will enter a
run-in
phase on octreotide capsules. Each patient will initially receive a daily dose of 40 mg of octreotide capsules, which will be increased up to a maximum of 80 mg daily dose if lower doses are not effective. Similar to the requirements of our first
Phase 3 clinical trial, patients will be required to take octreotide capsules on an empty stomach.
A minimum of 80 patients identified as responders will
be randomized (2:3) to either a long-acting injectable somatostatin analog or octreotide capsules at the appropriate dose identified during the
run-in
phase, and followed for nine months. After completion
of this randomized controlled phase, we expect that all eligible patients will have the option of entering an extension phase during which period these patients would receive octreotide capsules at the dose identified during the
run-in
phase.
Patients who do not respond during the
run-in
phase will not
enter the randomized phase but will be switched back to long-acting injectable somatostatin analog and followed for an additional three months.
The
primary efficacy endpoint for this trial will relate to
IGF-1
with responders defined as patients who achieve an
IGF-1
level less than 1.3 times the ULN adjusted for
age, the same
IGF-1
efficacy criteria utilized in our completed Phase 3 clinical trial. Measurements of
IGF-1
will be taken throughout the randomized phase of the trial
and a time weighted average of these biochemical measures will be calculated. In addition, assessment of symptom control and patient reported outcomes are expected to be included.
In selected centers, patients who are
non-responders,
but have modestly elevated
IGF-1
levels on octreotide capsules alone, may be offered the opportunity to determine if they can respond to a combination of octreotide capsules with a second oral agent called cabergoline. Cabergoline is
used for the treatment of mild acromegaly. It has a different mechanism of action and publications have suggested it may have an additive effective to somatostatin analogs. This
sub-study,
which the EMA did
not accept as part of the final protocol for comparative effectiveness, is unlikely to be sufficient to gain regulatory approval for the combination of both drugs but may provide useful information to physicians.
The FDA has advised us that the MPOWERED clinical trial will not be sufficient to address the concerns identified by the FDA in the CRL. In light of our
ongoing evaluation of potential U.S. development pathways for octreotide capsules in acromegaly and following the FDAs position that the MPOWERED clinical trial will not be sufficient to address the concerns in the CRL, we have modified
certain elements of the MPOWERED study in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional Phase 3 trial addressing the FDAs concerns and produce data packages that could be suitable
for submission in both the United States and the European Union. Certain adjustments to the MPOWERED study will likely delay the expected timing of an MAA filing with the EMA, which we previously estimated to occur in 2019.
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Design of Ongoing Phase 3 to Support EMA Application
Phase 1 Clinical Trials of Octreotide Capsules
Together with a group of academic collaborators, we conducted a series of Phase 1 clinical trials to demonstrate that the bioavailability of octreotide
capsules, developed utilizing our TPE technology, is comparable to the bioavailability of octreotide administered in the short-acting subcutaneous, or sc, formulation. These trials demonstrated similar pharmacokinetics for octreotide capsules and
octreotide 0.1 mg sc injection and that a 20 mg oral dose of octreotide capsules produced systemic exposure comparable to octreotide 0.1 mg sc injection in healthy volunteers. There was no effect of route of administration on octreotide elimination,
and the mean elimination half-life (t1/2) was comparable with the two treatments. However, these studies also demonstrated that the bioavailability of octreotide capsules is approximately 90% lower when it is taken with a
high-fat
meal rather than in the fasted state. Accordingly, our initial Phase 3 clinical trial required fasting for at least one hour before and at least one to two hours after each dose.
Pharmacokinetics of Octreotide capsules vs. SC Octreotide in Phase 1 Trial
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In addition, to demonstrate the bioactivity of octreotide capsules, as measured by reduction in GH levels, we
conducted a Phase 1 clinical trial in 16 healthy volunteers. In this crossover study, a single 20 mg dose of octreotide capsules was shown to suppress mean GH levels below 0.25 ng/mL (p < 0.05). This is similar to the effect seen in published
results using octreotide injections.
Suppression of GH Levels in Healthy Volunteers
Also in this trial, we evaluated the ability of octreotide capsules to suppress GH levels in healthy subjects whose
production of GH had been transiently stimulated by dosing with growth hormone-releasing hormone, or GHRH, and arginine. GHRH and arginine are used in routine clinical testing for deficiencies in GH production. In a healthy person, their
administration leads to a large increase in GH levels, which is what was observed in this trial. A single 20 mg dose of octreotide capsules lowered the levels of GH by 80% (p < 0.001) following dosing with GHRH and arginine.
Data from our Phase 1 bioavailability and bioactivity clinical trials were published in the
Journal of Clinical Endocrinology
&
Metabolism
in July 2012.
A total of 11 clinical pharmacology studies have evaluated the safety of octreotide capsules. In all of these studies, the
safety profile of octreotide capsules was consistent with the known safety profile of the short-acting octreotide 0.1 mg sc injection. No new or unexpected safety issues were detected during any of the clinical pharmacology studies. In particular,
no new safety issues related to the novel formulation or route of administration were observed. While the FDA did not note any safety concerns related to octreotide capsules in the CRL, it subsequently indicated in the End of Review meeting minutes
that the size, duration, dropout rate and absence of a control group in our Phase 3 clinical trial were factors limiting an overall safety assessment.
Other Potential Indications for Octreotide Capsules
If
we receive regulatory approval for octreotide capsules in acromegaly, we may pursue the development of octreotide capsules in other indications. At this time, we do not currently have the personnel or financing to simultaneously pursue the
development of octreotide capsules in indications other than acromegaly.
Our Proprietary Transient Permeability Enhancer Technology Platform
Our Transient Permeability Enhancer, or TPE, technology is a proprietary platform, developed internally by our current and former scientists, that enhances the
absorption through the intestinal wall of drugs that otherwise
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would not be absorbed efficiently by that route. Using our TPE technology, we can transiently and reversibly open the
so-called
tight junctions between the
cells lining the inner intestinal wall, enabling drug molecules to be absorbed intact. Our TPE formulation is a suspension of water-soluble particles containing a precise combination of medium-chain fatty acid salts and drug substance in a
fat-soluble
medium. In creating a TPE formulation, we make no chemical modifications to the drug substance.
Oral
delivery of peptides and nucleic acids is limited due to their inherent vulnerability to digestive processes and their poor intestinal absorption. The same intestinal absorption limitation applies to certain small molecules that have poor
bioavailability. The cells at the surface of the intestine, columnar epithelial cells, are connected by tight junctions that form a barrier preventing permeation by water-soluble molecules as well as by viruses and bacteria. Our TPE technology
induces the transient opening of these tight junctions, allowing peptides and other macromolecules up to a certain size, but not toxins, viruses and bacteria, to cross the intestinal barrier and enabling access to the blood.
The permeability of intestinal tight junctions is known to be altered by a number of dietary factors such as fatty acids, polysaccharides and flavonoids.
Transient, reversible opening of the tight junctions and an increase in epithelial permeability are a normal part of intestinal physiology. These permeability adjustments allow the gut to balance two opposing functions: creating a barrier to the
passage of microorganisms while facilitating the absorption of nutrients following a meal. In developing the TPE platform, our goal was to establish the ability to reproducibly induce transient increases in the permeability of tight junctions,
allowing absorption of specifically formulated drug molecules.
We have conducted extensive nonclinical studies to demonstrate the ability of our TPE
technology to increase the permeability of the intestinal epithelial layer and therefore absorb molecules of different shapes, sizes and doses. As a result of these studies, we believe that our TPE technology can be applied to multiple additional
peptide drug products as well as small molecules with poor bioavailability.
Our TPE Platform
Although not currently staffed or sufficiently financed to do so, if octreotide capsules are approved in acromegaly, we may
seek to use our TPE platform to develop other oral medications to help improve the lives of patients suffering from other debilitating diseases that are currently being treated with injectable therapies. If we pursue new peptide-based drugs to
develop using our TPE platform, to potentially reduce the development time and expenses and overall level of investment required, where possible, we may focus our efforts on drugs for which we may utilize the FDAs 505(b)(2) regulatory pathway
in the United States and the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. In March 2017, the Tufts Center for the Study of Drug Development reported that the 505(b)(2) regulatory pathway for new drug
applications in the United States has not led to shorter approval times. With octreotide capsules, we brought a
TPE-based
product candidate from concept to the first clinical trial within 18 months and
then initiated a Phase 3 study approximately two years later.
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Prior License Agreement with Roche
In January 2013, we entered into a license agreement with F.
Hoffmann-La
Roche Ltd. and
Hoffmann-La
Roche Inc., collectively Roche, for the development and commercialization of octreotide capsules. Under the terms of the license agreement, we had responsibility for continued clinical development
through completion of our initial Phase 3 clinical trial, establishment of commercial-scale manufacturing and completion of ongoing nonclinical activities. Roche assumed responsibility for development and commercialization thereafter. The agreement
provided for an upfront payment of $65.0 million, future consideration of up to $530 million in development and commercial milestones, and the right to receive tiered, double-digit royalties on net sales of octreotide capsules.
In January 2014, we received the clinical results from the seven-month core treatment period of the octreotide capsules Phase 3 clinical trial. These results
did not include the
six-month
extension period of the trial, which allowed patients the opportunity to choose to continue on oral therapy. In May 2014, Roche conducted a
pre-NDA
meeting with the FDA. In July 2014, Roche elected to terminate the license agreement and transitioned octreotide capsules and all materials related to the clinical development programs back to us. We
subsequently entered into a termination agreement with Roche, which included our purchase of active pharmaceutical ingredient for future manufacturing of octreotide capsules and a trademark associated with octreotide capsules for an aggregate of
$5.1 million payable over three years. We have no further obligations to Roche.
In October 2014, we completed analyses of the full
13-month
clinical results from our Phase 3 clinical trial of octreotide capsules. Subsequently, in December 2014, we met with the FDA to discuss our clinical development of octreotide capsules, including the full
13-month
data from our Phase 3 clinical trial. Based on the results of this meeting, we submitted an NDA to the FDA in June 2015. In April 2016, the FDA issued a CRL to our NDA.
Commercialization Strategy
We retain worldwide rights to
develop and commercialize octreotide capsules with no royalty obligations to third parties. We may commercialize octreotide capsules, if approved, ourselves in the United States employing a strategy that differentiates our product and is tailored to
the needs of patients and their physicians. We have conducted market research and other
pre-commercial
activities in the United States to better understand satisfaction levels and key unmet needs with
respect to current treatments for acromegaly and to build awareness of octreotide capsules. This market research has been conducted with endocrinologists, nurses and patients with acromegaly. In surveys commissioned by us, more than 80% of
patients with acromegaly expressed a preference for an oral treatment, and endocrinologists surveyed predicted that an oral treatment would ultimately become the preferred treatment option. Endocrinologists indicated that effectiveness in at least
50% of patients treated would be sufficient for an oral treatment to generally be prescribed by physicians. To assess the attitudes of commercial third-party payors toward reimbursement for octreotide capsules, in 2010 we conducted research
with 12 such payors collectively representing 111 million covered lives. Payors representing nearly 90% of these covered lives said they would reimburse an oral treatment assuming pricing was in a range comparable to the existing injectable
therapy market leader, octreotide.
We believe the current U.S. market for acromegaly treatments is concentrated. We believe that approximately 8,000
adult acromegaly patients are chronically treated with somatostatin analogs in the United States, and that approximately 90% of these patients are managed by fewer than 1,000 accounts. Patients with acromegaly undergoing treatment in the United
States are treated by endocrinologists at a small number of academic institutions with pituitary experts (pituitary centers), regional academic centers or hospital systems (regional referral centers) and some community endocrinologists. We
believe we will be able to market octreotide capsules, if approved, to pituitary centers, regional referral centers and high-volume community endocrinologists We believe that the clinical benefits, if demonstrated, and preferences of patients and
healthcare professionals for an oral therapy together with our patient-centric approach could enable octreotide capsules, if approved, to become a new standard of care in acromegaly.
We intend to seek approval to commercialize octreotide capsules in Europe following the completion of our ongoing Phase 3 MPOWERED trial, and, if
successful, plan to submit an MAA to the EMA. We plan to explore
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the strategic merits of collaboration opportunities for commercializing octreotide capsules in Europe and the rest of the world in order to maximize the availability of the product candidate, if
approved, to patients. However, depending on our evaluation of the strategic merits of these collaboration opportunities, we may decide to retain commercial rights in key markets.
Manufacturing
We depend on third-party suppliers and
contract manufacturing organizations, or CMOs, for all of our required raw materials and drug substance and to manufacture and package drug product for clinical use and commercial use, if approved. If octreotide capsules are approved, we plan to
establish a distribution channel in the United States utilizing third-party logistics and specialty pharmacies to distribute product directly to patients who have been prescribed octreotide capsules.
We have qualified Novetide Ltd., a subsidiary of Teva API Pharmaceuticals Industries (TAPI) Ltd., in Israel, and Bachem Americas Inc., in the United States,
as suppliers of the generic active pharmaceutical ingredient, or API, octreotide acetate.
All excipients, or substances formulated together with the API,
used in manufacture of octreotide capsules are readily available. The octreotide API is formulated with our TPE technology by Lyophilization Services of New England Inc. and filled into capsules and enteric-coated by Encap Drug Delivery, a division
of Capsugel, in Scotland. All manufacturers periodically undergo inspections by regulatory authorities.
Octreotide capsules are refrigerated and our NDA
included primary stability data covering 24 months under these storage conditions. We have since demonstrated 36 months refrigerated stability for octreotide capsules and plan to update our NDA accordingly upon resubmission. We have also obtained
data regarding additional
one-month
storage at room temperature to support storage of octreotide capsules at room temperature. The FDA has previously indicated that the testing parameters for our control
strategy and product release and stability specifications are acceptable. The manufacturing process for the API has been validated at both of our API manufacturers and octreotide capsules manufactured at our CMOs as well as final product packaging
has also been validated. In the CRL, the FDA advised that, during a site inspection, certain deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval of our NDA. In December
2016, we were informed that the supplier had recently received its Establishment Inspection Report (EIR) from FDA. The receipt of the EIR is an indication that FDA has concluded its inspection of the supplier and as of the date of its report
considers outstanding deficiencies resolved. We expect that our suppliers will be subject to additional regulatory inspections in the future, including in connection with the FDAs review of any NDA we may submit in the future, if any, seeking
approval of octreotide capsules in acromegaly.
Competition
Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new
technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology companies and specialty pharmaceutical companies. Key competitive factors affecting the commercial success of octreotide capsules and any
other product candidates we may develop are likely to be efficacy, safety and tolerability profile, reliability, convenience of administration, price and reimbursement and effectiveness of our promotional activities.
The standards of care for patients suffering from acromegaly all involve injectable therapies, other than cabergoline, an oral agent used for the treatment of
mild acromegaly. Novartis markets octreotide LAR, which is administered monthly and intramuscularly using a large gauge needle. Ipsen markets lanreotide, another long-acting analog of somatostatin, like octreotide, which is administered
monthly using a deep subcutaneous injection. Both therapies, which are most frequently the first drug treatment options for patients, involve side effects related to the injections and inconvenience due to the timing and requirements of the
injections. Pfizer
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markets pegvisomant daily injections and Novartis also markets pasireotide LAR, which is another somatostatin analog administered via intramuscular injection. Pegvisomant daily injections and
pasireotide LAR are significantly more costly than injectable octreotide and lanreotide. The label for pasireotide LAR includes a warning about hyperglycemia and diabetes, which can sometimes be severe. The label advises healthcare professionals
administering pasireotide LAR to monitor glucose levels periodically during therapy and to monitor glucose levels more frequently in the months that follow initiation or discontinuation of therapy and following dose adjustment. We are aware of
other companies involved in early-stage nonclinical and clinical studies of similar somatostatin analogs, but all involve administration via injection. Most notably, Camarus AB., in partnership with Novartis, is developing CAM2029, a subcutaneous
octreotide depot for the potential treatment of neuroendocrine tumors and acromegaly. Published reports indicate that Camarus AB intends to initiate
2-3
global Phase 3 studies of CAM2029 in 2017 which may
directly compete with us for the limited number of acromegaly patients willing to participate in our current and potential future clinical trials. If both CAM2029 and our octreotide capsules receive regulatory approval in a similar timeframe, we may
be face difficulties with our commercial launch with a new competitive product launching simultaneously.
Many of our existing or potential competitors
have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the
commercialization of those products. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more
successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors drugs, or drugs they may develop in the future, may be more effective, or more effectively marketed and sold, than any
drug we may commercialize and may render octreotide capsules or any future product candidates we may develop obsolete or
non-competitive
before we can recover the expenses of developing and commercializing
octreotide capsules or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours, especially following receipt of the CRL to our
NDA in April 2016. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. If we are unable to compete effectively, our opportunity to generate revenue from
the sale of octreotide capsules or any future product candidates we may develop, if approved, will be adversely affected.
Intellectual Property
We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to
cover our product candidates and compositions, their methods of use and processes for their manufacture, and any other aspects of inventions that are commercially 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.
We plan to continue to expand our
intellectual property estate by filing patent applications directed to compositions, methods of treatment, and dosage regimens identified in the course of our business. Our success will depend 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 enforceable patents and proprietary rights of third parties. We also rely on
know-how,
continuing technological innovation and
in-licensing
opportunities to develop and maintain our proprietary position. We seek to obtain domestic and international patent protection, and endeavor to promptly file patent applications for new
commercially valuable inventions.
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal,
scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope can be reinterpreted by the courts after issuance. Moreover,
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many jurisdictions permit third parties to challenge issued patents in administrative proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict
whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors.
Because patent applications in the United States and certain other jurisdictions are maintained in secrecy for 18 months or potentially even longer, and since
publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference
proceedings or derivation proceedings declared by the U.S. Patent and Trademark Office, or the USPTO, to determine priority of invention.
Patents
As of March 1, 2017, our patent portfolio included four patents issued in the United States; patents issued in foreign jurisdictions; patent
applications pending in the United States; and patent applications pending in various foreign jurisdictions. These patents and patent applications include narrow and broad claims directed to polypeptide compositions including octreotide compositions
formulated with our TPE technology; capsules containing such compositions; methods of treatment using such compositions; and methods of making various compositions with our TPE technology.
One patent family that we own includes three issued U.S. patents and one pending patent application with claims directed to enteric-coated oral dosage form
comprising octreotide compositions, capsules containing octreotide compositions, and methods of treating various conditions with related octreotide compositions. Other patents in this family have issued in Australia, Hong Kong, Japan, Mexico, New
Zealand, Russia, South Africa, and the United Kingdom, and patent applications are pending in other jurisdictions, including Brazil, Canada, China, Europe, Israel and Korea, Mexico, Russia, Australia, and Japan. Patents in this family are expected
to expire in 2029, absent any adjustments or extensions. This patent family also includes a 4
th
issued U.S. patent with claims relating to enteric-coated oral dosage form comprising polypeptide
compositions.
We also own two Patent Cooperation Treaty, or PCT, patent applications with claims directed to further uses of octreotide. Patents issuing
from any U.S. nonprovisional and foreign-filed patent applications claiming priority to these applications are expected to expire in 2035 for one PCT application and 2037 for the other PCT application, absent any adjustments or extensions.
We also own a PCT patent application directed to a dosage regimen for octreotide and also directed to methods of treating acromegaly with certain
octreotide-containing compositions and dosage regimens. Patents issuing from any U.S. nonprovisional and foreign-filed applications claiming priority to this application are expected to expire in 2036, absent any adjustments or extensions.
Additionally, we own two patent applications directed to proprietary packaging for distribution of octreotide capsules. One of these is a PCT patent
application, which has been allowed in the US (Notice of Allowance received) and is expected to expire in 2035, absent any adjustments or extensions. The other patent application is a U.S. design patent application, which has been granted in the US
and several other jurisdictions and is expected to expire in the US in 2031.
Finally, we own one pending U.S. provisional patent application directed to
further uses of our TPE technology.
Patent Term
The
base term of a U.S. utility patent is 20 years from the filing date of the earliest-filed
non-provisional
patent application from which the patent claims priority. The base term of a U.S. design patent is
15 years from issuance once the Patent Law Treaties Implementation Act of 2012 takes effect on May 13, 2015. The term of a U.S.
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patent can be lengthened by patent term adjustment, which compensates the owner of the patent for administrative delays at the USPTO. In some cases, the term of a U.S. patent is shortened by
terminal disclaimer that reduces its term to that of an earlier-expiring patent.
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 our product candidate, octreotide capsules. 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.
United States 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 U.S. 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 or 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.
Octreotide capsules must be approved by the FDA through the NDA process before it 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, or preclinical, laboratory tests, 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 study 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;
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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 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 are generated in two distinct development stages: nonclinical and clinical.
For new chemical entities, the nonclinical 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 nonclinical tests must comply with federal regulations and
requirements including GLPs. The sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or published 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 studies. 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
trial to be suspended or terminated.
The clinical stage of development involves the administration of the drug candidate to healthy volunteers and/or
patients under the supervision of qualified investigators, generally physicians not employed by or under the 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 rights of 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 completion. 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, known as Phase 1, Phase 2 and Phase 3 clinical trials, and may overlap. Phase 1 generally
involves 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 studies is to assess the metabolism, pharmacological action, side effect
tolerability and safety of the drug. Phase 2 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 trials generally involve large numbers of patients at multiple sites, and are designed to provide the
data necessary to demonstrate the effectiveness 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 product approval. Phase 3 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.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing
approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of Phase 4 trials.
Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA, and written IND safety
reports must be submitted to the FDA and the investigators for
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serious and unexpected adverse events, findings from other studies or animal or
in vitro
testing that suggest a significant risk to humans exposed to the drug 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 or
the clinical trial 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 trial may move forward at
designated check points based on access to certain data from the study. The clinical trial sponsor 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, 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.
NDA and FDA Review Process
Following trial completion, trial data are analyzed to assess safety and efficacy. The results of nonclinical studies and clinical trials are then submitted to
the FDA in 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, purity, potency and efficacy, which is demonstrated by extensive nonclinical and clinical testing. The application includes both
negative or ambiguous results of nonclinical studies and clinical trials as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness 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 effectiveness 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 marketing a drug 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
effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for
submission of data or full or partial waivers. An NDA applicant must submit to the FDA a pediatric study plan typically 60 days after an
end-of-Phase
2 meeting with the
agency. Because octreotide capsules received orphan drug designation for the treatment of acromegaly, we do not need to comply with the requirements of PREA at this time. If, however, we seek other indications for octreotide capsules or pursue
approval of any other product candidate that does not have orphan drug designation, we may need to comply with PREA or otherwise seek a waiver.
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. The decision to accept the NDA for filing means that the FDA has made a threshold determination that the application is sufficiently
complete to permit a substantive review. Under the goals and policies agreed to by the
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FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has ten months from the receipt of an NDA for a
non-new
molecular entity in which to
complete its initial review of a standard NDA and respond to the applicant. The FDA does not always meet its PDUFA goal dates for standard 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 cGMPs 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. 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 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 will not be approved in its present form. 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, nonclinical 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, withdraw
the application or request a hearing. Even if such data and information are 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 requirements or if problems occur following initial marketing.
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505(b)(2) Approval Process
Section 505(b)(2) of the FDCA provides an alternate regulatory pathway for the FDA to approve a new drug and permits reliance for such approval on
published literature or an FDA finding of safety and effectiveness for a previously approved drug product. Specifically, section 505(b)(2) permits the filing of an NDA where one or more of the investigations relied upon by the applicant for approval
were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon published literature and/or the FDAs findings of safety and effectiveness for a previously approved drug.
Typically, 505(b)(2) applicants must perform additional trials to support the change from the previously approved drug and to further demonstrate the new drugs safety and effectiveness. The FDA may then approve the new product candidate for
all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the section 505(b)(2) applicant.
Our product candidate, octreotide capsules, is based upon an already approved version of the same drug in an immediate-release formulation for subcutaneous
injection, rather than a new chemical entity product candidate. Accordingly, we expect to be able to rely on information from previously conducted studies involving the immediate-release subcutaneous octreotide product in our clinical development
plans and our NDA resubmission, if resubmitted.
Post-Marketing Requirements
Following approval of a new product, a pharmaceutical 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 events with the product, providing the regulatory authorities with updated safety and efficacy information, and product sampling and
distribution requirements in accordance with the Prescription Drug Marketing Act, a part of the FDCA. 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 and advertising, including
direct-to-consumer
advertising. Prescription drug
promotional materials must be submitted to the FDA in conjunction with their first use. In addition, a pharmaceutical company must comply with 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.
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 cGMPs. We rely on third parties for the production of clinical quantities of octreotide capsules and expect to rely on third parties for the production of
commercial quantities of our octreotide capsules, in both cases 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 cGMPs 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
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inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMPs, 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, recall or withdrawal of the product from the market.
The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and
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 and impact approved products already on the market.
Other Regulatory Matters
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, seizure of products, total
or partial suspension of production, denial or withdrawal of product approvals, exclusion from federal healthcare programs, 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 effectiveness 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.
Orphan Designation and Exclusivity
The FDA may grant
orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals in the United States. Alternatively, orphan drug designation may be available if the disease or the condition affects more
than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States.
Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages, and
user-fee
waivers. In addition, if a product is the first to receive FDA approval of the indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not
approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.
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U.S. Marketing Exclusivity
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDA 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 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. 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 nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness. Orphan drug exclusivity, as described above, may offer a
seven-year period of marketing exclusivity, except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, adds six months of exclusivity, which runs from the end
of other exclusivity protection and patent term, and may be granted based on the voluntary completion of a pediatric trial in accordance with an
FDA-issued
Written Request for such a trial.
Other Regulations
We are also subject to numerous
federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection and fire hazard control. We may incur significant costs to comply with such laws and regulations now or in the
future.
European Orphan Designation and Exclusivity
In the European Union, the European Commission, after reviewing the opinion of the EMAs Committee for Orphan Medicinal Products, or COMP, grants orphan
drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions that affect not more than five in 10,000 persons in the European Union
Community, or when, without incentives, it is unlikely that sales of such products in the European Union would be sufficient to justify the necessary investment in developing the products. Additionally, orphan drug designation is only available
where no satisfactory method of diagnosis, prevention, or treatment of the condition has been authorized (or the product would be a significant benefit to those affected).
In the European Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and 10 years of market
exclusivity is granted following medicinal product approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity. Market exclusivity would not prevent the approval of a similar drug that is shown to be safer, more effective or otherwise clinically superior.
Orphan drug designation must be requested before submitting an application for marketing approval. Orphan drug designation does not convey any advantage in,
or shorten the duration of, the regulatory review and approval process.
Coverage and Reimbursement
Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate
reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their
conditions, and their prescribing physicians,
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generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and
reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, if approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of
the cost of our products.
The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the
process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list,
also known as a formulary, which might not include all of the
FDA-approved
drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician
utilization of our products once approved. Moreover, a third-party payors decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved or that any required patient cost-sharing amount will
be acceptable to the patient. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and
reimbursement for drug products can differ significantly from payor to payor and among the insured lives of an individual payor depending upon the benefits applicable to the insured person. One third-party payors decision to cover a particular
drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to
provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.
The containment of
healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services,
examining the medical necessity and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to
other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.
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 Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health develop research plans and periodically report on the status of the research and related expenditures to
Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for governmental 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 study. It is also possible that comparative effectiveness research demonstrating benefits in a competitors product could adversely affect the
sales of our product candidates, if and once approved.
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, if approved. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
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Anti-Kickback and False Claims Laws and Other Regulatory Matters
In the United States, among other things, the research, manufacturing, distribution, sale and promotion of drug products are potentially subject to regulation
and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office
of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state attorneys general
and other state and local government agencies. Our current and future business activities, including for example, sales, marketing and scientific/educational grant programs must comply with healthcare regulatory laws, including the Federal
Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy regulations promulgated under the Health Insurance Portability and Accountability Act, or HIPAA, as amended, physician payment transparency laws, and similar state laws.
Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. 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. All of these activities are also potentially subject to federal and state consumer protection and unfair
competition laws.
The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its
behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of,
any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. The term remuneration has been broadly interpreted to include anything of value.
The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and
regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or
recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se
illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a
case-by-case
basis based on a cumulative review of all
of its facts and circumstances. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or
collectively the ACA, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a
claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in
prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions
apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for
additional legal or regulatory change in this area, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with endocrinologists and other healthcare providers might be
challenged under anti-kickback laws, which could harm us.
The Federal False Claims Act prohibits anyone from, among other things, knowingly presenting,
or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent. This statute has been interpreted to prohibit presenting claims for
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items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under
these laws if they are deemed to cause the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product
off-label.
In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and
other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the
Federal False Claims Act in connection with their
off-label
promotion of drugs. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory
civil penalties of between $10,781 and $21,563 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the Federal False Claims Act is a civil statute, conduct that results in a
False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline
in our stock price. In addition, private individuals have the ability to bring actions under the Federal False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.
Similarly, the civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or
caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Additionally, HIPAA created federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with
the delivery of or payment for healthcare benefits, items or services.
The ACA included a provision commonly referred to as the Sunshine Act, which
requires certain pharmaceutical manufacturers to track and report annually certain financial arrangements with physicians and teaching hospitals, including any transfer of value provided, as well as any ownership or investment interests
held by physicians and their immediate family members. Covered manufacturers are required to submit reports to CMS by the 90th day of each subsequent calendar year. The information reported is publicly available and searchable on the CMS website.
There are also an increasing number of state and foreign laws that require manufacturers to make reports to states or foreign governments on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply
with the laws. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, federal or foreign authorities. These laws may affect
our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us. We are engaging in significant efforts to establish systems and processes in order to comply with these laws and regulations. Failure to
comply with the reporting requirements would result in significant civil monetary penalties.
In addition, we may be subject to data privacy and security
regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations,
including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes certain of
HIPAAs privacy and security standards directly applicable to business associates, defined as an entity that performs certain functions that create, receive, maintain or transmit protected health information in connection with providing a
service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal
HIPAA laws and seek attorneys fees and costs associated with pursuing federal civil actions.
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In addition to HIPAA and HITECH, other federal and state laws, including state security breach notification laws,
state health information privacy laws and federal and state consumer protection laws, govern the collection, use and disclosure of personal information. Many state laws that govern the privacy and security of health information in certain
circumstances differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Various foreign countries also have, or are developing, laws governing the collection, use and transmission of personal
information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business.
The failure to comply with applicable regulatory requirements subjects us to possible legal or regulatory action. Depending on the circumstances, failure to
meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, injunctions,
recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, contractual damages, reputational harm,
administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Even if we are not
determined to have violated applicable regulatory or legal requirements, government investigations into alleged violations typically requires the expenditure of significant resources and could generate negative publicity, which could harm our
business.
Affordable Care Act and Other Reform Initiatives
In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and
proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.
In March 2010, the ACA, was enacted. The ACA includes measures that have significantly changed, and are expected to continue to significantly change, the way
healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical industry are the following:
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The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services in exchange for state
Medicaid coverage of most of the manufacturers drugs. ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers rebate liability by raising the minimum basic Medicaid rebate on most
branded prescription drugs and biologic products to 23.1% of average manufacturer price, or AMP, and adding a new rebate calculation for line extensions (i.e., new formulations, such as extended release formulations) of solid oral dosage
forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.
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The ACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of childrens hospitals, these newly eligible entities will not be eligible to receive discounted
340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the
required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage
gap (i.e., donut hole).
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The ACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic products, apportioned among these entities according to their market share in
certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications.
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The ACA included the Sunshine Act, which required certain pharmaceutical manufacturers to track and annually report to CMS certain financial arrangements with physicians and teaching hospitals, including any
transfer of value provided, as well as any ownership or investment interests held by physicians and their immediate family members.
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The ACA established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research
conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.
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The ACA created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for
prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.
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The ACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug
spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.
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Some of the
provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is
widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and
responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare
providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed. Thus, the full impact of the ACA, or any law replacing elements
of it, on our business remains unclear. Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending
reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the
legislations automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024
unless additional congressional action is taken. In January 2013, former President Barack Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including
hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other
government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
European Union Drug Development
In the European
Union, octreotide capsules and any future product candidates we may develop will also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if marketing authorizations from the competent
regulatory agencies have been obtained.
Similar to the United States, the various phases of nonclinical 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 EU clinical trials regulatory framework, setting out common rules for the control and authorization of clinical trials in
the EU, the EU Member States have transposed and applied the provisions of the
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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 EU
countries where the 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.
On April 16, 2014, the
European Commission adopted new clinical trials legislation in an effort to ensure that the rules for conducting clinical trials in the EU will be identical. The new legislation, among other things, will implement a streamlined application procedure
with a single entry point for review, harmonize the process for assessing applications for clinical trials, simplify reporting procedures, and increase transparency regarding clinical trials and their outcomes. The legislation, however, is not
expected to apply until October 2018, at the earliest. Until then, the current law, Clinical Trials Directive 2001/20/EC, continues to govern all clinical trials performed in the EU.
European Union Drug Review and Approval
In the
European Economic Area, or EEA, which is comprised of the 8 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 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, such as octreotide capsules, 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 EU.
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.
The approval process and requirements governing the conduct of clinical trials, drug review and approval, product licensing, pricing and reimbursement vary
greatly from place to place, and the time in the EEA and other foreign territories may be longer or shorter than that required for FDA approval.
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Employees
As of March 1, 2017, we had 17 full-time employees, the majority of whom are located in the United States and the remainder are located in Israel. While
none of our employees are represented by a labor union or party to any collective bargaining agreement certain provisions of the collective bargaining agreements between the Histadrut (General Federation of Labor in Israel) and the Coordination
Bureau of Economic Organizations (including the Industrialists Associations) are applicable to our employees by extension orders issued by the Israel Ministry of Economy (previously the Israeli Ministry of Trade, Industry and Labor).
Israeli labor laws principally govern the length of the workday, minimum wages for employees, procedures for hiring and dismissing employees, determination of
severance pay, annual leave, sick days, advance notice of termination of employment, equal opportunity and anti-discrimination laws and other conditions of employment. Subject to certain exceptions, Israeli law generally requires severance pay upon
the retirement, death or dismissal of an employee, and requires us and our employees to make payments to the National Insurance Institute, which is similar to the U.S. Social Security Administration. Our Israeli employees have defined-benefit
pension plans that comply with applicable Israeli legal requirements, which also include the mandatory pension payments required by applicable law and allocations for severance pay.
Although we experienced two separate reductions in force in 2016 aggregating greater than 60% of our workforce following our receipt of the CRL, we have never
experienced any employment-related work stoppages and believe our relationship with our remaining employees is good.
Research and Development
During the year ended December 31, 2016, our total research and development expenses was $31.3 million compared to $19.0 million and
$11.5 million in the year ended December 31, 2015 and 2014, respectively. The increases in 2016 were primarily due to approximately $7.4 million of API purchases during 2016, our ongoing Phase 3 clinical trial of octreotide capsules
for the treatment of acromegaly to support the submission of a MAA to the EMA, activities associated with the manufacturing process validation, and an increase in compensation-related expenses due to the hiring of research and development employees.
The increases in 2015 as compared to 2014 were primarily due to expenses related to the filing of an NDA for octreotide capsules in acromegaly in the United States, activities associated with the manufacturing process validation, recently initiated
Phase 3 clinical trial of octreotide capsules for the treatment of acromegaly in Europe and an increase in compensation-related expenses due to the hiring of research and development employees.
Corporate Information
We were incorporated under the
laws of the State of Delaware and commenced business operations in 2001. Our principal executive offices are located at 275 Wyman Street, Suite 250, Waltham, MA 02451 and our telephone number is
(617)-928-5300.
Our website address is www.chiasmapharma.com. Through our website, we make available, free of charge, our annual report on Form
10-K,
quarterly reports
on Form
10-Q,
proxy statement on Form DEF 14A, current reports on Form
8-K,
and any amendments to these reports, as soon as reasonably practicable after we
electronically file such material or furnish them to the Securities and Exchange Commission, or the SEC. In addition, the public may read and copy any materials filed by us with the SEC at the SECs Reference Room, which is located at 100 F
Street NE, Washington, D.C., 20549. Interested parties may call
(800) SEC-0330
for further information on the Reference Room. The SEC also maintains a website containing reports, proxy materials and
information statements, among other information, at
http://www.sec.gov
.
The information contained on our website, or that can be accessed through our website, is not a part of this annual report on Form
10-K
and is not incorporated by reference into this Form
10-K.
We own various
U.S. federal trademark registrations and applications, and unregistered trademarks and service marks, including Chiasma, TPE, MYCAPSSA, and our corporate logo. All trademarks or trade names referred to in this
Form
10-K
are the property of their respective owners. Solely for convenience, the trademarks
33
and trade names in this Form
10-K
may be referred to without the
®
and
symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not
intend our use or display other companies trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
34
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
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 statements included in the section titled Managements Discussion and Analysis of Financial Condition and Results of
Operations and elsewhere in this 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 the Development and Potential Regulatory Approval and Commercialization of Octreotide Capsules and any Future Product Candidates
In light of our receipt of a CRL from the FDA regarding our NDA for octreotide capsules for the maintenance treatment of U.S. adult patients with
acromegaly and our subsequent participation in an End of Review Meeting with the FDA, the U.S. regulatory pathway for octreotide capsules is uncertain and we may never obtain regulatory approval in the United States.
In June 2015, we submitted an NDA to the FDA for the marketing and sale of octreotide capsules for the maintenance therapy of adult patients with acromegaly.
The NDA was accepted for filing by the FDA in August 2015. On the Prescription Drug User Fee Act, or PDUFA, date of April 15, 2016, the FDA issued a CRL regarding the NDA, indicating that their review was complete and the NDA was not ready for
approval in its present form. In its CRL, the FDA advised us that it did not believe our application provided substantial evidence of efficacy to warrant approval, and advised us that we would need to conduct another clinical trial in order to
overcome this deficiency. The FDA expressed concerns regarding certain aspects of our
single-arm,
open-label Phase 3 clinical trial and strongly recommended that we conduct a randomized, double-blind and
controlled trial that enrolls patients from the United States and is of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment. In addition, the FDA advised
that, during a site inspection, certain deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval. In addition, while the FDA did not note any safety concerns related to octreotide
capsules in the CRL, it subsequently indicated in the End of Review meeting minutes that the size, duration, dropout rate and absence of a control group in our Phase 3 clinical trial were factors limiting an overall safety assessment.
In June 2016, we participated in an End of Review meeting with the FDA to discuss the concerns the FDA raised in the CRL and are in receipt of the minutes of
that meeting. In the End of Review meeting minutes, the FDA reiterated its strong recommendation for a randomized, double-blind and controlled trial, and introduced the concept of a placebo control as a design element that could address some of the
FDAs concerns. While we acknowledge this feedback, we continue to work with the FDA to evaluate potential paths forward, including a determination as to whether we can produce data sufficient to satisfy the FDA of the efficacy and safety of
octreotide capsules in adult patients with acromegaly. The FDA stated that it considers pathways alternative to its recommendations to be less ideal and ultimately more risky to our efforts to secure approval in the U.S. for octreotide capsules in
acromegaly. The FDA strongly recommended that we work with the FDA to reach a common understanding of expectations prior to initiating and executing any alternative plans. We cannot provide any assurance that even if we conduct a new clinical trial
consistent with the strong recommendation of the FDA, or pursue any other alternative development pathway, whether acceptable or unacceptable to FDA, we will receive U.S. regulatory approval of octreotide capsules for acromegaly.
Varying interpretations of the data obtained from nonclinical and clinical testing or manufacturing of our product candidates could delay, limit or prevent
regulatory approval of octreotide capsules or other product candidates we may develop in the future. Of note, in July 2014, F.
Hoffmann-La
Roche Ltd. and
Hoffmann-La
Roche Inc.,
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collectively Roche, elected to terminate our license agreement for octreotide capsules after reviewing the data from the seven-month core treatment period of our Phase 3 clinical trial of
octreotide capsules and after a May 2014
pre-NDA
meeting with the FDA. Roche cited no reason for its decision in its formal notice of termination, but stated publicly at the time that it had elected to make
this decision after receiving additional information about our Phase 3 clinical trial and after further consultation with regulatory authorities. Subsequent to this decision, we independently met with the FDA to discuss the clinical development of
octreotide capsules, including the Phase 3 clinical results from the
six-month
extension phase of the clinical trial (in addition to the seven-month core data provided by Roche in May 2014). At this meeting,
the FDA advised us that it had not identified an issue that would preclude us from submitting an NDA for review. However, the FDA also advised us that interpreting efficacy from a voluntary long-term extension study is subject to limitations and
therefore the data at the seven-month time point in our Phase 3 clinical trial would carry more weight in the efficacy evaluation than the extension data. The FDA also informed us that, in its view, a
single-arm
study was not as informative as a controlled study such as an active control trial using a
non-inferiority
design, and that the interpretability of the
efficacy findings we submitted in our NDA from our
single-arm
study, and whether these findings would be robust enough to warrant approval, would be review issues as the agency evaluated our NDA.
If our efforts to address the concerns raised by the FDA are unsuccessful, we may be unable to obtain U.S. regulatory approval for the marketing and sale of
octreotide capsules at all or without submitting new or additional clinical data to the FDA, which may require that we conduct one or more additional clinical trials. The FDA strongly recommended that we conduct a randomized, double-blind and
controlled trial that enrolls patients from the United States and is of sufficiently long duration to ensure that control of disease activity is stable at the time point selected for the primary efficacy assessment. In addition, in the minutes from
our End of Review meeting, the FDA introduced the concept of a placebo control as a design element that could address some of the FDAs concerns. Conducting one or more additional clinical trials would significantly delay our ability to secure
regulatory approval, if we are able to obtain approval at all, and introduce new risks and uncertainties depending on the trial design and timing of any trials conducted. Conducting a randomized, double-blind and controlled trial, perhaps with a
placebo control, in this indication, as strongly recommended by the FDA, would be particularly challenging. For example, it may be difficult to identify patients with acromegaly willing to enroll in a trial with this design, the trial could take
years to complete, and the FDAs review of the data would also likely consume significant time. We cannot presently estimate how long this process could take, but it could be several years. We may not have sufficient capital resources to fully
fund any new trials that the FDA requires as a condition to approval, in particular a randomized, double-blind and controlled trial of sufficiently long duration.
The U.S. regulatory pathway is highly uncertain at this time, and we may never reach a common understanding with the FDA on a path forward to develop or
potentially obtain regulatory approval of octreotide capsules in the United States. If that were to occur, it would have a material adverse effect on our operations and financial condition and likely raise substantial doubt about our continued
viability as a business.
We are heavily dependent on the regulatory approval and subsequent commercial success of octreotide capsules for the
treatment of acromegaly in the United States and Europe, both of which may never occur.
We are a clinical-stage biopharmaceutical company with no
products approved by regulatory authorities or available for commercial sale. As a result, our potential to generate future revenues is currently dependent upon our ability to obtain regulatory approval and achieve commercial success of octreotide
capsules for the treatment of acromegaly in the United States, Europe and other countries. Our receipt of a CRL from the FDA to our NDA for octreotide capsules has resulted and will continue to result in a significant delay in our ability to
commercialize octreotide capsules in the United States, if we are ever able to obtain U.S. regulatory approval at all.
Even if we receive regulatory
approval, the timing of the commercial launch of octreotide capsules in the United States is dependent upon a number of factors, including, but not limited to, hiring and retaining sales and marketing personnel (especially since we terminated
substantially all of our commercial personnel in June 2016),
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pricing and reimbursement timelines, the production of sufficient quantities of commercial drug product (especially since we indefinitely suspended all of our commercial manufacturing commitments
during the second quarter of 2016) and implementation of a distribution infrastructure. In addition, the FDA may introduce significant restrictions to the label for octreotide capsules, if approved, in an effort to address the concerns it raised in
the CRL and the End of Review meeting. Any such restrictions or concerns about efficacy within the medical community could significantly impact market adoption and commercial performance of octreotide capsules, even if we are able obtain regulatory
approval to commercialize in the United States in the future.
In addition, we have incurred and expect to continue to incur significant expenses and to
utilize virtually all of our efforts and financial resources as we continue to pursue the approval of octreotide capsules in the United States and Europe. The success of octreotide capsules, if approved, will depend on several factors, including:
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execution of an effective sales and marketing strategy for the commercialization of octreotide capsules;
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acceptance by patients, the medical community and third-party payors;
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the incidence and prevalence of acromegaly in those markets in which octreotide capsules is approved;
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the prevalence and severity of side effects, if any, experienced with octreotide capsules;
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the availability, perceived advantages, cost, safety and efficacy of alternative treatments;
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our success in educating physicians and patients about the benefits, administration and use of octreotide capsules;
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successful implementation of our manufacturing processes and production of sufficient quantities of commercial drug product;
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maintaining compliance with regulatory requirements, including current good manufacturing practices, or cGMPs, and taking other measures satisfactory to the FDA; and
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obtaining and maintaining patent, trademark and trade secret protection and regulatory exclusivity and otherwise protecting our rights in our intellectual property portfolio.
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We may also fail to develop future product candidates, especially since we terminated our research personnel in connection with the August 2016 restructuring
plan. As a result, we continue to be dependent on the regulatory approval and successful commercialization of octreotide capsules, our development costs may increase and our ability to generate revenue or profits, or to raise additional capital
could be impaired, all of which could result in further declines to our market value and stock price.
If we are not able to obtain required
regulatory approvals for octreotide capsules, we will not be able to commercialize this product candidate and our ability to generate revenue or profits, raise future capital, or continue as a standalone business could be materially impaired.
In June 2015, we submitted an NDA to the FDA, for octreotide capsules for the maintenance therapy of acromegaly, which was accepted for filing to
permit a substantive review. The FDA issued a CRL regarding our NDA on our PDUFA date of April 15, 2016, indicating that the NDA was not able to be approved during this review cycle and strongly recommending that we conduct a randomized,
double-blinded, controlled trial. In the End of Review meeting, the FDA reiterated its strong recommendation for a randomized, double-blind and controlled trial.
In October 2015, the European Medicines Agency, or EMA, accepted the design, enrollment criteria and required duration of our Phase 3 trial to evaluate the
non-inferiority
of octreotide capsules to injectable somatostatin analogs in adult patients with acromegaly. This clinical trial, which was initiated in March 2016, is an open-label, randomized, active-controlled
study that is currently anticipated to include up to 150 patients in the European Union, the United States and certain other countries. This clinical trial is currently designed to show comparative
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effectiveness as required by the EMA, to support MAA submission and approval. The FDA has advised us that positive data from this ongoing clinical trial, if obtained, will not be sufficient to
address the concerns identified by the FDA in the CRL. The FDA may never approve an octreotide capsules NDA, if resubmitted, our ongoing Phase 3 clinical trial may not be successful, or acceptable to the EMA to support regulatory approval in Europe,
the CRL could adversely impact the EMAs review of our regulatory submission, and therefore we may never receive approval to market octreotide capsules in the United States, Europe or elsewhere.
The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, export, import and distribution of
drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and these regulations differ from country to country and change over time. We are not permitted to market
octreotide capsules in the United States until we receive approval of an NDA from the FDA, or in any foreign countries until we receive the requisite approvals in such countries. In the United States, the FDA generally requires the completion of
nonclinical testing and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality and other factors before an NDA is approved. Regulatory authorities in other jurisdictions
impose similar requirements and may impose pricing restrictions. Of the large number of drugs in development, only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization.
Other than the June 2015 submission of our NDA for octreotide capsules in acromegaly to the FDA, we have not yet submitted comparable applications to other
regulatory authorities. If our development efforts for octreotide capsules, including our ability to obtain regulatory approval, are not successful for the acromegaly indication or are delayed, or if adequate demand for octreotide capsules is not
generated, our business and ability to generate revenues will be materially harmed. Failure to obtain regulatory marketing approval of octreotide capsules in acromegaly will prevent us from commercializing the product candidate, which could raise
significant concerns about our continued viability as a business.
The success of octreotide capsules will depend on the receipt of regulatory approval,
and the issuance of such approvals is uncertain and subject to a number of risks, including the following:
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the FDA or comparable foreign regulatory authorities, institutional review boards, or IRBs, or ethics committees may disagree with the design or conduct of our clinical trials;
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we may not be able to provide acceptable evidence of octreotide capsules safety and efficacy;
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA, the EMA or other regulatory agencies for marketing approval;
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the dosing of octreotide capsules in a particular clinical trial may not be at an optimal level;
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patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to octreotide capsules;
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the data collected from our clinical trials may not be sufficient to obtain regulatory approval in the United States or elsewhere;
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the FDA or comparable foreign regulatory authorities may identify deficiencies with the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies, one
of which was identified by the FDA in its CRL, or may later suspend or withdraw approval of our products;
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval; and
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even if we obtain marketing approval in one or more countries, future safety or other issues could result in the suspension or withdrawal of regulatory approval in such countries.
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In particular, we cannot guarantee that regulators will agree with our assessment of the results of the clinical trials we have conducted to date, as was the
case with the FDAs review of our completed Phase 3 clinical trial
38
contained in the NDA, or that any future trials will be successful. The FDA, EMA and other regulators have substantial discretion in the approval process and may refuse to accept any application
or may decide that our data are insufficient for approval and require additional clinical trials, or nonclinical or other studies, as the FDA strongly recommended in the CRL.
We have only limited experience in filing the applications necessary to gain regulatory approvals and have relied before and expect to continue to rely on
consultants and third-party contract research organizations, or CROs, with expertise in this area to assist us in this process. Securing FDA approval requires the submission of extensive nonclinical and clinical data, information about product
manufacturing processes and inspection of facilities and supporting information to the FDA for each therapeutic indication to establish a product candidates safety and efficacy for each indication and manufacturing quality. Octreotide capsules
or any future product candidates we may develop may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use with respect to one
or all intended indications.
The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can
vary substantially based upon, among other things, the type, complexity and novelty of the product candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities. Changes in
the regulatory approval policy during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an
application or may result in future withdrawal of approval. Regulatory approval obtained in one jurisdiction does not necessarily mean that a product candidate will receive regulatory approval in all jurisdictions in which we may seek approval, but
the failure to obtain approval in one jurisdiction may negatively impact our ability to seek approval in a different jurisdiction.
Our development,
regulatory and commercialization strategy for octreotide capsules depends, in part, on published scientific literature and the FDAs prior findings regarding the safety and efficacy of approved products containing octreotide.
The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and
Cosmetic Act, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the
applicant has not obtained a right of reference or use from the person or entity by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) to permit the applicant to rely, in part, upon published literature or the
FDAs previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any difference from the previously approved product. The FDA may then
approve the new product candidate for all or some of the label indications for which the listed drug has been approved, as well as for any new indication(s) sought by the Section 505(b)(2) applicant as supported by additional data. The label,
however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed drugs label, including a black box warning, or may require additional limitations, contraindications, warnings or
precautions.
We have designed our nonclinical and clinical programs to seek regulatory approval for octreotide capsules for registration filing in the
United States using the FDAs 505(b)(2) regulatory pathway and using the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. As such, our NDA in the United States relied, and we intend that our
marketing authorization application, or MAA, in Europe will rely, in part, on previous findings of safety and efficacy for an approved immediate-release injectable octreotide product and published scientific literature for which we have not received
a right of reference. Even though we designed our development programs to take advantage of Section 505(b)(2) and the hybrid application pathway to support potential regulatory approval of octreotide capsules in the United States and Europe,
the relevant regulatory authorities may require us to perform additional clinical trials or measurements to support approval
39
over and above the clinical trials that we have already completed or initiated, such as the randomized, double-blind and controlled clinical trial strongly recommended by the FDA in the CRL and
End of Review meeting. The relevant regulatory authorities also may determine that we have not provided sufficient data to justify reliance on prior investigations involving the approved immediate-release injectable octreotide product.
In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), in the past some pharmaceutical companies and others
have objected to the FDAs interpretation of Section 505(b)(2). For example, parties have filed citizen petitions objecting to the FDA approving a Section 505(b)(2) NDA on scientific, legal and regulatory grounds. Scientific arguments
have included the assertions that for the FDA to determine the similarity of the drug in the 505(b)(2) NDA to the listed drug, the agency would need to reference proprietary manufacturing information or trade secrets in the listed drugs NDA;
that it would be scientifically inappropriate for the FDA to rely on public or nonpublic information about the listed drug because it differs in various ways from the drug in the 505(b)(2) NDA; or that differences between the listed drug and the
drug in the 505(b)(2) NDA may impair the latters safety and effectiveness. Legal and regulatory arguments have included the assertion that Section 505(b)(2) NDAs must contain a full report of investigations conducted on the drug
proposed for approval, and that approving a drug through the 505(b)(2) regulatory pathway would lower the approval standards. In addition, citizen petitions have made patent-based challenges against 505(b)(2) NDAs. For example, petitioners
have asserted that the FDA should refuse to file a 505(b)(2) NDA unless it references a specific NDA as the listed drug, because it is most similar to the proposed drug, and provides appropriate patent certification to all patents listed
for that NDA; or that when a 505(b)(2) NDA is pending before the agency, but before it is approved, where the FDA approves an NDA for a drug that is pharmaceutically equivalent to the drug that is the subject of the 505(b)(2) NDA, then the FDA
should require that the 505(b)(2) NDA be resubmitted referencing the approved NDA as the listed drug and certifying to the listed patents for that approved drug. However, if the FDA or EMA changes its interpretation of Section 505(b)(2) or the
hybrid application pathway, or if the FDAs or EMAs interpretation is successfully challenged in court, this could delay or even prevent the FDA or EMA, as applicable, from approving any Section 505(b)(2) NDAs or hybrid application
pathway MAAs that we submit. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of octreotide capsules for the treatment of acromegaly or any
future product candidates we may develop.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, results of
earlier studies and trials may not be predictive of future trial results, and approval in one jurisdiction may not be predictive of approval in other jurisdictions.
We initiated a second Phase 3 clinical trial of octreotide capsules in acromegaly to support approval by the EMA. In the CRL and subsequent End of Review
meeting minutes, the FDA strongly recommended that we conduct a randomized, double-blind and controlled trial, and introduced the concept of a placebo control as a design element that could potentially address some of the FDAs concerns. We
acknowledge FDAs feedback contained in the CRL and in the End of Review meeting minutes, and we continue to evaluate pathways forward, including the possibility of conducting a trial consistent with the FDAs recommendations, to
potentially secure approval in the United States for octreotide capsules. We may also eventually initiate clinical trials of octreotide capsules in indications other than acromegaly, assuming financing is available to us and prior
regulatory approvals of octreotide capsules in acromegaly are obtained.
Clinical testing is expensive and can take many years to complete, and its
outcome is inherently uncertain, and we will continue to be subject to these risks. Failure can occur at any time during the clinical trial process and results of future trials can adversely affect regulatory approvals previously received. The
results of nonclinical studies and prior clinical trials may not be predictive of the results of future clinical trials. For example, the positive results that we believe were generated in our completed clinical trials for octreotide capsules in
acromegaly do not ensure that future clinical trials, including the additional Phase 3 trial required to support EMA approval or other trials required by the FDA, or clinical trials for other indications, will also generate comparable results. For
example, the EMA required that we use multiple time points in the Phase 3 clinical trial
40
that we initiated in March 2016 rather than a single time point for the primary endpoint determination used for our initial Phase 3 clinical trial. The EMA agreed that we use the same cut off of
IGF-1
< 1.3 times the upper limit of normal as the threshold for response. The fact that we have not used such an endpoint previously for regulatory submissions introduces an additional level of uncertainty in
the outcome of this Phase 3 clinical trial, or for other studies using this methodology for assessing the success of our product candidate. We cannot provide assurance that the FDA or EMA will view the results as we do or that any future trials of
octreotide capsules, including our current Phase 3 clinical trial in acromegaly to support regulatory approval in Europe, any additional clinical trials we may conduct to support regulatory approval in the United States, or clinical trials for other
indications, if any, will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical studies and prior clinical trials. A
number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in prior trials.
Despite the results reported in earlier nonclinical studies and clinical trials for octreotide capsules for the treatment of acromegaly, any future clinical
trial results of octreotide capsules may not be successful in acromegaly, or any other indication, if studied. A number of factors could contribute to a lack of favorable safety and efficacy results for octreotide capsules for acromegaly or other
indications. For example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in evaluation period, and due to varying patient characteristics including demographic
factors and health status. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval of octreotide capsules for the treatment of acromegaly or other indications, and any other product candidates we
may develop, may be adversely impacted.
Further, our NDA relied upon the FDAs 505(b)(2) regulatory pathway for octreotide capsules in acromegaly in
the United States and we expect to rely on similar hybrid application pathway for any MAAs that we submit in the EU. There can be no assurance that our clinical trials, or the clinical trials conducted by third parties, will demonstrate sufficient
safety and efficacy for the FDA or EMA to approve octreotide capsules for the treatment of acromegaly or any other indication that may be specified in future NDA or MAA submissions. Even if we do obtain approval from the FDA for octreotide capsules
for the treatment of acromegaly in the United States, we may not be successful in obtaining approval from the EMA or other regulatory authorities, or vice versa.
Any negative clinical results from, termination or suspension of, or delays in the commencement or completion of any ongoing or future trials of
octreotide capsules for the treatment of acromegaly or for any additional indications, in the United States or other countries, or future clinical trials of product candidates we may develop could result in increased costs to us, delay or limit our
ability to generate revenue, negatively impact our commercial prospects, cause our market value and stock price to fall and jeopardize our viability as a business.
Delays in the completion of the Phase 3 clinical trial we initiated in March 2016 to support marketing approval of octreotide capsules in acromegaly in Europe,
any future clinical trials we may conduct to support regulatory approval of octreotide capsules in the United States, the clinical trials of octreotide capsules for other indications, if conducted, or any future clinical trials we may conduct for
other product candidates we may develop, or negative findings in those trials, could significantly affect our product development costs or our ability to commercialize octreotide capsules. For example, in October 2015, the EMA required us to revise
our protocol for our MPOWERED Phase 3 clinical trial to extend the control period from six months to nine months. The final protocol accepted by EMA therefore resulted in additional time to complete our second Phase 3 clinical trial of octreotide
capsules. While we initiated this international Phase 3 clinical trial of octreotide capsules in acromegaly in March 2016 to show parallel comparative safety and effectiveness as required by the EMA, we do not know whether future trials will begin
or whether the EMA Phase 3 trial will be completed on schedule, if at all, or will be successful. In light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules in acromegaly and following the FDAs position
that the MPOWERED clinical trial will not
41
be sufficient to address the concerns in the CRL, we recently modified certain elements of the MPOWERED trial study in an effort to preserve patients, sites and other resources necessary to
potentially conduct an additional Phase 3 trial addressing the FDAs concerns and produce data packages that could be suitable for submission in both the United States and the European Union. Certain adjustments to the MPOWERED
study will likely delay the expected timing of an MAA filing with the EMA, which we previously estimated to occur in 2019. The completion of the EMA Phase 3 trial or other clinical trials that may be conducted can be delayed for a number of
other reasons, including delays related to:
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the FDA, the EMA or any other relevant regulatory authority failing to grant permission to proceed and placing the clinical trial on hold;
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patient enrollment and variability in the number and types of patients available for clinical trials, which is particularly challenging for orphan indications;
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a facility manufacturing octreotide acetate or octreotide capsules or any other product candidate we may develop being found deficient in its processes, as the FDA noted in its CRL to our NDA, or ordered by the FDA, EMA
or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or cross-contaminations of product candidates in the manufacturing process;
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any changes to our manufacturing process that may be necessary or desired;
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patients choosing an alternative treatment for acromegaly or any of the indications for which we may develop octreotide capsules or potential product candidates, or participating in competing clinical trials;
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difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
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patients experiencing drug-related adverse effects;
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reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns;
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third-party clinical investigators losing their licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or employing methods that are inconsistent
with the clinical trial protocol, good clinical practice, or GCP, requirements, or other third parties not performing data collection and analysis in a timely or accurate manner;
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inspections of clinical trial sites by the FDA, EMA or other regulatory authorities finding regulatory violations that require us to undertake corrective action, result in suspension or termination of one or more sites
or the imposition of a clinical hold on the entire trial, or that prohibit us from using some or all of the data in support of our marketing applications;
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third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a
substitute contractor, and we may not be able to use some or any of the data produced by such contractors in support of our marketing applications;
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one or more IRBs or ethics committees refusing to approve, suspending or terminating the study at an investigational site, precluding enrollment of additional patients, or withdrawing its approval of the trial;
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reaching 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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deviations of the clinical sites from trial protocols or dropping out of a trial;
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delays in adding new clinical trial sites;
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the inability of the CRO to execute any clinical trials for any reason; or
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government or regulatory delays or clinical holds requiring suspension or termination of a trial.
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Product development costs for octreotide capsules in acromegaly or any other future indications we may pursue or
for product candidates we may develop in the future will increase if we have delays in testing or approval, such as the delay in approval of octreotide capsules due to the CRL to our NDA, or if we need to perform more or larger clinical studies than
planned. If we experience delays in the completion of, or if we, the FDA, other regulatory authorities, IRBs or other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials of octreotide capsules for
any indication, its commercial prospects may be harmed and our ability to generate product revenues will be delayed. Any delays in completing our clinical trials will increase our costs, slow down our development and approval process and jeopardize
our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, termination or suspension of, or a
delay in the commencement or completion of, clinical trials may also ultimately lead to the denial or even withdrawal of regulatory approval of octreotide capsules for any indication. In addition, if one or more clinical trials are delayed, our
competitors may be able to bring products to market before we do, and the commercial viability of octreotide capsules could be significantly reduced.
Changes in regulatory requirements and guidance may also occur, and we may need to amend clinical trial protocols submitted to applicable regulatory
authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs or ethics committees for
re-examination,
which may impact the costs, timing or successful completion
of a clinical trial.
The FDAs and other regulatory authorities policies may change, and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of octreotide capsules and any future product candidates we may develop. We cannot predict the likelihood, nature or extent of government regulation that may arise from future
legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would harm our business, prospects, financial condition and results of operations.
If we are required to conduct additional clinical trials or other studies with respect to octreotide capsules or any future product candidates we may develop
beyond those that we may propose to conduct, or if we are unable to successfully complete our clinical trials or other studies, we may be delayed in obtaining regulatory approval of octreotide capsules and any future product candidates we may
develop, we may not be able to obtain regulatory approval at all or we may obtain approval of indications that are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals, and we may
not have sufficient funding to complete the testing and approval process for octreotide capsules or any future product candidates we may develop. Significant clinical trial delays could allow our competitors to bring products to market before we do
and impair our ability to commercialize our products if and when approved. If any of this occurs, our business would be harmed.
We may find it
difficult to enroll patients in our clinical trials, in particular with respect to octreotide capsules and any other product candidates that we may pursue, which could delay or prevent clinical trials of octreotide capsules and any future product
candidates we may develop and potentially harm our business.
Identifying and qualifying patients to participate in clinical trials of octreotide
capsules and any future product candidates we may develop is critical to our success. The timing of our clinical trials depends on the speed at which we can recruit patients to participate in testing octreotide capsules and any future product
candidates we may develop as well as completion of required
follow-up
periods. If patients are unable or unwilling to participate in our clinical trials for any reason, including if patients choose to enroll
in competitive clinical trials for similar patient populations, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of octreotide capsules and any future product candidates we may develop may be delayed. These
delays could result in increased costs, and we may not have sufficient capital on hand or the ability to raise additional
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capital to cover such costs, delays in advancing octreotide capsules or any of future product candidates we may develop, delays in testing the effectiveness of future product candidates, if any,
or termination of the clinical trials altogether.
We may not be able to identify, recruit and enroll a sufficient number of patients, or those with
required or desired characteristics to achieve diversity in a trial, to complete our clinical trials in a timely manner. In particular, the conditions for which we may evaluate octreotide capsules are orphan diseases with limited patient pools from
which to draw for clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available trial participants. For example, while we are enrolling patients in Russia, Europe and other countries, we are not permitted
to enroll patients from our prior clinical trials in our ongoing Phase 3 clinical trial to support MAA submission and approval in the E.U. Further, in light of our ongoing evaluation of potential U.S. development pathways for octreotide capsules in
acromegaly and following the FDAs position that the MPOWERED clinical trial will not be sufficient to address the concerns in the CRL, we have modified certain elements of the MPOWERED trial in an effort to preserve patients, sites and other
resources necessary to potentially conduct an additional Phase 3 trial addressing the FDAs concerns and produce data packages that could be suitable for submission in both the United States and the European Union. Further, the
issuance of the CRL by FDA may negatively impact physician or patient attitudes towards octreotide capsules which could significantly delay enrollment in this study or any future studies. In addition, conducting a randomized, double-blind and
controlled trial in the United States, as strongly recommended by the FDA in the CRL and End of Review meeting minutes, would be particularly challenging as we believe it would be difficult to identify patients with acromegaly willing to enroll in a
trial with this design, and we believe such a trial could take a number of years to complete and submit to FDA for review. If we do initiate a new clinical trial in support of resubmitting our NDA for FDA approval, we will have two active
clinical trials competing for the same or similar pools of patients and enrollment in either trial, or both trials, could be negatively impacted.
Patient
enrollment is affected by factors including the:
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severity of the disease under investigation;
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design of the clinical trial protocol;
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size and nature of the patient population;
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eligibility criteria for the trial in question;
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perceived risks and benefits of the product candidate under trial;
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possibility of receiving placebo rather than active drug in certain controlled trials;
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possibility of being randomized back to current injectable therapies, such as in the MPOWERED study;
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proximity and availability of clinical trial sites for prospective patients;
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availability of competing therapies and clinical trials;
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perceptions of patients and healthcare providers as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are
investigating;
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efforts to facilitate timely enrollment of patients in clinical trials;
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patient referral practices of physicians; and
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ability to monitor patients adequately during and after treatment.
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If we have difficulty enrolling a
sufficient number of patients to conduct our clinical trials, we may be forced to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on our business. We could encounter delays if physicians
encounter unresolved ethical issues associated with enrolling
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patients in clinical trials of octreotide capsules and any future product candidates we may develop in lieu of prescribing existing treatments that have established safety and efficacy profiles.
We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA, the EMA or other regulatory authorities. Our ability to successfully
initiate, enroll and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including the:
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difficulty in establishing or managing relationships with CROs and physicians;
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different requirements and standards for conducting clinical trials;
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inability to locate qualified local consultants, physicians and partners; and
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potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatments.
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Even if we receive regulatory approval of octreotide capsules for acromegaly, we may still face future development and regulatory challenges that could
inhibit or preclude our ability to commercialize octreotide capsules for any indication.
Even if we obtain regulatory approval of octreotide
capsules for the treatment of acromegaly, and other indications we may pursue, or any other product candidates we may develop, they will be subject to ongoing requirements by the FDA and comparable foreign regulatory authorities governing
manufacturing, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. If approved, the
safety profile of octreotide capsules and any future product candidates we may develop will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If new safety information becomes available after
approval of octreotide capsules and any future product candidates we may develop, the FDA or comparable foreign regulatory authorities may require labeling changes or establishment of a Risk Evaluation and Mitigation Strategy, or REMS, or similar
strategy, impose significant restrictions on our product candidates, indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. For example, the label ultimately approved for
octreotide capsules, if it achieves marketing approval, may include restrictions on use, which could limit the marketability of octreotide capsules and impair our ability to have octreotide capsules gain market acceptance. If we do not receive
approval of octreotide capsules for the treatment of acromegaly, there would be significant doubts about our viability as a standalone business.
In
addition, 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 cGMP and other regulations. If we or a regulatory authority
discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, we may recall or withdraw the product from the market or a
regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring suspension of manufacturing. If we, our potential products or the manufacturing facilities for our potential products fail to comply
with applicable regulatory requirements, a regulatory authority may, among other things:
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issue warning letters or untitled letters;
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to applications filed 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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The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize octreotide capsules, if approved, and any future
product candidates we may develop and generate revenue.
We face substantial competition from larger companies with considerable resources that
already have somatostatin analogs available in the market, and they or others may also discover, develop or commercialize additional products before or more successfully than we do.
Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new
technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology and specialty pharmaceutical companies. If approved, we expect octreotide capsules will face competition from established drugs and major
brand names and also generic versions of these products. Key competitive factors affecting the commercial success of octreotide capsules and any other product candidates we may develop are likely to be efficacy, safety and tolerability profile,
reliability, convenience of administration, price and reimbursement and effectiveness of our promotional activities. For example, physicians may choose not to prescribe octreotide capsules, if approved, because a lower percentage of patients met the
criteria for response in our first Phase 3 clinical trial after treatment with octreotide capsules compared to their baseline response rates on injectable therapy. Competition could also force us to lower prices or could result in reduced sales.
The current injectable pharmaceutical treatment options for patients suffering from acromegaly are marketed by large pharmaceutical companies with
substantial resources and well-established presences in the endocrinology market. Novartis AG, or Novartis, markets octreotide LAR, which is administered monthly and intramuscularly using a large-gauge needle. Camarus AB is also developing, in
partnership with Novartis, CAM2029, a product candidate that according to published reports will enter into Phase 3 clinical studies in acromegaly in 2017. Ipsen SA markets lanreotide, another long-acting analog of somatostatin, like octreotide,
which is administered monthly using a deep subcutaneous injection, and is further studying in clinical trials a prolonged release formulation of lanreotide which could be administered, if successful, once every three months. Pfizer, Inc. markets
pegvisomant daily injections and Novartis also markets pasireotide LAR, which is another somatostatin analog administered via intramuscular injection. We are aware of other companies involved in early-stage nonclinical and clinical studies of
similar somatostatin analogs, but we believe most involve administration via injection.
Many of our existing or potential competitors have substantially
greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those
products. These companies also have long-established relationships within the medical and patient community, including patients, physicians, nurses and commercial third-party payors and government payors. Our ability to compete successfully will
depend largely on our ability to:
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develop our product candidate and demonstrate that it is competitive with or superior to other products on the market;
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obtain required regulatory approvals;
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adequately communicate the benefits of octreotide capsules, if approved;
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attract and retain qualified personnel;
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obtain and maintain patent and/or other proprietary protection for octreotide capsules and any future product candidates we may develop; and
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in certain geographies, obtain collaboration arrangements to develop and commercialize octreotide capsules and any future product candidates we may develop.
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Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our
competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors drugs may be more effective, or more effectively marketed and sold,
than any drug we may commercialize and may render octreotide capsules or any future product candidates we may develop obsolete or
non-competitive
before we can recover the expenses of developing and
commercializing octreotide capsules or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. We anticipate that we will face
intense and increasing competition as new drugs enter the market and more advanced technologies become available. For example, a competitor could develop another oral formulation of a somatostatin analog or other technology that could make
administration of peptide-based therapies more convenient. If we are unable to compete effectively, our opportunity to generate revenue from the sale of octreotide capsules or any future product candidates we may develop, if approved, could be
impaired.
The number of patients suffering from acromegaly is small, and has not been established with precision. Our assumptions and estimates
regarding prevalence may be wrong. If our octreotide capsules product candidate is approved for sale, and the actual number of patients in the applicable market is smaller than we estimate, our revenue could be adversely affected, possibly
materially.
There are an estimated 69,000 individuals with acromegaly worldwide. The U.S. National Institutes of Health, or NIH, estimates that
there are roughly 20,000 individuals with acromegaly in the United States, based on its published prevalence of an estimated 60 cases per million. In thirteen studies of acromegaly prevalence since 1980, an average of approximately 75 cases per
million was determined, suggesting roughly 24,000 individuals with acromegaly in the United States. However, recent data presented at the Endocrine Societys Annual Meeting in 2015 suggest that pituitary tumors may be more prevalent than
previously thought, and that the global prevalence of acromegaly may be higher, between 85 and 118 cases per million people. NIH also cites an annual incidence of three to four new cases per million each year. We believe that approximately 8,000
adult acromegaly patients are chronically treated with somatostatin analogs in the United States. However, there is no guarantee that these estimates are correct. The number of patients with acromegaly, in particular the number of patients for whom
our octreotide capsules product, if approved, is approved for use, could actually be significantly lower than these estimates.
We believe that the actual
size of the total addressable acromegaly market in those markets in which our octreotide capsules product is approved, if at all, will be determined only after we have substantial history as a commercial company. If the total addressable market for
our products is smaller than we expect, our revenue could be adversely affected, possibly materially.
Even if we receive regulatory approval of
octreotide capsules, it may not achieve an adequate level of acceptance by physicians, patients and third-party payors and government payors, and we may not generate sufficient revenue or be able to achieve or sustain profitability.
The commercial success of octreotide capsules, if approved, will depend in large part on the willingness of physicians to prescribe them to their patients.
Octreotide capsules, if approved, will compete against products that have achieved broad recognition and acceptance among medical professionals. In order to achieve an acceptable level of prescriptions for octreotide capsules, if approved, we must
be able to meet the needs of both
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the medical community and patients with respect to cost, efficacy and other factors. The degree of market acceptance of octreotide capsules, if approved, will depend on a number of factors,
including:
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the clinical safety, efficacy, tolerability and other factors regarding octreotide capsules relative to injectable somatostatin analogs;
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the relative convenience, number of capsules that need to be taken, requirement to fast before and after each dose of octreotide capsules, and other factors affecting the ease of administration;
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the prevalence and severity of any adverse effects;
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the willingness of physicians to prescribe octreotide capsules and of the target patient population to try new therapies;
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the introduction of any new products that may in the future become available to treat indications for which octreotide capsules may be approved;
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changes in the clinical or economic profiles of alternative treatments;
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new procedures or methods of treatment that may reduce the incidences of any of the indications in which octreotide capsules may show utility;
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pricing and cost-effectiveness;
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the effectiveness of our or any future collaborators sales and marketing, as well as disease education and awareness programs;
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limitations or warnings contained in labeling approved by the FDA or comparable foreign regulatory authorities;
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our ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors;
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the willingness of patients to pay
out-of-pocket
in the absence of third-party coverage or reimbursement;
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competitor activities; and
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our ability to reliably manufacture and supply octreotide capsules.
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In addition, even if we obtain regulatory
approvals, the timing or scope of any approvals may prohibit or reduce our ability to commercialize octreotide capsules successfully. For example, if the approval process takes too long, which is a greater likelihood as a result of the CRL from the
FDA to our NDA, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or be subject to restrictions or
post-approval commitments that render octreotide capsules not commercially viable. For example, regulatory authorities may approve octreotide capsules for more limited indications than we request, may limit approved usage to narrower patient
populations, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve octreotide capsules with a label that does not include the labeling claims necessary or desirable for the successful
commercialization of that indication. Any of the foregoing scenarios could harm the commercial prospects for octreotide capsules.
Even if octreotide
capsules are approved, they may not achieve an adequate level of acceptance by physicians, healthcare payors and patients, and we may not generate sufficient revenue or be able to achieve or sustain profitability. Our revenue and profitability may
also be delayed during the period of time when commercial third-party payors and government payors are becoming familiar with octreotide capsules and patients are transitioning from injected alternatives to octreotide capsules. Our efforts to
educate the medical community, patients and third-party payors on the benefits of octreotide capsules may require significant resources and may never be successful. Even if we are able to demonstrate and maintain a competitive advantage over our
competitors, if the market for octreotide decreases, we may not generate sufficient revenue.
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Due to our corporate restructuring in June 2016, we no longer have a sales and marketing organization and,
as a company, have not commercialized any products. If we are able to secure regulatory approval for octreotide capsules in acromegaly, but are unable to establish effective sales and marketing capabilities in the United States and access them in
Europe and other international markets, we may not succeed in commercializing octreotide capsules.
As a result of our June 2016 restructuring
action, we essentially no longer have sales and marketing personnel. Based upon feedback provided by the FDA and our own analysis of potential regulatory paths forward, we believe new or additional data will be required before the FDA would consider
U.S. regulatory approval for the marketing and sale of octreotide capsules in acromegaly, which will likely require that we conduct one or more additional clinical trials.
Even if we are able to obtain regulatory approval, we cannot guarantee when that will occur or whether we will be successful in marketing octreotide capsules
in the United States or any other jurisdiction. If we are not successful in recruiting of sales and marketing personnel on a timely basis or rebuilding a sales and marketing infrastructure, or if we do not successfully enter into appropriate
collaboration arrangements, we will have difficulty commercializing octreotide capsules, if approved, which could harm our business, operating results and financial condition.
If pursued by us, expansion of our business into the European Union and other international markets will require significant management attention and
additional financial resources. We currently intend to explore commercializing octreotide capsules in Europe and other international markets by entering into collaboration agreements with other biopharmaceutical companies, and we may not be
successful in entering into these collaboration agreements. In the event that we do enter into such agreements, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Additional factors and
risks that may inhibit our efforts to commercialize octreotide capsules in foreign markets include:
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our inability to directly control commercial activities because we are relying on third parties, should we enter into third-party collaborations;
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varying pricing in different foreign markets, which could adversely affect pricing in other countries;
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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 collection times for accounts receivable;
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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, and related prevalence of generic alternatives to therapeutics;
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foreign currency exchange rate fluctuations;
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our customers ability to obtain adequate reimbursement for octreotide capsules in foreign markets, either at all or at prices that exceed our costs; 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 octreotide capsules could also be adversely affected by the imposition of governmental price controls, political and economic instability,
trade restrictions and changes in tariffs.
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Our future revenues may depend heavily on the success of the efforts of these third parties. We may not be able
to establish a commercial operation in a cost-effective manner or realize a positive return on this investment, even with the assistance of one or more third-party collaborators, should we choose to enter into such an arrangement. In addition, we
will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel.
If we or
third-party collaborators are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, or if we do not successfully enter into additional collaboration arrangements with third parties, we may
not be able to successfully commercialize octreotide capsules or any future product candidates we may develop in foreign markets, which could impair our business, operating results and financial condition.
Even with the potential assistance of third-party collaborators, we may not be successful in establishing a commercial operation in foreign markets for
numerous reasons, including, but not limited to, failing to attract, retain and motivate the necessary skilled personnel and failing to develop a successful marketing strategy. Failure to establish a commercial operation in foreign markets will have
a negative outcome on our ability to commercialize octreotide capsules and generate revenue.
Additionally, if approved for marketing in one or more
countries, we and/or our potential third-party collaborators may encounter unexpected or unforeseen delays in establishing our commercial operations that delay the commercial launch in these countries. These delays may increase the cost of and the
resources required for successful commercialization of octreotide capsules both in the U.S. and internationally. We do not have any experience in a commercial launch in the U.S., Europe or elsewhere.
Due to our corporate restructuring in 2016, we no longer have a medical affairs organization and, if we are unable to establish effective medical
affairs capabilities in the United States and build or access them in Europe and other international markets, our business may suffer.
As a result
of our June 2016 restructuring action and except for Dr. William Ludlam, our Senior Vice President of both clinical and medical affairs, we no longer have a medical affairs organization. Medical affairs personnel are responsible for a number of
key activities within biopharmaceutical companies, which include, but are not limited to, providing expert advice to other functions within the organization, advising on medical education activities, reviewing promotional and
non-promotional
communications, supporting medical and scientific publications, reviewing grants for third-party continuing medical education events, and providing an important scientific point of contact for
physicians and scientists who seek to partner with us or better understand our science.
Failure to successfully execute these activities could harm our
business in the following ways:
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Our reputation among key physicians and scientists in acromegaly and other disease areas of interest to us may suffer;
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We may not be able to secure the advice and feedback of outside experts to help advance our knowledge and understanding of complex scientific and medical issues;
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Our commercial and corporate functions may not receive adequate medical and scientific information in the creation of their external communications, which could lead to inaccurate information being disseminated about
the company, its product candidates, its disease areas of interest, or its other scientific endeavors;
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Our promotional,
non-promotional,
grants, and medical events review processes may not provide an effective control to ensure compliance with applicable laws, regulations and
standards; and
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We may not successfully interact with European or other
ex-U.S.
healthcare professionals and scientists who could help the company execute plans for expansion into Europe or other
international markets.
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Even if we obtain marketing approval of octreotide capsules or any future product candidates we may
develop, we will be subject to ongoing obligations and continued regulatory review with respect to the advertising and promotion of any product candidate that obtains approval.
Advertising and promotion of any product candidate that obtains approval in the United States will be heavily scrutinized by, among others, the FDA, the
Department of Justice, or DOJ, the Office of Inspector General of the Department of Health and Human Services, or HHS, state attorneys general, members of Congress and the public, as well as by foreign regulatory authorities in the countries in
which we commercialize octreotide capsules. Even if octreotide capsules are being marketed, the manufacture and marketing of octreotide capsules will be subject to ongoing regulation, including compliance with cGMPs, adverse event reporting
requirements, guidance regarding the provision of reimbursement support and patient services, and general prohibitions against promoting products for unapproved or
off-label
uses. Violations of
these ongoing regulations are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. Government investigation of these issues itself typically requires the expenditure
of significant resources and can generate negative publicity, which could harm our business. Additionally, advertising and promotion of any product candidate that obtains approval outside of the United States will be heavily scrutinized by
comparable foreign regulatory authorities.
In the United States, engaging in impermissible promotion of our drug products for
off-label
uses can also subject us to false claims litigation under federal and state statutes, and other litigation and/or investigation, which can lead to significant administrative civil and criminal
penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a
pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government
decides to intervene and prevails in the lawsuit, the individual will share in any fines or settlement funds. In recent years, these False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth,
leading to substantial civil and criminal settlements based on certain sales practices promoting
off-label
drug uses. This increasing focus and scrutiny has increased the risk that a pharmaceutical
company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs,
among other penalties. If we do not lawfully promote our approved products, we may become subject to such litigation and/or investigation and, if we are not successful in defending against such actions, those actions could compromise our ability to
become profitable.
The manufacture and packaging of pharmaceutical products such as octreotide capsules are subject to FDA requirements and those
of similar foreign regulatory bodies. If we or our third-party manufacturers fail to satisfy these requirements, our product development and commercialization efforts may be harmed.
The manufacture and packaging of pharmaceutical products, such as octreotide capsules, if approved, are regulated by the FDA and similar foreign regulatory
bodies and must be conducted in accordance with the FDAs cGMP and comparable requirements of foreign regulatory bodies. There are a limited number of manufacturers that operate under these cGMP regulations who are both capable of manufacturing
octreotide capsules and willing to do so. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of
regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product, operating restrictions and criminal prosecutions, any of which could harm our business. The
same requirements and risks are applicable to the suppliers of the key raw material used to manufacture the active pharmaceutical ingredient, or API, for octreotide capsules. For example, in its CRL, the FDA advised that, during a site inspection,
certain deficiencies were conveyed to the representative of one of our suppliers that would need to be resolved before approval of our NDA for octreotide capsules. Although we were informed that the supplier recently received an Establishment
Inspection Report (EIR) from
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FDA, indicating that the FDA has concluded its inspection of the supplier and as of the date of its report considers outstanding deficiencies resolved, we expect that our suppliers will be
subject to additional regulatory inspections in the future, including in connection with the FDAs review of any NDA we may submit in the future, if any, seeking approval of octreotide capsules in acromegaly. There can be no assurances that our
suppliers will pass all future inspections, the failure of which could result in delays to our ability to receive regulatory approval for octreotide capsules.
Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party
manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDAs cGMPs. Any new facility is subject to a
pre-approval
inspection by the FDA
and would again require us to demonstrate product comparability to the FDA. There are comparable foreign requirements. This review may be costly and time consuming and could delay or prevent the launch of a product.
Furthermore, in order to obtain approval of our product candidates, including octreotide capsules, by the FDA and foreign regulatory agencies, we will be
required to consistently produce the API and the finished product in commercial quantities and of specified quality on a repeated basis and document our ability to do so. Each of our potential API suppliers will likely use a different method to
manufacture API, which has the potential to increase the risk to us that our manufacturers will fail to meet applicable regulatory requirements. If approved, we will also need to complete required testing on the finished product in the packaging we
propose for commercial sales. This includes testing of stability, measurement of impurities and testing of other product specifications by validated test methods. If the FDA does not consider the result of the process validation or required testing
to be satisfactory, commercial supply after NDA approval, if obtained, and launch may be delayed.
The FDA and similar foreign regulatory bodies may also
implement new requirements, or change their interpretation and enforcement of existing requirements, for manufacturing, packaging or testing of products at any time. If we are unable to comply, we may be subject to regulatory, civil actions or
penalties which could harm our business.
If we do not achieve our projected development and commercialization goals in the timeframes we announce
and expect, the commercialization of octreotide capsules and any future product candidates we may develop may be delayed, our business will be harmed and we may not have sufficient resources to continue as a standalone company.
We estimate for planning purposes the timing of the accomplishment of various scientific, clinical, regulatory and other product development objectives. These
milestones may include our expectations regarding the commencement or completion of clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce the expected timing of some of
these milestones, such as the completion of an ongoing clinical trial, receipt of marketing approval, or a commercial launch of a product. The achievement of these milestones may be outside of our control. All of these milestones are based on a
variety of assumptions which may cause the timing of achievement of the milestones to vary considerably from our estimates, including:
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our available capital resources or capital constraints we experience;
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the rate of progress, costs and results of our clinical trials and research and development activities, including the extent of scheduling conflicts with participating clinicians and collaborators, and our ability to
identify and enroll patients who meet clinical trial eligibility criteria;
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our strategic decisions on trial design and modifications thereto in an effort to preserve patients, sites and other resources necessary to potentially conduct an additional Phase 3 trial addressing the FDAs
concern and produce data packages that could be suitable for submission in both the United States and the European Union;
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our receipt of approvals by the FDA and other regulatory agencies and the timing thereof;
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other actions, decisions or rules issued by regulators;
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our ability to access sufficient, reliable and affordable supplies of compounds used in the manufacture of octreotide capsules and any future product candidates we may develop;
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the efforts of our collaborators and the success of our own efforts with respect to the commercialization of our products; and
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the securing of, costs related to, and timing issues associated with product manufacturing as well as sales and marketing activities.
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If we fail to achieve announced milestones in the timeframes we announce and expect, the commercialization of octreotide capsules, if approved, and any future
product candidates we may develop may be delayed and our business and results of operations may be harmed.
Octreotide capsules and other products
we may develop, if approved, may not be commercially viable if we fail to obtain coverage and an adequate level of reimbursement for these products from governmental payors, including Medicare and Medicaid programs, private insurers, and other
third-party payors. The market for octreotide capsules and other products we may develop may also be limited by the indications for which their use may be reimbursed.
The availability of coverage and adequate levels of reimbursement by governmental and other third-party payors will affect the market for octreotide capsules,
if approved, and subsequent products that we may develop, if any. These third-party payors continually attempt to contain or reduce the costs of health care, such as by challenging the prices charged for medical products and services and by applying
value assessments to clinical outcomes using different safety and efficacy standards than used for marketing approval by the FDA and the EMA.
In the
United States, in the event that octreotide capsules are approved, we will seek to obtain reimbursement for octreotide capsules from third-party payors. In recent years, through legislative and regulatory actions, the federal government has made
substantial changes to various payment systems under the Medicare program. Comprehensive reforms to the U.S. healthcare system were enacted in 2010 with the passage of the Affordable Care Act, or the ACA. These reforms could significantly reduce
payments from Medicare and Medicaid over the next 10 years. Reforms or other changes to these payment systems, including modifications to the conditions on qualification for payment, bundling of payments or the imposition of enrollment limitations
on new providers, may change the availability, methods and rates of reimbursements from governmental payors, private insurers and other third-party payors for octreotide capsules and any other potential products we may pursue. Some of these changes
and proposed changes could result in reduced reimbursement rates for octreotide capsules and any other potential products we may pursue, which would adversely affect our business strategy, operations and financial results.
In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and
reimbursement approval of a product from a governmental or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our
products on a
payor-by-payor
basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the
resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require
co-payments
that patients find unacceptably high.
We expect that private insurers will consider the efficacy, cost effectiveness and safety of octreotide capsules, if approved, in determining whether to
provide reimbursement for octreotide capsules and at what level. Obtaining these additional approvals for reimbursement can be a time-consuming and expensive process. Even if we receive regulatory approval to market octreotide capsules, our business
would be harmed if we do not receive approval of reimbursement of octreotide capsules from third-party payors on a timely or satisfactory basis.
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Medicare does not cover particular drugs if it determines that they are not reasonable and necessary for its beneficiaries. Limitations on coverage could also be imposed at the local
Medicare carrier level or by fiscal intermediaries. Our business could be harmed if Medicare, local Medicare carriers or fiscal intermediaries were to make such a determination and deny or limit the reimbursement of octreotide capsules.
Our business could also be harmed if governments, private insurers, Medicare, Medicaid or other reimbursing bodies or payors limit the indications for which
octreotide capsules will be reimbursed to a smaller set than we believe it is safe and effective in treating, or establish a limitation on the frequency with which octreotide capsules may be administered that is less often than we believe would be
safe and effective, or establish a limitation on dose that is lower than we believe would be safe and effective. In addition, even if we receive regulatory approval, the FDA may introduce significant restrictions to the label for octreotide capsules
in an effort to address certain concerns raised in the CRL, End of Review meeting or the agencys review of any future clinical trials we may conduct. Any such restrictions or potential reservations about efficacy expressed by the FDA or within
the medical community could significantly impact reimbursement, market adoption and commercial performance of octreotide capsules.
We expect to
experience pricing pressures in connection with the sale of octreotide capsules and any future product candidates we may develop, if required regulatory approvals are obtained, due to healthcare reforms, as well as the trend toward programs aimed at
reducing health care costs, the increasing influence of health maintenance organizations, additional legislative proposals, and the economic health of companies. If coverage and reimbursement for our products are unavailable, or are limited in scope
or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.
In Europe and many other foreign countries, the pricing of
prescription pharmaceuticals is subject to governmental control, and each country has a different reviewing body that evaluates reimbursement dossiers submitted by holders of marketing authorizations for new drugs. That governing body then makes
recommendations as to whether or not the drug should be reimbursed. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval. To obtain reimbursement or pricing
approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate, such as octreotide capsules, to other available therapies.
The longer term growth of our business depends on our efforts to expand the approved uses of octreotide capsules beyond acromegaly, if approved and
leverage our TPE platform to expand our portfolio of product candidates, which may require substantial financial resources and may ultimately be unsuccessful.
The longer term growth of our business depends upon our ability to expand the approved uses of octreotide capsules beyond acromegaly, if approved, and utilize
our proprietary Transient Permeability Enhancer, or TPE, technology platform to develop and commercialize other oral forms of therapies that are currently only available in injectable or other
non-absorbable
forms. In addition to the development and commercialization of octreotide capsules in acromegaly, if approved, we may pursue development of octreotide capsules for other indications or develop other product candidates alone or in collaboration with
other parties. Because we eliminated substantially all of our research and discovery functions during the August 2016 reduction in workforce, we do not currently have the internal capacity to develop any new product candidates. We also may never be
able to identify other peptide drugs or poorly absorbed small-molecule drugs that can successfully be developed into product candidates utilizing our TPE platform, let alone receive regulatory approval of such product candidates, and we may never be
able to engage in licensing transactions that enable a third party to utilize TPE in the development of future product candidates.
Research programs to
identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any product candidates, and we are not currently investing in such research programs. As a result,
we may not be able to successfully identify any future product candidates or new indications for octreotide capsules.
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There are a number of FDA, EMA and other health authority, as applicable, requirements that we must satisfy
before we can commence a clinical trial. If we are able to identify additional potential product candidates, satisfaction of these regulatory requirements will entail substantial time, effort and financial resources. We may never satisfy these
requirements. Any time, effort and financial resources we expend on development of other product candidates, which we do not currently contemplate, may impair our ability to continue development and commercialization of octreotide capsules for the
treatment of acromegaly and other indications, if pursued, 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
octreotide capsules in other indications besides acromegaly or other product candidates, these product candidates may never demonstrate sufficient safety and efficacy to be approved by the FDA or other regulatory authorities.
Our ability to develop a viable pipeline of potential future products may require us to enter into license agreements with third parties, and we may not
be successful in negotiating the necessary agreements, or in achieving economic terms that will be sufficiently favorable to justify development of one or more such future products.
As a result of the elimination of substantially all of our research functions, we are currently unable to develop future potential products through internal
research programs. Therefore, we may consider expanding the scope of future potential product candidates by licensing injectable or poorly absorbed drugs from third parties or licensing our TPE technology to third parties with the goal of converting
these drugs into novel oral forms of therapies using our TPE platform.
We may, however, be unable to license or acquire suitable product candidates from
third parties for a number of reasons. In particular, the licensing and acquisition of pharmaceutical products is a competitive area. For example, several more established companies are also pursuing strategies to license or acquire products in the
somatostatin analog field. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. Other factors that may prevent us from licensing
or otherwise acquiring suitable product candidates include the following:
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we may be unable to license or acquire the relevant product candidate or technology on terms that would allow us to make an appropriate return, or the financial terms required by the owners of those product candidates
or technologies may be unfavorable enough to preclude successful development and commercialization for such products;
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companies that perceive us to be their competitors may be unwilling to assign or license their product rights to us;
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we do not currently have dedicated business development personnel on staff;
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we may be unable to identify suitable products or product candidates within our areas of expertise; or
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our receipt of the CRL could reduce third-party confidence in our TPE platform and potentially make us a less attractive partner.
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We do not have sufficient human and financial resources to develop suitable potential product candidates through internal research programs, we may not have
the resources to obtain rights from third parties, and we may not be able to license our TPE technology to third parties for development of future product candidates, thereby limiting our ability to develop a diverse product portfolio. If we are
unable to develop such a portfolio, our business may suffer.
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We may be unable to obtain orphan drug designation or exclusivity for future product candidates we may
develop. If our competitors are able to obtain orphan drug exclusivity for their products that are the same as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant
period of time.
Our octreotide capsules product candidate has been granted orphan designation in the United States and the European Union for the
oral treatment of acromegaly. Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA
may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals diagnosed annually in the United States, or a
patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the European Commission, after
reviewing the opinion of the EMAs Committee for Orphan Medicinal Products, or COMP, grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or
chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously
debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the product candidate. Even if we request
orphan drug designation for any future product candidates we may develop, there can be no assurances that the FDA or the European Commission will grant any of these product candidates such designation. Additionally, the designation by the FDA of any
potential product candidates as an orphan drug does not guarantee that the FDA or the EMA will accelerate regulatory review of or ultimately approve that product candidate.
Generally, if a product candidate with an orphan drug designation subsequently receives the first marketing approval of the indication for which it has such
designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. The
applicable period is seven years in the United States and 10 years in Europe. The European exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently
profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity
of the product to meet the needs of patients with the rare disease or condition.
Even though we have obtained orphan drug designation for octreotide
capsules in acromegaly and may obtain orphan drug designation for octreotide capsules in other indications or for future product candidates we may develop, we may not obtain orphan drug exclusivity and any such exclusivity that we do obtain may not
effectively protect the product candidate from competition because different drugs can be approved for the same condition and the same drugs can be approved for different indications and might then be used
off-label
in our approved indication, if obtained. In the United States, even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that
the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In addition, if a potential future product candidate of ours receives an orphan drug designation and is approved for
a particular indication or use within the rare disease or condition, the FDA may later approve the same drug for additional indications or uses within that rare disease or condition that are not protected by our exclusive approval. As a result, if
our product is approved and receives orphan drug status, the FDA can still approve other drugs for use in treating the same indication or disease covered by our product, which could create a more competitive market for us.
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Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud
and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of octreotide capsules and any future
product candidates we may develop for which we obtain marketing approval. Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the
business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other
third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations
that may affect our operations and expose us to areas of risk including the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;
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federal civil and criminal false claims laws and civil monetary penalty laws, which impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for
knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, 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, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also created federal
criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and
transmission of certain individually identifiable health information;
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the ACA which requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid or Childrens Health Insurance Program to report annually to Centers for
Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party payors, including private insurers; some state laws which require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and
state and foreign laws which govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by federal law, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will
involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it is
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possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or
other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with
whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Legislative or regulatory reform of the health care system in the United States and foreign jurisdictions may adversely impact our business, operations
or financial results.
Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. In
particular, in March 2010, the ACA was signed into law. This legislation changes the current system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that will affect companies in
the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:
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mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans;
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the definition of average manufacturer price was revised for reporting purposes, which could increase the amount of Medicaid drug rebates by state;
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the 340B Drug Pricing Program under the Public Health Service Act has been extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered
entities;
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pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the donut hole; and
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pharmaceutical companies are required to pay an annual
non-tax
deductible fee to the federal government based on each companys market share of prior year total sales of
branded products to certain federal healthcare programs. If octreotide capsules or any of our future potential product candidates are approved, we expect our branded pharmaceutical sales to constitute a small portion of the total federal health
program pharmaceutical market, and therefore would not expect this annual assessment to have a material impact on our financial condition.
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Despite initiatives to invalidate the ACA, the U.S. Supreme Court has upheld certain key aspects of the legislation, including the requirement that all
individuals maintain health insurance coverage or pay a penalty, referred to as the individual mandate, and a key provision of the ACA, which provides federal premium tax credits to individuals purchasing coverage through health insurance exchanges.
Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges.
In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the ACA. Further, on January 20,
2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal
burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements
of the ACA that are repealed. Thus, the full impact of the ACA, or any law replacing elements of it, and the political uncertainty regarding any repeal and replacement on the ACA, on our business remains unclear.
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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, starting in 2013, which will remain in effect until 2025 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among
other things, 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 September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including
the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDAs exercise of this authority could
result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the sale and/or distribution of
approved products. Other legislative and regulatory initiatives have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. For example, the Drug Supply Chain Security Act of 2013
imposes new obligations on manufacturers of certain pharmaceutical products related to product tracking and tracing. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance documents or
interpretations will be changed, or what the impact of such changes on the marketing approvals of octreotide capsules, if any, may be. In addition, increased scrutiny by Congress of the FDAs approval process may significantly delay or prevent
marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Further, in some foreign
jurisdictions, including the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the
receipt of regulatory approval and product launch. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of octreotide capsules and any future product
candidate we may develop to other available therapies. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.
Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further, federal and state legislative and regulatory
developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from octreotide capsules and any other product candidates that we
may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
We may not be able to maintain our current product liability coverage, and, even if we do, our coverage may not be adequate to cover any or all
liabilities that we may incur, which could decrease our cash and harm our business.
We currently have $10.0 million in product liability
insurance coverage in the aggregate, which may not be adequate to cover any or all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount
adequate to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval of octreotide capsules and any future product candidates we may
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develop, but we may be unable to obtain commercially reasonable product liability insurance. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side
effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and harm our business. In addition, we may not be able to maintain sufficient
insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims, which could prevent or inhibit the commercial production and sale of our products.
Additionally, if any claims are brought against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity. We also could
suffer diversion of attention of technical and management personnel and incur substantial costs in resolving disputes, including litigation, with our insurance provider regarding coverage.
Risks Related to Our Reliance on Third Parties
We
are, and expect to be for the foreseeable future, dependent on a limited number of third parties to manufacture octreotide capsules.
We do not
currently have, nor do we plan to acquire, the capability or infrastructure to manufacture the API in octreotide capsules for use in our clinical trials or for commercial product, if regulatory approvals are obtained. We have qualified Novetide
Ltd., a subsidiary of Teva Pharmaceuticals Industries Ltd., in Israel and an affiliate of Teva API, Inc., and Bachem Americas Inc. in the United States as our suppliers of the generic API, octreotide acetate. All excipients, or substances formulated
together with the API that are used in the manufacture of octreotide capsules, are readily available. The octreotide API is lyophilized, formulated with our TPE technology, filled into capsules and enteric-coated by Lyophilization Services of New
England Inc., or LSNE, in Bedford, NH and Encap Drug Delivery, a division of Capsugel, or Encap, in Livingston, Scotland.
The facilities used by our
contract manufacturers to manufacture octreotide capsules are evaluated by the FDA and other regulatory bodies. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with
cGMPs for manufacture of both API and finished drug products. These cGMP regulations cover all aspects of the manufacturing, testing, quality control and record keeping relating to octreotide capsules. If our contract manufacturers cannot
successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure and/or maintain regulatory approval of our product candidate being manufactured at their
manufacturing facilities. If the FDA or a comparable foreign regulatory authority finds deficiencies at these facilities, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain
regulatory approval of or market octreotide capsules, if approved. For example, in its CRL, the FDA advised that, during a site inspection, certain deficiencies were conveyed to the representative of one of our suppliers that would need to be
resolved before approval of our NDA for octreotide capsules. Although we were informed that the supplier recently received an Establishment Inspection Report (EIR) from FDA, indicating that the FDA has concluded its inspection of the supplier and as
of the date of its report considers outstanding deficiencies resolved, we expect that our suppliers will be subject to additional regulatory inspections in the future, including in connection with the FDAs review of any NDA we may submit in
the future, if any, seeking approval of octreotide capsules in acromegaly. There can be no assurances that our suppliers will pass all future inspections, the failure of which could result in delays to our ability to receive regulatory approval for
octreotide capsules.
Our contract manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and
foreign agencies for compliance with cGMPs and similar regulatory requirements. We do not have control over our contract manufacturers compliance with these regulations and requirements. Failure by any of our contract manufacturers to comply
with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure to grant approval to market octreotide capsules, delays, suspensions or withdrawals of approvals, operating
restrictions and criminal prosecutions, any of which could harm our business. In addition, we have no control over the ability of our contract manufacturers
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to maintain adequate quality control, quality assurance and qualified personnel. Failure by our contract manufacturers to comply with or maintain any of these requirements could impair our
ability to develop, obtain regulatory approval of or market octreotide capsules.
If, for any reason, these third parties are unable or unwilling to
perform, we may not be able to effectively terminate our agreements with them, and we may not be able to locate alternative manufacturers or formulators or enter into favorable agreements with them, and we cannot be certain that any such third
parties will have the manufacturing capacity to meet future requirements. If these manufacturers or any alternate manufacturer of finished drug product experiences any significant difficulties in its respective manufacturing processes for our API or
finished octreotide capsules product or should cease doing business with us, we could experience significant interruptions in the supply of octreotide capsules or may not be able to create a supply of octreotide capsules at all. Were we to encounter
manufacturing issues, our ability to produce a sufficient supply of octreotide capsules might be negatively affected. Our inability to coordinate the efforts of our third-party manufacturing partners, or the lack of capacity available at our
third-party manufacturing partners, could impair our ability to supply octreotide capsules at required levels. Because of the significant regulatory requirements that we would need to satisfy in order to qualify a new bulk or finished product
manufacturer, if we face these or other difficulties with our current manufacturing partners, we could experience significant interruptions in the supply of octreotide capsules if we decided to transfer the manufacture of octreotide capsules to one
or more alternative manufacturers in an effort to deal with the difficulties.
Any manufacturing problem or the loss of a contract manufacturer could be
disruptive to our operations and, if our products receive marketing approval, result in lost sales. Additionally, we rely on third parties to supply the raw materials needed to manufacture our product candidates. Any reliance on suppliers may
involve several risks, including a potential inability to obtain critical materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future contract manufacturers caused by
problems at suppliers could delay shipment of octreotide capsules and, if approved for marketing, increase our cost of goods sold and result in lost sales.
We cannot guarantee that our current manufacturing and supply partners or any alternative service providers will be able to reduce the costs of
commercial-scale manufacturing of octreotide capsules over time, particularly following the suspension of our commercial commitments to certain of our manufacturers following the receipt of the CRL. If the manufacturing costs of octreotide capsules
remain at current levels, these costs may significantly impact our future operating results. In order to reduce costs, we may need to develop and implement process improvements. However, in order to do so, we will need, from time to time, to notify
or make submissions with regulatory authorities, and the improvements may be subject to approval by such regulatory authorities. We cannot be sure that we will receive these necessary approvals or that these approvals will be granted in a timely
fashion. We also cannot guarantee that we will be able to enhance and optimize output in our commercial manufacturing process. If we cannot enhance and optimize output, we may not be able to reduce our costs over time.
We have previously established commercial manufacturing agreements with Teva API, Inc. for the API in octreotide capsules and with LSNE for certain testing
and lyophilization services. In anticipation of the approval of our NDA by FDA on the PDUFA date, we made substantial commercial production commitments to these manufacturers via binding rolling forecasts. Following our receipt of the CRL, we
indefinitely suspended our commercial production commitments to Teva API, Inc. and LSNE, which resulted in aggregate financial penalties to us of approximately $4.5 million. In the future, if octreotide capsules are approved, we may not be able
to reach or maintain agreements containing terms that are acceptable to us with our commercial manufacturers.
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If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or
violates applicable law, we may be liable for damages.
Our development activities involve the controlled use of potentially hazardous substances,
including chemical and biological materials by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing medical, radioactive and hazardous materials. Although we
believe that our manufacturers procedures for using, handling, storing and disposing of these materials comply with legally prescribed requirements, we cannot completely eliminate the risk of contamination or injury resulting from such
materials. As a result of any such contamination or injury we may incur liability or local, city, state or federal authorities may curtail the use of these materials, interrupting our business operations. In the event of an accident, we could be
held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our development and
production efforts, which could harm our business, prospects, financial condition or results of operations.
An important part of our strategy is to
seek to enter into licensing or collaboration agreements with respect to octreotide capsules and future product candidates, if any, in certain territories. We may not be able to identify suitable collaborators and, even if we do, our dependence on
such relationships may adversely affect our business.
Because we have limited resources, we may seek to enter into collaboration agreements with
other pharmaceutical or biotechnology companies. Our strategy for commercializing octreotide capsules and any future product candidates we may develop may depend on our ability to enter into agreements with collaborators to obtain assistance and
funding for the development and potential commercialization of our product candidates in the territories in which we may seek to partner. Despite our efforts, we may be unable to secure collaborative licensing or other arrangements that are
necessary for us to further develop and commercialize our product candidates. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex
processes with uncertain results. Our receipt of the CRL from the FDA may cause potential collaborators to assign a lower probability to our regulatory success of octreotide capsules which could reduce the likelihood of our ability to enter into a
collaboration on favorable terms, if at all. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less control over certain aspects of our collaborative
programs than we do over our proprietary development and commercialization programs.
Any failure by our partners to perform their obligations or any
decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize our product candidates. In the event we grant exclusive rights to such partners, we
could be precluded from potential commercialization of our product candidate within the territories in which we have a partner. In addition, any termination of our collaboration agreements will terminate any funding we may receive under the relevant
collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs. For example, in July 2014, Roche elected to terminate a license agreement with us for octreotide capsules. As a
result, we assumed responsibility for the further development and commercialization of octreotide capsules and will receive no additional funding from Roche for this purpose.
Further, our potential future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with
others, including our competitors, and the priorities or focus of our collaborators may shift such that our product candidates receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our
potential future collaborators may harm our business prospects and ability to earn revenues. In addition, we could have disputes with our potential future collaborators, such as the interpretation of terms in our agreements. Any such disagreements
could lead to delays in the development or commercialization of our product candidates or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.
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We rely, and will rely in the future, on third parties to conduct our clinical trials. If these third
parties do not appropriately carry out their contractual duties, fail to conduct high-quality studies or meet expected deadlines, regulatory approval and commercialization of octreotide capsules or any future candidates we may develop could be
delayed or not obtained at all.
We do not have the ability to conduct our clinical trials independently. We will continue to rely on third
parties, including clinical investigators, third-party CROs and consultants, to monitor, manage data for, and execute our ongoing clinical programs for octreotide capsules, and we control only some aspects of their activities. Because we rely on
third parties, our internal capacity to perform these functions is limited. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers. Nevertheless, we are
responsible for ensuring that each of our clinical trials are conducted in accordance with the applicable protocol and legal, regulatory and scientific requirements and standards, including, for example, Good Laboratory Practices, the Animal Welfare
Act and Good Clinical Practices, or GCPs. Our reliance on third parties does not relieve us of our regulatory responsibilities. Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial
sites. If we or any of these third parties fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the relevant regulatory authorities may require us to perform additional clinical trials
in support of our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. Failure to comply with these
regulations may require us to repeat nonclinical studies and clinical trials, which would delay the regulatory approval process.
The third parties
conducting our clinical trials are not our employees, and, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical programs. To the extent we are unable to identify and successfully manage the performance
of third-party service providers in the future, our business may be adversely affected. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality or accuracy of the
data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval of or
successfully commercialize octreotide capsules and any future product candidates we may develop. As a result, our results of operations and the commercial prospects for our product candidates could be harmed, our costs could increase and our ability
to generate revenues could be delayed.
Risks Related to Our Financial Position and Capital Resources
We have incurred significant losses since our inception and anticipate that we will incur continued losses for the next several years and thus may never
achieve or maintain profitability.
We have funded our operations to date primarily through proceeds from sales of our common stock, redeemable
convertible preferred stock and, to a lesser extent, the issuance of convertible notes. On July 21, 2015, we completed the sale of 7,319,750 shares of our common stock in our IPO, at a price to the public of $16.00 per share, resulting in net
proceeds of approximately $106.5 million after deducting underwriting discounts and commissions and offering expenses payable by us. From our inception through December 31, 2016, we had received net proceeds of $267.9 million from
such transactions, including amounts raised in the IPO. As of December 31, 2016, our cash, cash equivalents and marketable securities were $93.0 million. Since inception, we have incurred significant operating losses. Our net loss was
$61.1 million and $35.9 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, we had an accumulated deficit of $178.5 million.
We have no products approved for commercialization and have never generated any product revenue. We expect to incur operating losses for at least the next
several years. Past operating losses, combined with expected future operating losses, have had and will continue to have an adverse effect on our cash resources, stockholders equity and working capital. In June 2016, in light of the CRL, we
announced a corporate restructuring plan intended to
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focus our resources on the continued development of octreotide capsules and pursuit of regulatory approval in the United States and Europe for the maintenance treatment of adult acromegaly
patients. This plan included a reduction of approximately 33% of our workforce in June 2016, including substantially all of our commercial personnel. In August 2016, we announced a second corporate restructuring plan which further reduced our
workforce by approximately 44%, primarily in our research and administrative functions. In aggregate, these restructuring plans resulted in a reduction to our workforce of more than 60% since May 1, 2016. We currently expect our existing cash,
cash equivalents and marketable securities to fund our operations beyond 2018. In addition, we will incur additional costs associated with operating as a public company. As a result of these and other factors, we expect to continue to incur
significant operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses, when we will
become profitable, if at all, or whether we will have the funds necessary to continue as a standalone business in the long term.
Even if we achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business,
maintain our development efforts, obtain regulatory approvals, diversify our product pipeline or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We have not generated revenue from any commercial products and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. Unless and until marketing approval is obtained from either the FDA or EMA for
octreotide capsules or any future product candidates we may develop, we may not be able to generate sufficient revenue to attain profitability. In addition, our ability to generate profits after any FDA or EMA approval of our product candidates is
subject to our ability to contract for the manufacture of commercial quantities of our product candidates at acceptable cost levels and establish sales and marketing capabilities or identify and enter into one or more strategic collaborations to
effectively market and sell any approved product candidate.
Even if octreotide capsules or any future product candidates are approved for commercial
sale, any approved product candidate may not gain market acceptance or achieve commercial success. In addition, we would anticipate incurring significant costs associated with commercializing any approved product. We may not achieve profitability
soon after generating product sales, if ever. If we are unable to generate product revenues, we will not become profitable and may be unable to continue operations without continued funding.
We have a limited operating history and no history of commercializing drugs, which may make it difficult for you to evaluate the success of our business
to date and to assess our future viability.
Although we commenced operations in 2001, our operations to date have been largely focused on
developing octreotide capsules, including undertaking nonclinical studies and conducting clinical trials. Octreotide capsules are our only current product candidate for which we have conducted clinical trials, we have completed only a single Phase 3
clinical trial to date with this product candidate, and the FDA has strongly recommended that we complete a randomized, double-blind and controlled clinical study of octreotide capsules. We have not yet demonstrated our ability to successfully
complete additional later-stage clinical trials, obtain regulatory approvals, manufacture a commercial-scale drug or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful
commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing drugs.
We may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. If we are
successful in obtaining marketing approval of octreotide capsules in acromegaly, we will need to transition at some point from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in
such a transition.
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We will need additional capital to support our operations, which may be difficult to obtain and restrict
our operations and would result in additional dilution to our stockholders.
Our business will require additional capital that we have not yet
secured. In the short term, we expect to continue to conduct our second Phase 3 clinical trial of octreotide capsules to treat acromegaly MPOWERED required for European regulatory approval. We acknowledge FDAs feedback regarding
our NDA contained in the CRL and in the End of Review meeting minutes, and we continue to evaluate pathways forward, including the possibility of conducting a trial consistent with the FDAs recommendations, to potentially secure approval
in the United States for octreotide capsules. In June and August of 2016, following our receipt of the CRL and the End of Review meeting, we announced corporate restructuring plans intended to focus our resources on the continued
development of octreotide capsules for the maintenance treatment of adult acromegaly patients.
The actual amount of funds that we will need will be
determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include but are not limited to:
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our efforts to obtain FDA approval of octreotide capsules in acromegaly, especially if we are required to conduct a randomized, double-blinded and controlled clinical trial as the FDA strongly recommended in the CRL;
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the amount of our future operating losses;
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the timing of approvals, if any, of octreotide capsules in additional jurisdictions;
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the need and cost of conducting one or more additional clinical trials for octreotide capsules and any future drug candidates;
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the amount of our research and development, marketing, selling and general and administrative expenses;
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the extent to which we enter into, maintain, and derive revenues from licensing agreements, including potential agreements to
out-license
octreotide capsules, research and other
collaborations, joint ventures and other business arrangements;
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our success in integrating product candidates, technologies or companies that we may acquire; and
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regulatory changes and technological developments in our markets.
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General market conditions or the market
price of our common stock may not support capital-raising transactions, such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise additional capital may be dependent upon our stock
being quoted on The NASDAQ Global Select Market or upon obtaining stockholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing on The NASDAQ Global Select Market or that we will be able to obtain
stockholder approval if it is necessary. If we are unable to obtain additional funds on a timely basis or on terms favorable to us, we may be required to cease development of octreotide capsules, to sell some or all of our technology or assets or to
merge all or a portion of our business with another entity. In the event additional financing is needed or advisable, we may seek to fund our operations through the sale of equity securities, additional debt financing and strategic collaboration
agreements. We cannot be sure that additional financing from any of these sources will be available when needed or that, if available, the additional financing will be obtained on terms favorable to us or our stockholders. If we raise additional
funds by selling shares of our capital stock, the ownership interest of our current stockholders will be diluted. If we attempt to raise additional funds through strategic collaboration agreements, we may not be successful in obtaining collaboration
agreements, or in receiving milestone or royalty payments under those agreements. The terms of any debt facility may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to
develop and commercialize octreotide capsules or any future product candidates or operate our business. Any of these actions could raise substantial doubt about our ability to continue as a going concern and have a material adverse effect on our
business, financial condition and results of operations.
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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 and
collaboration, strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may
include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt financing, if available, 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 alliance and licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies or product candidates, or grant licenses on terms that are not favorable to us.
Risks Related to Our Business and Industry
We depend on the knowledge and skill of our senior management and other key employees, and if we are unable to retain or if we fail to recruit additional
highly skilled personnel, our business will be harmed.
Our ability to compete in the highly competitive pharmaceuticals industry depends in large
part upon our ability to attract and retain highly qualified managerial and development personnel. As of December 31, 2016, after the reductions in workforce announced in June and August 2016, we have a total of 17 full-time employees. In
September 2016, following our restructuring actions, we announced that our Chief Financial Officer, Mark Fitzpatrick, was appointed to the role of Chief Executive Officer. We also expect that our Chief Development Officer, Roni Mamluk, who has been
employed by us since 2006 will be ending her full-time employment with us in the first half of 2017, and transitioning to a part-time consultant. In order to induce valuable employees to remain with us, we have provided employees with stock options
that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that we cannot control and, together with our other compensation programs and benefits, may at any time be
insufficient to counteract more lucrative offers from other companies.
We are highly dependent upon the principal members of our management team. These
executives have significant research and development, regulatory, industry, operational, and/or corporate finance experience. Our receipt of a CRL from the FDA related to our NDA may make the retention of these individuals, other principal members
of our management team and key employees more challenging. The loss of any executive, other principal member of our management team, key employee or member of our board of directors could impair our ability to develop and commercialize octreotide
capsules, if approved, and identify, develop and market new products and conduct successful operations.
In addition, if octreotide capsules are approved,
we will likely need to hire a significant number of qualified technical, commercial, medical and administrative personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas
of our activities. Other biopharmaceutical companies with which we compete for qualified personnel may have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more
diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel,
the rate and success at which we can develop and commercialize octreotide capsules, if approved, and any future product candidates we may develop would be impaired and could adversely affect our growth and financial performance.
We may acquire additional businesses 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
66
promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company
culture. We may have difficulty in developing, manufacturing and marketing the products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure
you that, following an acquisition, we will achieve the revenues or specific net income that justifies the acquisition.
Potential technological
changes in our field of business create considerable uncertainty.
We are engaged in the biopharmaceutical field, which is characterized by
extensive research efforts and rapid technological progress. New developments in research are expected to continue at a rapid pace in both industry and academia. We cannot assure you that research and discoveries by others will not render octreotide
capsules or future product candidates we may develop uncompetitive or obsolete. The longer-term success of our business depends upon our ability to develop octreotide capsules for other approved indications and utilize our TPE platform to develop
and commercialize oral forms of therapies that are currently only available in injectable or other
non-absorbable
forms, which strategy assumes we obtain regulatory approval of octreotide capsules in
acromegaly. We cannot assure you that unforeseen problems will not develop with our TPE technology or applications or that any commercially feasible products will ultimately be developed by us.
Our employees, independent contractors, consultants, commercial partners, principal investigators, CROs and vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees, independent contractors, consultants, commercial partners, principal investigators, CROs and vendors may engage
in fraudulent conduct or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory
authorities, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory
authorities, and to report financial information or data accurately or disclose unauthorized activities to us. The misconduct of our employees and contractors could also involve the improper use of information obtained in the course of clinical
trials, which could result in regulatory sanctions and serious harm to our reputation. In connection with our IPO, we implemented a code of conduct and ethics for our directors, officers and employees, but it is not always possible to identify and
deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business and results of operations, including the imposition of significant fines or other sanctions.
Our business and operations would suffer in
the event of computer system failures, cyber-attacks on our systems or deficiency in our cyber security.
Despite the implementation of security
measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, malware, natural disasters, fire, terrorism, war and telecommunication, electrical failures,
cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks
or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition,
our systems safeguard important confidential personal data regarding patients enrolled in our clinical trials. If a disruption event were to occur and cause interruptions in our operations, it could result in a disruption of our drug
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development programs. For example, the loss of clinical trial data from completed, ongoing or clinical trials that we may consider could result in delays in our regulatory approval efforts and
significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary
information, we could incur liability and the further development of octreotide capsules and any future product candidates we may develop could be delayed.
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme
weather conditions, medical epidemics, military conflicts, acts of terrorism and other natural or
man-made
disasters or business interruptions. Some of our operations are in Israel, which has a history of
certain conflicts. The occurrence of any business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce octreotide capsules. Our ability to obtain
clinical supplies of octreotide capsules could be disrupted if the operations of these suppliers are affected by a
man-made
or natural disaster or other business interruption, as we do not carry insurance to
cover such risks.
Laws and regulations governing conduct of international operations may negatively impact our development, manufacture and sale
of products outside of the United States and require us to develop and implement costly compliance programs.
As we have operations in Israel
and may seek to further expand our operations outside of the United States, we must comply with numerous laws and regulations in Israel and each other jurisdiction in which we plan to operate. The creation and implementation of international
business practices compliance programs is costly and such programs are difficult to enforce, particularly where we must rely on third parties.
The
Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the
purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with
certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of
internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The Securities and Exchange Commission, or SEC, is involved with enforcement of the books and records provisions of
the FCPA.
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the
FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in
connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain foreign
nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. An expanding presence outside of the United States will require us to dedicate additional resources to
comply with these laws, and these laws may preclude us from developing, manufacturing, or selling octreotide capsules and any future product candidates we may develop outside of the United States, which could limit our growth potential and increase
our development costs.
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The failure to comply with laws governing international business practices may result in substantial penalties,
including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government
until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of
our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. Additionally, the SEC also may suspend or bar issuers from
trading securities on U.S. exchanges for violations of the FCPAs accounting provisions.
Security breaches and other disruptions could
compromise our information and expose us to liability, which would cause our business and reputation to suffer.
We collect and store sensitive
data, including intellectual property, our proprietary business information and that of our manufacturers, business partners, healthcare professionals and patients. This includes, where required or permitted by applicable laws, personally
identifiable information. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or
breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of
information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely affect our business.
Compliance with changing European privacy laws could require us to incur significant costs or experience significant business disruption and failure to
so comply could result in an adverse impact on our business.
In Europe, Directive 95/46/EC of the European Parliament and of the Council of
24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, or the Directive, has required European Union member states to implement data protection laws to meet the
strict privacy requirements of the Directive. Among other requirements, the Directive regulates transfers of personally identifiable data that is subject to the Directive, or Personal Data, to countries such as the United States, that have not been
found to provide adequate protection to such Personal Data. We have not in the past and cannot in the future rely upon adherence to the U.S. Department of Commerces Safe Harbor Privacy Principles and compliance with the
U.S.-EU
and U.S.-Swiss Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, and the European Union and Switzerland, which established a means for legitimating the transfer of
Personal Data by data controllers in the European Economic Area, or the EEA, to the United States. As a result of the October 6, 2015 European Union Court of Justice, or ECJ, opinion in Case
C-362/14
(
Schrems v. Data Protection Commissioner
) regarding the adequacy of the
U.S.-EU
Safe Harbor Framework, the U.S. EU Safe Harbor Framework is no longer deemed to be a valid method of compliance
with requirements set forth in the Directive (and member states implementations thereof) regarding the transfer of Personal Data outside of the EEA.
In February 2016, negotiators from Europe and the United States reached political agreement on a successor to the Safe Harbor framework that is being referred
to as the
EU-US
Privacy Shield and a draft adequacy decision was presented by the European Commission on February 29, 2016. On April 13, 2016, the Article 29 Working Party, a body made up of a
representative from the data protection authority of each EU member State, expressed strong concerns about the adequacy of the
EU-US
Privacy Shield. In its opinion on the draft adequacy decision,
the Working Party noted that the framework does not incorporate some of the key principles of the EU data protection regime. Accordingly, the
EU-US
Privacy Shield was subject to further negotiations and
revisions. On May 26, 2016 the European Parliament adopted a resolution and on July 8, 2016 the European Member States representatives approved the final version of the
EU-US
Privacy Shield, paving
the way for the adoption of the decision by the European Commission. On July 12, 2016, the U.S. Department of Commerce announced that the
69
EU-US
Privacy Shield program would be open to registrants as of August 1, 2016. We conducted a self-assessment and subsequently self-certified under
the Privacy Shield Framework in September 2016, and received a notice of acceptance of our self-certification in October 2016. However, there continue to be concerns about whether the
EU-US
Privacy Shield will
face additional challenges (as the Safe Harbor framework did). We expect that for the immediate future, we will continue to face uncertainty as to whether our efforts to comply with our obligations under European privacy laws will be sufficient. If
we are investigated by a European data protection authority, we may face fines and other penalties. Any such investigation or charges by European data protection authorities could have a negative effect on our existing business.
The Directive will be replaced in time with the recently adopted European General Data Protection Regulation, which will enter into force on May 25,
2018, and which will impose additional obligations and risk upon our business and which will increase substantially the penalties to which we could be subject in the event of any
non-compliance,
including
fines of up to 10,000,000 Euros or up to 2% of the total worldwide annual turnover for certain comparatively minor offenses, or up to 20,000,000 Euros or up to 4% of the total worldwide annual turnover for more serious offenses. We may incur
substantial expense in complying with the new obligations to be imposed by the European General Data Protection Regulation and we may be required to make significant changes in our business operations.
Exchange rate fluctuations between the U.S. dollar and
non-U.S.
currencies may negatively affect our results of
operations.
The U.S. dollar is our functional and reporting currency, however, a portion of our operations are currently conducted in Israel and
most of the Israeli expenses are currently paid in New Israeli Shekels, or NIS. We also contract with CROs internationally, primarily for the execution of clinical trials and manufacturing activities. A portion of these transactions are settled in
Euros or Great British Pounds, or GBPs. As a result, we are exposed to the risk that the NIS, Euro or GBP may appreciate relative to the U.S. dollar, or, if the NIS, Euro or GBP instead devalue relative to the U.S. dollar, that the relative
inflation rate may exceed such rate of devaluation, or that the timing of such devaluation may lag behind the relative inflation. In any such event, the U.S. dollar cost of our operations in Israel and transactions with certain CROs would increase
and our U.S. dollar-denominated results of operations would be adversely affected. To date, we have not engaged in hedging transactions. In the future, we may enter into currency hedging transactions to decrease the risk of financial exposure from
fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations. If the U.S. dollar cost of our operations increases, our U.S.
dollar-measured results of operations will be adversely affected. See Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosure About Market Risk.
Risks Related to Our Intellectual Property
If we
are unable to protect our intellectual property rights or if our intellectual property rights are inadequate to protect our technology and product candidates, our competitors could develop and commercialize technology and drugs similar to ours, and
our competitive position could be harmed.
Our commercial success will depend in large part on our ability to obtain and maintain patent and other
intellectual property protection in the United States and other countries with respect to our proprietary technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality and other agreements with employees
and third parties, all of which offer only limited protection. Our strategy is to seek patent protection for our product candidates and compositions, their methods of use and processes for their manufacture, and any other aspects of inventions that
are commercially important to the development of our business.
The patent prosecution process is expensive and time-consuming, and we and any future
licensors and licensees may not be able to apply for or prosecute patents on certain aspects of our product candidates or delivery
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technologies at a reasonable cost, in a timely fashion, or at all. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights
to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. It is also possible that we or any future licensors or licensees, will
fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, our patents and applications may not be prosecuted and
enforced in a manner consistent with the best interests of our business. It is possible that defects of form in the preparation or filing of our patents or patent applications may exist, or may arise in the future, such as with respect to proper
priority claims, inventorship, claim scope or patent term adjustments. If any future licensors or licensees, are not fully cooperative or disagree with us as to the prosecution, maintenance, or enforcement of any patent rights, such patent rights
could be compromised and we might not be able to prevent third parties from making, using, and selling competing products. If there are material defects in the form or preparation of our patents or patent applications, such patents or applications
may be invalid or unenforceable. Moreover, our competitors may independently develop equivalent knowledge, methods, and
know-how.
Any of these outcomes could impair our ability to prevent competition from
third parties, which may have an adverse impact on our business, financial condition, and operating results.
The patent positions of biotechnology and
pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any
patents that issue, are highly uncertain. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and
outside the United States. Further, the examination process may require us to narrow the claims of pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights that may be
granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent
protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our technology and products may be impaired.
With respect to patent rights, we do not know whether any of our patent applications will result in issued patents or, if any of our patent applications do
issue, whether such patents will protect our technology and drugs, in whole or in part, or whether such patents will effectively prevent others from commercializing competitive technologies and products. There is no guarantee that any of our issued
or granted patents will not later be found invalid or unenforceable. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically
not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we were the first to make the inventions claimed in our pending patent applications, that we were
the first to file for patent protection of such inventions, or that we have found all of the potentially relevant prior art relating to our patents and patent applications that could invalidate one or more of our patents or prevent one or more of
our patent applications from issuing. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may initiate oppositions, interferences,
re-examinations,
post-grant reviews,
inter partes
reviews, nullification or derivation actions in court or before patent offices or similar proceedings challenging the validity, enforceability, or scope of such patents, which may result in the patent claims
being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates, or prevent others from designing
around our claims. Any of these outcomes could impair our ability to prevent competition from third parties.
Furthermore, the issuance of a patent is not
conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom
to operate or in patent claims being
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narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and drugs, or limit
the duration of the patent protection of our technology and drugs. Given the amount of time required for the development, testing and regulatory review of new drug candidates, patents protecting such candidates might expire before or shortly after
such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.
We may become 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 a patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be
an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or
non-enablement.
Grounds for an unenforceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is
unpredictable. A court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in
question. With respect to the validity question, for example, we cannot be certain that no invalidating prior art exists. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated,
found unenforceable, or interpreted narrowly, and it could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of
employee resources from our business. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of
our platform technology. Such a loss of patent protection could have an adverse impact on our business.
Interference proceedings brought by the USPTO may
be necessary to determine the priority of inventions with respect to our patents and patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the technology or to attempt to license
rights to it from the prevailing party. Our business could be harmed if a prevailing party does not offer us a license on terms that are acceptable to us. Litigation or interference proceedings may fail and, even if successful, may result in
substantial costs and distraction of our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our proprietary 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. In addition, there could 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 substantial adverse effect on the price of our common stock.
Moreover, we may be subject to a third-party
pre-issuance
submission of prior art to the USPTO or other foreign patent offices, or become involved in opposition, derivation, reexamination,
inter partes
review, post-grant review or interference
proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our
technology or drugs and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by
our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop, or commercialize current or future product candidates.
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We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on polypeptide containing capsules including octreotide capsules and our TPE platform throughout the world would be
prohibitively expensive, and our intellectual property rights in some countries outside the United States may be less extensive than those in the United States. In addition, the laws and practices of some foreign countries do not protect
intellectual property rights, especially those relating to life sciences, to the same extent as federal and state laws in the United States. For example, novel formulations of existing drugs and manufacturing processes may not be patentable in
certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Also, some foreign countries, including European Union countries, India, Japan and China, have compulsory licensing
laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. Consequently, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, and 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 into or within the United States or other jurisdictions. This could
limit our potential revenue opportunities. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we have
patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights
may not be effective or sufficient to prevent them from competing with us in these jurisdictions. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from
our intellectual property. We may not prevail in any lawsuits that we initiate in these foreign countries and the damages or other remedies awarded, if any, may not be commercially meaningful.
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.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to the USPTO and
various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and applications. The USPTO and various
non-U.S.
governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which
non-compliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which could be uncertain
and could harm our business.
While our product candidate is in clinical trials, we believe that the use of our product candidate in these clinical
trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the
FDA. As our current and any future product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. There can be no assurance that our current and any future product candidates do not
infringe other parties patents or other proprietary rights, however, and competitors or other parties may assert that we infringe their proprietary rights in any event. We may become party to, or threatened with, future adversarial proceedings
or litigation regarding intellectual property rights with respect to our product candidates, including interference or derivation proceedings before the USPTO. Third parties may assert infringement claims against us based on existing patents or
patents that may be granted in the future. If we are found to infringe a third partys intellectual property rights, we could be required to obtain a license from such third party to continue commercializing our product candidates. However, we
may not be able to obtain any required license on commercially reasonable terms or at all. Even if a license can be obtained on
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acceptable terms, the rights may be
non-exclusive,
which could give our competitors access to the same technology or intellectual property rights licensed
to us. If we fail to obtain a required license, we may be unable to effectively market product candidates based on our technology, which could limit our ability to generate revenue or achieve profitability and possibly prevent us from generating
revenue sufficient to sustain our operations. Alternatively, we may need to redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. Under certain circumstances, we could be forced, including by
court order, to cease commercializing our product candidates. In addition, in any such proceeding or litigation, we could be found liable for substantial monetary damages, potentially including treble damages and attorneys fees, if we are
found to have willfully infringed. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could harm our business. Any claims by third parties that we have
misappropriated their confidential information or trade secrets could have a similar negative impact on our business.
The cost to us in defending or
initiating any litigation or other proceeding relating to patent or other proprietary rights, even if resolved in our favor, could be substantial, and litigation would divert our managements attention. Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our
development efforts and limit our ability to continue our operations.
Octreotide capsules or any future products we may develop may infringe the
intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.
Our
success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of
third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of
patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of octreotide capsules or any future product
candidate. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop, or commercialize octreotide capsules, and we do not know if such patents and patent
applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:
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divert the time and attention of our technical personnel and management;
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cause product development or commercialization delays;
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prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;
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require us to cease or modify our use of the technology and/or develop
non-infringing
technology; or
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require us to enter into royalty or licensing agreements.
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Although no third party has asserted a claim of
infringement against us, others may hold proprietary rights that could prevent octreotide capsules or any future product candidates from being marketed. Any patent-related legal action against our collaborators or us claiming damages and seeking to
enjoin commercial activities relating to octreotide capsules or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market octreotide capsules or any future product
candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could
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redesign octreotide capsules or any future product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding,
or the failure to obtain necessary licenses, could prevent us from developing and commercializing octreotide capsules or a future product candidate, which could harm our business, financial condition and operating results.
A number of companies, including several major pharmaceutical companies, have conducted research on pharmaceutical uses of somatostatin analogs, which
resulted in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued U.S. patent in court, we would need to overcome a statutory presumption of validity that attaches to every
U.S. patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patents claims. If we were to challenge the validity of these or any issued U.S. patent in an
administrative trial before the Patent Trial and Appeal Board in the USPTO, we would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in our favor on
questions of infringement, validity or enforceability.
Our competitors may be able to circumvent our patents by developing similar or alternative
technologies or products in a
non-infringing
manner.
Our competitors may seek to market generic versions
of any approved products by submitting abbreviated NDAs to the FDA in which our competitors claim that our patents are invalid, unenforceable or not infringed. Alternatively, our competitors may seek approval to market their own products that are
the same as, similar to or otherwise competitive with octreotide capsules and any future product candidates we may develop. In these circumstances, we may need to defend or assert our patents, by means including filing lawsuits alleging patent
infringement requiring us to engage in complex, lengthy and costly litigation or other proceedings. In any of these types of proceedings, a court or government agency with jurisdiction may find our patents invalid, unenforceable or not infringed. We
may also fail to identify patentable aspects of our development activities before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or
processes sufficient to achieve our business objectives.
Changes in either U.S. or foreign patent law or interpretation of such laws could diminish
the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology companies, our
success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and it therefore is costly, time-consuming and inherently
uncertain. In addition, on September 16, 2011, the Leahy-Smith America Invents Act, or the AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent
applications will be prosecuted and may also affect patent litigation.
An important change introduced by the AIA is that, as of March 16, 2013, the
United States transitioned to a
first-to-file
system for deciding which party should be granted a patent when two or more patent applications are filed by
different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was
made by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application.
Among some of
the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents,
even those issued before March 16, 2013. Because of a lower evidentiary standard necessary to invalidate a patent claim in USPTO proceedings compared to the evidentiary standard in United States federal court, a third party could potentially
provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to
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invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been
invalidated if first challenged by the third party as a defendant in a district court action.
Depending on decisions by the United States Congress, the
federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and
patents that we might obtain in the future.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive
position would be harmed.
In addition to seeking patent protection for certain aspects of our product candidates and delivery technologies, we
also consider trade secrets, including confidential and unpatented
know-how
important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented
know-how,
in part, by entering into
non-disclosure
and confidentiality agreements with parties who have access to such knowledge, such as our employees, outside scientific
collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain
confidentiality and assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for
such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the United States and certain foreign
jurisdictions are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them from using that technology or
information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
If our trademarks are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be
adversely affected.
Our trademarks may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks.
We may not be able to protect our rights to these trademarks or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. If we are unable to establish name recognition
based on our trademarks, we may not be able to compete effectively and our business may be adversely affected.
We may be subject to claims that our
employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have received
confidential and proprietary information from third parties. In addition, we employ individuals who were previously employed at other companies and universities. We may be subject to claims that we or our employees, consultants or independent
contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending
against these claims, litigation could result in substantial cost and be a distraction to our management and employees.
Risks Related to Our
Operations in Israel
The tax benefits available to us under Israeli law require us to meet several conditions and may be terminated or reduced
in the future, which would increase our costs and taxes.
We are able to take advantage of tax exemptions and reductions resulting from the
beneficiary enterprise status of our facilities in Israel. To remain eligible for these tax benefits, we must continue to meet certain conditions
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stipulated in the Israeli Law for the Encouragement of Capital Investments, 1959 and its regulations. If we fail to meet these conditions in the future, the tax benefits would be canceled and we
could be required to refund any tax benefits we might already have received. These tax benefits may not be continued in the future at their current levels or at any level. In recent years, the Israeli government has reduced the benefits available
and has indicated that it may further reduce or eliminate some of these benefits in the future. The termination or reduction of these tax benefits may increase our income taxes in the future. Additionally, if we increase our activities outside of
Israel, for example, by future acquisitions, our increased activities generally will not be eligible for inclusion in Israeli tax benefit programs. Our move out of our Jerusalem location in 2016 may also negatively impact the local tax benefits we
have received by operating there.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our
employees, which could result in litigation and harm our business.
A significant portion of our intellectual property has been developed by our
employees in the course of their employment for us. Under the Israeli Patent Law, 5727-1967 (the Patent Law), and recent decisions by the Israeli Supreme Court and the Israeli Compensation and Royalties Committee, a body constituted under the Patent
Law, employees may be entitled to remuneration for intellectual property that they develop for us unless they waive any such rights. Although we enter into agreements with our employees pursuant to which they agree that any inventions created in the
scope of their employment or engagement are owned exclusively by us, and our current separation agreements with Israeli employees who have left our company include a waiver of all claims, rights or payments under Israeli law, we may still face
claims demanding remuneration. As a consequence of such claims, we could be required to pay additional remuneration or royalties to our current and former employees, or be forced to litigate such claims, which could negatively affect our business.
Our development and administrative facilities and one of our third-party manufacturers are located in Israel and, therefore, our business could be
hurt by political and military instability affecting Israel.
Our development and administrative facilities and one of our third-party
manufacturers facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business. Any hostilities involving Israel or the interruption or curtailment
of trade within Israel or between Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations and could make it more difficult for us to raise capital. Instability in the region
may lead to deterioration of the political relationships that exist between Israel and these countries and has raised concerns regarding security in the region and the potential for armed conflict. Our commercial insurance does not cover losses that
may occur as a result of an event associated with the security situation in the Middle East. Any losses or damages incurred by us could have an adverse effect on our business. Any armed conflicts, terrorist activities or political instability in the
region could materially and adversely affect our business, financial condition and results of operations.
Our operations may be disrupted as a
result of the obligation of Israeli citizens to perform military service.
Many Israeli citizens are obligated to perform several days, and in some
cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or have certain occupations) and, in the event of a military conflict, may be called to active duty. In response
to increases in terrorist activity, there have been periods of significant
call-ups
of military reservists. It is possible that there will be military reserve duty
call-ups
in the future. Our operations could be disrupted by such
call-ups,
which may include the
call-up
of members of our
management. Such disruption could harm our business, financial condition and results of operations.
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Under current Israeli law, we may not be able to enforce our Israeli employees covenants not to
compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We generally
enter into
non-competition
agreements with our key employees, in most cases within the framework of their employment agreements. These agreements prohibit our key employees, if they cease working for us, from
competing directly with us or working for our competitors for a limited period. Under applicable Israeli law, it is difficult (and may even be impossible) to enforce these agreements or any part thereof against our Israeli employees unless it can be
shown that there are special circumstances in any particular case. If we cannot enforce our
non-competition
agreements against our Israeli employees, then we may be unable to prevent our competitors from
benefiting from the expertise of these former employees, which could impair our business, results of operations and ability to capitalize on our proprietary information.
Risks Related to Our Common Stock
We may not be
able to utilize a significant portion of our net operating loss carryforwards, which could negatively impact our profitability.
At
December 31, 2016, we had federal net operating loss, or NOL, carryforwards of approximately $126.9 million. The federal NOL carryforwards expire at various dates through 2036. At December 31, 2016, there were no NOL carryforwards in
our Israeli subsidiary.
Under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, substantial changes in our
ownership may limit the amount of federal NOL carryforwards that can be utilized annually in the future to offset our U.S. federal taxable income. Specifically, this limitation may arise in the event of a cumulative change in our ownership of more
than 50% within any three-year period. Management has determined that we experienced an ownership change for purposes of Section 382 on August 16, 2005 and May 12, 2008. These ownership changes resulted in annual limitations to the
amount of NOL carryforwards that can be utilized to offset future taxable income, if any, at the federal level. The annual limit is approximately $0.1 million for 2016 and each year thereafter. These annual limitations resulted in the loss of
our ability to utilize approximately $8.9 million in federal NOL carryforwards, which resulted in a
write-off
of approximately $3.0 million of federal deferred tax assets prior to 2014. In addition,
future changes in our stock ownership, which may be outside of our control, may trigger an ownership change, as may future equity acquisitions that have equity as a component and of the purchase price. If additional ownership changes occur in the
future, our ability to utilize our net operating losses to offset income if we attain profitability may be limited.
Our directors, executive
officers and principal stockholders exercise significant control over our company, which will limit your ability to influence corporate matters.
As of December 31, 2016, our executive officers, directors and principal stockholders collectively controlled approximately 64.5% of our outstanding
common stock, excluding any shares of common stock that such persons may have the right to acquire upon exercise of outstanding options or warrants. As a result, these stockholders, if they act together, will be able to influence our management and
affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions.
Provisions of Delaware law or our charter documents could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to
our stockholders, and could make it more difficult for you to change our current management.
Provisions of Delaware law and our amended and
restated certificate of incorporation and amended and restated bylaws, may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might
otherwise receive a premium for their
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shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:
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a classified board of directors;
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limitations on the removal of directors;
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advance notice requirements for stockholder proposals and nominations;
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the inability of stockholders to act by written consent or to call special meetings;
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the ability of our board of directors to make, alter or repeal our amended and restated bylaws; and
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the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine.
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The affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote, and not less than 75% of the outstanding shares of each
class entitled to vote thereon as a class, is necessary to amend or repeal the above provisions that are contained in our amended and restated certificate of incorporation. In addition, absent approval of our board of directors, our amended and
restated bylaws may only be amended or repealed by the affirmative vote of the holders of at least 75% of our shares of capital stock entitled to vote.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which limits business combination transactions with
stockholders of 15% or more of our outstanding voting stock that our board of directors has not approved. These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation.
These provisions may apply even if some stockholders may consider the transaction beneficial to them.
As a result, these provisions could limit the price
that investors are willing to pay in the future for shares of our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then
current market price for our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the
Court of Chancery of the State of Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our
directors, officers or employees.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the Court of
Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers or other
employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or
(iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated
certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
The trading price of our common stock may be volatile, and your investment in our common stock could decline in value and incur substantial losses.
On July 21, 2015, we completed the sale of 7,319,750 shares of our common stock in our IPO, at a price to the public of $16.00 per share.
There has been a public market for our common stock for only a relatively short period of time. Although our common stock is listed on The NASDAQ Global Select Market, an active public market for our common stock may not emerge or be sustained.
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In addition, the market price for our common stock may fluctuate significantly in response to a number of
factors, including:
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our interactions with the FDA regarding our product candidate, octreotide capsules in acromegaly;
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the enrollment and results of our ongoing MPOWERED Phase 3 clinical trial of octreotide capsules or any future clinical trials we may conduct, or changes in the development status of octreotide capsules or any other
product candidates we may develop;
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any delay in our regulatory filings for octreotide capsules or any other future product candidate and any adverse development or perceived adverse development with respect to the applicable regulatory authoritys
review of such filings;
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adverse results or delays in clinical trials;
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our decision to initiate a clinical trial, including a new Phase 3 trial with a design consistent with the strong recommendations of the FDA, not to initiate a clinical trial or to terminate an existing clinical trial;
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adverse regulatory decisions, including failure to receive regulatory approval of octreotide capsules, such as occurred on April 15, 2016 with the FDAs CRL to our NDA;
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changes in laws or regulations applicable to octreotide capsules or any other future product candidates, including clinical trial requirements for approvals;
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adverse developments concerning our manufacturers;
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our inability to obtain adequate supply of clinical trial material or for any approved drug or inability to do so at acceptable prices;
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our inability to establish collaborations, if needed;
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failure to commercialize octreotide capsules or any other future product candidates, if approved;
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our ability to obtain coverage and adequate reimbursement from third-party payors for octreotide capsules or any other future product candidates, if approved;
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unanticipated serious safety concerns related to the use of octreotide capsules or any other future product candidates;
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our ability to effectively manage our operations or changes in organizational structure;
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the size and growth of our initial target markets;
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actual or anticipated variations in our operating results;
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changes in financial estimates by us or by any securities analysts who might cover our stock;
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conditions or trends in our industry;
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changes in the market valuations of similar companies;
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stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the biopharmaceutical industry;
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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;
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announcements by us or our competitors of significant acquisitions, strategic partnerships or divestitures;
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announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
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investors general perception of our company and our business;
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recruitment or departure of key personnel;
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sales of our common stock in the future, including sales by our directors and officers or specific stockholders;
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overall performance of the equity markets;
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trading volume of our common stock;
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changes in accounting practices;
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ineffectiveness of our internal controls;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
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significant lawsuits, including patent or stockholder litigation;
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general political and economic conditions; and
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other events or factors, many of which are beyond our control.
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We are recently the subject of
securities litigation, which is expensive and may divert our managements attention.
On June 9, 2016, Chiasma, Inc. and certain of our
current and former officers were named as defendants in a purported federal securities class action lawsuit filed in the United States District Court for the District of Massachusetts, styled
Gerneth v. Chiasma, Inc., et al
. This lawsuit
challenges our public statements regarding our Phase 3 clinical trial methodology for octreotide capsules and our ability to obtain FDA approval for the marketing and sale of octreotide capsules. In December 2016, a lead plaintiff was appointed in
the case. An amended complaint was filed by the lead plaintiff on February 10, 2017 similarly challenging our statements regarding the Phase 3 clinical trial methodology and results, and our ability to obtain FDA approval for octreotide
capsules, in violation of Sections 11 and 15 of the Securities Act of 1933. The amended complaint adds as defendants current and former members of the Companys Board of Directors, as well as the investment banks that underwrote our Initial
Public Offering (IPO). The lead plaintiff seeks to represent a class of all purchasers of Chiasma stock made pursuant to the Companys IPO on July 15, 2015. Plaintiff is seeking an unspecified amount of compensatory damages on
behalf of himself and members of a putative shareholder class, including interest and reasonable costs and expenses incurred in litigating the action, and any other relief the court determines is appropriate. We believe this lawsuit is meritless and
intend to vigorously defend against it. At this time, no assessment can be made as to the likely outcome of this lawsuit or whether the outcome will be material to us.
This litigation may result in substantial costs and divert our managements attention from other business concerns, which could seriously harm our
business. We may not be successful in defending these claims and cannot provide assurance that insurance proceeds will be sufficient to cover any liability under such claims.
We are an emerging growth company and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging
growth companies, which could result in our securities being less attractive to investors.
We are an emerging growth company, as defined in the
Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of 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 of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We could be an emerging growth company for up to five
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years following the year of our IPO, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by
non-affiliates
exceeds $700 million as of June 30 in any year before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which
cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more than $1.0 billion in
non-convertible
debt during any three-year period before that time, we
would cease to be an emerging growth company immediately. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company which would allow us to take advantage of many of the same
exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a result, there may be a less active
trading market for our securities and the price of our securities may be more volatile.
Under the JOBS Act, emerging growth companies can also delay
adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject
to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the
application of existing guidance to changes in our business could adversely affect our financial position and results of operations.
We have never
paid cash dividends on our capital 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,
which may not occur.
We have not paid cash dividends on any of our classes of capital stock to date and we currently intend to retain 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 your sole source of gain for the foreseeable future. Consequently, in the foreseeable future, you will
likely only experience a gain from your investment in our common stock if the price of our common stock increases.
We incur significant increased
costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance initiatives and other activities associated with being a public company.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as
well as rules subsequently implemented by the SEC and The NASDAQ Stock Market, has imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in
corporate governance practices. Our management and other personnel are required to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations have substantially increased our legal and financial
compliance costs and have made some activities more time consuming and costly. These rules and regulations may make it more difficult and more expensive for us to maintain our existing director and officer liability insurance or to obtain similar
coverage from an alternative provider.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial
reporting and disclosure controls and procedures. In particular, pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to perform system and process evaluation and testing of our internal controls over financial reporting to allow
management to report on the effectiveness of our internal controls over financial reporting. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial
reporting that are deemed to be material weaknesses. Our
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compliance with Section 404 will require us to continue to incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group,
and we may need to hire additional accounting and financial staff. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identifies
deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by The NASDAQ Stock Market, the SEC or other
regulatory authorities, which would require additional financial and management resources.
If we fail to maintain proper and effective internal
controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the stock market on which our common stock is listed. The Sarbanes-Oxley Act requires, among other things, that we
maintain effective disclosure controls and procedures and internal control over financial reporting. Commencing with our fiscal year ending December 31, 2016, we must perform system and process evaluation and testing of our internal control
over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in this and future
Form 10-K
filings, as required by Section 404 of the
Sarbanes-Oxley Act. This requires that we incur substantial additional professional fees and that we expend significant management efforts. Prior to our IPO, we had never been required to test our internal control within a specified period, and, as
a result, we may experience difficulty in meeting these reporting requirements in a timely manner.
We may discover weaknesses in our system of internal
financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.
If we are not able
to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that
were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.
In addition, if, as a result of restructuring the company, we increase our reliance on contractors for important business functions, it may be more difficult
to collect, analyze and report the information we are obligated to disclose as a public company and this could result in a material misstatement or omission in our disclosures.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which
could cause the market price of our common stock to drop significantly, even if our business is otherwise doing well.
If our existing stockholders
sell, or indicate an intent to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly. As of December 31, 2016, we had 24,359,584 outstanding shares of common stock,
assuming no exercise of outstanding options or warrants.
In addition, the 3,652,801 shares subject to outstanding options under our stock option plans,
the 3,169,001 shares reserved for future issuance under our stock option plans and the 3,567,015 shares subject to outstanding warrants will become eligible for sale in the public market in the future, subject to certain legal and contractual
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limitations. Moreover, holders of approximately 16,543,995 shares of our common stock have the right to require us to register these shares under the Securities Act pursuant to an investors
rights agreement. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even
if there is no relationship between such sales and the performance of our business.
If securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business, our trading price and trading volume could decline.
The trading market for our
securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. Since our IPO, four securities analysts have initiated coverage on our company. Since these coverage initiations, and
following the receipt of the CRL to our NDA from the FDA, each of these analysts has downgraded their ratings on and lowered their price targets for our stock, and three have since dropped coverage. In the event that one or more analysts who now, or
in the future, cover us further downgrades our stock or publishes inaccurate or unfavorable research about our business, our trading price would likely decline. If one or more analysts, now or in the future, cease coverage of our company or fail to
publish reports on us regularly, demand for our stock could decrease, which might cause our trading price and trading volume to decline.