This Annual Report
on Form 10-K (including the section regarding Management's Discussion and Analysis and Results of Operation) contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are based on our management’s
belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected
in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance,
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements.
In some cases, you
can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,”
“intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,”
“potential,” “continue” or the negative of these terms or other comparable terminology. These statements
are only predictions. You should not place undue reliance on forward-looking statements, because they involve known and unknown
risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results.
Factors that may cause actual results to differ materially from current expectations include, among other things, those listed
under “Risk Factors” in this Annual Report on Form 10-K and the reports we file with the SEC. Actual events or results
may vary significantly from those implied or projected by the forward-looking statements due to these risk factors. No forward-looking
statement is a guarantee of future performance. You should read this Annual Report on Form 10-K and the documents that we reference
in this Annual Report on Form 10-K and have filed as exhibits thereto with the Securities and Exchange Commission, or the SEC,
with the understanding that our actual future results and circumstances may be materially different from what we expect.
Forward-looking statements
are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation
to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as
may be required by applicable law. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee future results, levels of activity, performance or achievements.
Unless the context
otherwise requires, the terms “Nexus,” “Nexus BioPharma,” “the Company,” “we,”
“us,” and “our” in this report refer to Nexus BioPharma, Inc., a Nevada corporation and its consolidated
subsidiaries.
We are a life science
company focused on the development and commercialization of a pharmaceutical preparation to treat obesity and the symptoms of
type 2 diabetes. We believe that a drug that will step up the body’s metabolism of fat will address the biggest health problem
in the world, obesity. Obesity is also implicated as a causative and an additive to a host of other conditions, the most important
of which are Type 2 diabetes, cardiovascular disease and cancer. Type 2 diabetes, which now consumes roughly one sixth of every
health care dollar in America, is a direct result of obesity.
On November 16, 2016
we were selected to become a resident company at the Johnson & Johnson Innovation, JLABS facility at the Texas Medical Center
in Houston, (JLABS @ TMCx). The Company has therefor relocated its headquarters to Houston, Texas as of February 1, 2017. The
Company will begin by occupying office space and will later expand its physical operations to take advantage of the availability
of laboratory facilities and equipment and especially the access to expertise and mentoring that make this a compelling opportunity
for the Company.
We are working on the
connection between cellular regulatory pathways that regulate obesity/diabetes and cancer. For our first product opportunity we
have engaged Charles River Laboratories for the discovery of a small molecule drug that activates these pathways to increase energy
expenditure. In completed animal trials our proprietary approach to the pharmaceutical activation of this LKB-1 AMPK (Adenosine
Monophosphate dependent Protein Kinase) pathway resulted in increased energy expenditure, decreased fat mass and resulting weight
loss, lower blood glucose, improved insulin sensitivity, lower cholesterol, and lower blood triglyceride levels.
Unlike most other FDA
approved weight loss drugs, our therapeutic strategy does not depend on a pharmaco-neurological manipulation of the higher-brain
centers for appetite and/or satiety. Rather, our proprietary drug approach targets this master energy regulatory pathway that
has been proven to exist not only in higher mammals, but also in all living cells that possess a nucleus. Because an intensive
aerobic and resistance strength-training regime is the natural way to activate these pathway effects, we believe that our drug
will help obese patients mimic the effect of a more healthy lifestyle and lose weight.
We believe that a drug
that will step up the body’s metabolism of fat will address obesity, the biggest health problem in the world, obesity. Obesity
is also implicated as a causative and an additive to a host of other conditions, the most important of which are Type 2 diabetes,
cardiovascular disease and cancer. Type 2 diabetes, which now consumes roughly one sixth of every health care dollar in America,
is a direct result of obesity.
The long-term activation
of this pathway could also have major effects in the reduction of the incidence of cancer. At its most basic, cancer is the result
of uncontrolled cell division. For one cell to successfully divide into two cells the cell must make sure that there is sufficient
protein, nucleic material, lipids, etc. to make two cells from one. This sensing of cellular nutrition availability is the pathway’s
basic role. Upon activation, the pathway instructs the cell to delay cell division until conditions of more abundant nutrition
are present. This natural brake on cell division could suppress the development and progression of cancer. There is a rapidly
growing body of data that supports the anti-cancer and life extension implications of our efforts.
Considering the size
and importance of the market, there is a shortage of FDA approved drugs and especially a shortage of approaches to the obesity
problem. Products that are currently available for obesity accomplish only one of the following: (i) curb appetite, (ii) induce
satiety (feeling of fullness) or (iii) reduce absorption of fat in the intestines. Products in all three categories have dangerous
side effects more fully described in the section “
Competition.”
Our approach aims to allow people to eat normally
without such side effects or discomfort so they can enjoy a more satisfying lifestyle.
We are the exclusive
licensee of technology that addresses the key energy balance regulator in the cells of our bodies. The discovery is outlined in
“
Fyn-Dependent Regulation of Energy Expenditure and Body Weight Is Mediated by Tyrosine Phosphorylation of LKB1
”
(Bastie, Schwartz, Kurland, Pessin, Yamada,
Cell Metabolism 11,
113-124). In the article Dr. Jeffrey E. Pessin and colleagues
demonstrate that by adjusting the “energy input-output imbalance” via the Fyn, LKB-1, AMPK pathway, test animals showed
reduced adiposity with no loss of lean muscle mass, a higher rate of energy expenditure, increased insulin sensitivity, increased
fatty acid oxidation, improved plasma and tissue triglyceride levels and lower cholesterol.
By activating LKB-1
to control AMPK (the master energy regulator) our proprietary pathway simulates the condition of a higher metabolism caused by
high levels of exercise conditioning, namely high aerobic efficiency and increased lean muscle mass in the body. Also, activated
LKB-1 has known anti-cancer effects suggesting that our anti-obesity therapeutic intervention in this pathway warrants further
investigation of our therapeutic in patients with cancer.
Experiments in animals
were conducted by the Pessin Bastie team at Albert Einstein College of Medicine to determine if the positive metabolic effects
could also be induced by a small molecule. The team used the research compound SU6656, a non-specific kinase inhibitor unsuitable
for use in humans, in wild-type, genetically unaltered mice. The research suggested that the acute pharmacological inhibition
of Fyn kinase activity with SU6656 reproduced the following metabolic effects and induced a specific reduction in fat mass with
no change in lean mass.
We have conducted a
screening project with respect to the discovery of small molecule compounds which can mimic fat mass loss effect in humans. We
have utilized an agreement with BioFocus DPI, Ltd., a Charles River Laboratories subsidiary and a major Clinical Research Organization
(“CRO”), for virtual screening, assay development and optimization, compound selection and screening, and active-to-hit
work to support hit identification of inhibitors of Fyn kinase. The work plan also calls for the progression of a defined number
of compounds into
in vivo
pharmaco-kinetics and the evaluation of promising candidate compounds in efficacy studies in
a diabetes-induced obesity animal model.
We conduct regular
teleconferences with BioFocus Scientists for progress updates. The screening effort has progressed through stages including:
We added the selectivity
screen to minimize off target effects in an effort to minimize side effects, which we feel will significantly further our progress
to a viable commercial product.
In addition, there
are numerous articles in the medical research literature describing fyn inhibition, LKB-1 activation, and/or AMPK activation having
positive effects in longevity extension, cardiac reperfusion injury, sarcopenia (muscle wasting), traumatic brain injury, addiction,
and schizophrenia.
Industry Overview
The foregoing competitive
analysis is based upon the following three areas:
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Prescription weight loss drugs
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Annual Sales (including off-label)
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approximately $250 Million
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Non-Prescription weight loss
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Annual Sales
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approximately $60 Billion
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Type 2 diabetes (including insulin)
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Annual Sales
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approximately $46 Billion
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Prescription Weight Loss Drugs
Appetite Control
Dexfenfluramine (removed from market in
1997)
Dexfenfluramine, marketed
as dexfenfluramine hydrochloride under the name Redux, is a serotoninergic anorectic drug which reduces appetite by increasing
the amount of extracellular serotonin in the brain. In the mid-1990s, Dexfenfluramine was approved by the United States Food and
Drug Administration (“FDA”) for the purposes of weight loss. However, following multiple concerns about the cardiovascular
side-effects of the drug, FDA approval was withdrawn and the product was removed from the market in 1997.
Fenfluramine (Removed from market 1997)
Fenfluramine (3-trifluoromethyl-N-ethylamphetamine,
trade names Pondimin, Ponderax and Adifax) was part of the Fen-Phen anti-obesity medication (the other drug being phentermine).
Fenfluramine was introduced in the U.S. market in 1973. It increased the level of the neurotransmitter serotonin, a chemical that
regulates mood, appetite and other function which results in a feeling of fullness and loss of appetite. The drug was withdrawn
from the U.S. market in 1997 after reports of heart valve disease and pulmonary hypertension, including a condition known as cardiac
fibrosis
Phenylpropanolamine (removed from market 2005)
Phenylpropanolamine
(“PPA”), trade name Accutrim, is a psychoactive drug that is used as a stimulant, decongestant and anorectic agent.
Phenylpropanolamine acts as a potent and selective releasing agent of norepinephrine and epinephrine, or as a norepinephrine releasing
agent (“NRA”). It also acts as a dopamine releasing agent (“DRA”) to a lesser extent.
Phentermine
Phentermine, a contraction
of "phenyl-tertiary-butylamine", is a psychostimulant drug of the phenethylamine class, with pharmacology similar to
amphetamine. It is used medically as an appetite suppressant. Phentermine, approved in 1959 and now made by several manufacturers,
commands 80% of the market for diet drugs, according to IMS Health, which tracks prescription drug use. Side effects include palpitations,
tachycardia, and elevation of blood pressure, overstimulation, restlessness, dizziness, insomnia, euphoria, dysphoria, tremor,
and headache, dryness of the mouth, unpleasant taste, diarrhea, constipation, allergic effects, urticaria and changes in libido.
After short-term use, tolerance begins and can be followed by rebound weight gain. Long term data for use of phentermine shows
no net weight loss.
Qsymia (Approximately $60 Million in sales in 2015)
The combination of
the drugs phentermine and topiramate (trade name Qsymia, formerly Qnexa) is a medication for the treatment of obesity and potentially
related conditions such as type 2 diabetes and has been found to lower blood pressure and cholesterol. Qsymia was developed by
Vivus, a California pharmaceutical company. Phentermine is an appetite suppressant and stimulant of the amphetamine and phenethylamine
class. Topiramate is an anticonvulsant that has weight loss side effects. On July 17, 2012, the FDA approved Qsymia as an addition
to a reduced-calorie diet and exercise for chronic weight management with recommendations for post-market monitoring for cardiovascular
risk and an indication against use by pregnant women.
Contrave
(Approximately $52 Million
in sales in 2015)
Contrave is a fixed-dose
combination of bupropion and Orexigen´s proprietary SR version of naltrexone. Bupropion is thought to increase the level
of dopamine activity at specific receptors in the brain, which appears to lead to a reduction in appetite and increase in energy
expenditure by increasing activity of proopiomelanocortin (“POMC”) neurons. Naltrexone works by blocking opioid receptors
on the POMC neurons, preventing feedback inhibition of these neurons and further increasing POMC activity. In the Contrave clinical
development program, the most frequent adverse effects on Contrave were nausea, constipation, headache, vomiting, dizziness, insomnia,
dry mouth, and diarrhea.
Desoxyn
(Sales figures for off-label use as appetite suppressant not available)
Desoxyn (methamphetamine
hydrochloride tablets, USP), chemically known as (S)-N,α-dimethylbenzeneethanamine hydrochloride, is a central nervous system
stimulant prescription medicine used for the treatment of Attention-Deficit Hyperactivity Disorder (“ADHD”) and sometimes
prescribed off-label for appetite control. A controlled substance, it can cause rapid or irregular heartbeat, delirium, panic,
psychosis, and heart failure.
Bontril
(
Sales figures for off-label use as appetite suppressant not available)
Bontril (phendimetrazine)
is a sympathomimetic amine, which is similar to an amphetamine. It is also known as an "anorectic" or "anorexigenic"
drug. Bontril stimulates the central nervous system, which increases heart rate and blood pressure and decreases appetite. A controlled
substance, it can cause rapid or irregular heartbeat, delirium, panic, psychosis, and heart failure.
Inducing Satiety (Feeling of Fullness)
Sibutramine (Removed from the market 2010)
Sibutramine, trade
name Meridia (usually in the form of the hydrochloride monohydrate salt) is an oral anorexiant. Sibutramine is a neurotransmitter
reuptake inhibitor that reduces the reuptake of serotonin by 53%, norepinephrine by 54%, and dopamine by 16%, thereby increasing
the levels of these substances in synaptic clefts and helping enhance satiety.
Belviq (Approximately $70 Million in sales
in 2014)
Lorcaserin is a selective
5-HT
2C
receptor agonist, and in vitro testing of the drug showed reasonable selectivity for 5-HT
2C
over
other related targets. 5-HT
2C
receptor activation in the hypothalamus is supposed to activate POMC production and consequently
promote weight loss through satiety. Side effects include valvular heart disease, trouble breathing, swelling of the arms, legs,
ankles, or feet, dizziness, fatigue, or weakness that will not subside, fast or irregular heartbeat, changes in attention or memory,
hallucinations, depression or thoughts of suicide, low blood sugar, painful erections, slow heartbeat, decreases in blood cell
count and an increase in prolactin. Belviq is a federally controlled substance (“CIV”) because it may be abused or
lead to drug dependence.
Preventing Fat Absorption
Orlistat (worldwide sales $400 Million in 2012, declined to
$215 Million in sales in 2013)
Orlistat (also known
as tetrahydrolipstatin) is a drug designed to treat obesity. It is marketed as a prescription under the trade name Xenical by
Roche in most countries, and is sold over-the-counter as Alli by GlaxoSmithKline in the United Kingdom and the United States Its
primary function is preventing the absorption of fats from the human diet, thereby reducing caloric intake. The effectiveness
of Orlistat in promoting weight loss is definite, though modest. Orlistat is notorious for its gastrointestinal side effects (sometimes
referred to as treatment effects), which can include steatorrhea (oily, loose stools).
Adjusting Metabolism
DNP (discontinued in the U.S. in 1938)
2,4-Dinitrophenol (2,4-DNP,
or simply DNP), C
6
H
4
N
2
O
5
, is an inhibitor of efficient energy (“ATP”)
production in cells with mitochondria. It uncouples oxidative phosphorylation by carrying protons across the mitochondrial membrane,
leading to a rapid consumption of energy without generation of ATP. Prior to 1938 it was used as a dieting aid, but because it
dangerously raises body temperature in a dose dependent manner, it is considered too toxic for use today. Although sales of DNP
were discontinued in the U.S. in 1938, it is still being sold over the Internet as an “industrial chemical” due to
its popularity with bodybuilders.
Beloranib, ZGN-1061
Beloranib was an experimental
drug candidate for the treatment of obesity. It was discovered by CKD Pharmaceuticals and was being developed by Zafgen. Beloranib,
an analog of the natural chemical compound fumagillin, is an inhibitor of the enzyme METAP2. It was originally designed as angiogenesis
inhibitor for the treatment of cancer. However, once the potential anti-obesity effects of METAP2 inhibition became apparent,
the clinical development began to focus on these effects and Beloranib has shown positive results in preliminary clinical trials
for this indication. The precise mechanism for the anti-obesity effect of MetAP2 inhibitors is not well elucidated. However, non-enzymatic
actions of MetAP2 to suppress activity of extracellular signal regulated kinases 1 and 2 (ERK1/2) represent one of the key mechanisms
for the observed anti-obesity effect. MetAP2 inhibition results in to suppression of sterol regulatory element binding protein
(“SREBP”) activity, leading to reduced lipid and cholesterol biosynthesis via ERK-related pathways. Extended fumagillin
exposure results in changes in the expression patterns of hepatic and adipose tissue genes suggesting that MetAP2 inhibition also
alters the relative abundance of factors involved in inflammation, consistent with reduced ERK-dependent cellular processes. Recent
clinical trials with Beloranib (MetAP2 inhibitor) demonstrated an increase in the levels of key catabolic hormones adiponectin
and FGF-21. Coupled with the appearance of ketone bodies (beta-hydroxybutyrate), this suggests that MetAP2 inhibition stimulates
energy expenditure, fat utilization, and lipid excretion. The reduction in leptin levels was also consistent with a decrease in
total adipose tissue and negative energy balance.
On December 2, 2015, the FDA notified
Zafgen that the Beloranib investigational new drug application (“IND”) had been placed on complete clinical hold due
to an imbalance in severe venous thromboembolic events, including two patient deaths. Subsequently Zafgen commenced development
of ZGN-1061, a fumagillin-class, injectable small molecule second generation MetAP2 inhibitor that was discovered by Zafgen's
researchers and has been shown to have an improved profile relative to previous inhibitors in the class, like other MetAP2 inhibitors
that have shown promise in the treatment of metabolic diseases. MetAP2 inhibitors work by re-establishing balance to the
ways the body packages and metabolizes fat and by improving control of blood glucose. ZGN-1061 modulates the activity of key cellular
processes that control the body's ability to make and store fat, and utilize fat and glucose as an energy source. ZGN-1061 is
also anticipated to help reduce hunger and restore balance to fat metabolism, enabling calories to once again be used as a productive
energy source, leading to weight loss and improved metabolic control. ZGN-1061 has an emerging safety profile and dosage form
that are believed to be appropriate for the treatment of metabolic diseases, including type 2 diabetes and obesity. ZGN-1061 is
in Phase 1 clinical trials, designed to characterize and confirm its pharmacokinetic profile and will evaluate safety, tolerability,
and weight loss efficacy over four weeks of treatment.
As far as the Company
has been able to determine, Beloranib has been the only credible metabolism adjusting drug either approved or in clinical development.
Non-Prescription Weight Loss
(Over the counter (“OTC”)
diet pills, bariatric surgery, lifestyle intervention programs, fitness equipment)
The global weight loss
management market is expected to reach $206.4 billion by 2019 from $148.1 billion in 2014, growing at a compound annual growth
rate (“CAGR”) of 6.9%. America’s estimated 108 million dieters, about 82% of whom try to lose weight by themselves,
drove the total U.S. weight loss market to revenues of $61.6 billion in 2012 and $60.6 billion in 2011, up 3.8% from $58.4 billion
in 2010. Dieters shifted toward greater use of free and low-cost do-it-yourself diet plans, diet websites, OTC diet pills, meal
replacements and diet books. Market data supports that the share of dieters that prefer a self-directed program was 82% during
2012, near the highest rate ever. Historically since 1989, about 70% of dieters have used a self-directed plan, but this percentage
has risen due to the last recession.
Commercial weight loss chains
Sales by all commercial
weight loss centers were flat in 2012 and there was no growth. Analysts estimate this segment of the weight loss industry which
had sales of $3.42 billion is expected to experience a 2.7% average annual growth to 2016. Weight Watchers and NutriSystem revenues
were flat in 2012, while Medifast was up and Jenny Craig declined to an estimated $343 million in sales.
Multi-level Marketing
Multi-level marketing
has emerged as the growth engine for weight loss companies. This non-traditional method of selling via independent contractors
or distributors is working extremely well for a few companies. Herbalife, is now the number two weight loss company in the United
States. The company posted North American weight loss product sales of $529 million in 2012, up 21%. Medifast sales reached a
new high of $357 million in sales 2015 and 65% of this was related to its Take Shape For Life MLM division. Visalis Sciences,
another multi-level marketing company, saw its sales of meal replacements rise five-fold in 2011, to $220 million in wholesale
sales.
Retail Diet Pills & Meal Replacements
The weak economy and
tighter consumer weight loss budgets assisted the “do-it-yourself” trend. Dieters were attracted by the low price
and easy availability. The combined sales of diet pills and meal replacements was up about 2% to $2.78 billion in 2015. Analysts
forecast 6% annual gains in sales through 2016. The strong momentum is now meal replacements including shakes and nutrition bars
and not OTC diet pills. Meal replacements are safer for producers because there are no ingredients that cause side effects. They
can also be easily private labeled.
Diet Websites
Online dieting has
a market of at least $1.1 billion and is growing 8% per year. Most sites are not profitable and are moving to a user-free, ad-supported
model. WeightWatchers.com ranks number one with 1.7 million paid subscribers and revenues of $504 million in 2012.
Weight Loss Surgeries
The number of bariatric
surgeries is significantly less than reported by the ASMBS (bariatric surgeon’s national society). According to government
healthcare agency data, surgeries peaked at 135,000 in 2008. However, since then, insurers have imposed stricter regulations on
coverage and the number of surgeries has fallen 15% to an estimated 114,000surgeries in 2015 This reduction in the number of surgeries
reduced the size of the total weight loss market by $2.6 billion and translated into less business for bariatricians.
Diet Food Home Delivery Services
This is an $858 million
segment of the weight loss market that has declined 7.5% from 2009. NutriSystem captures 46% of sales, but has suffered five consecutive
years of declining sales. 2011-2012 continued to be challenging years for all diet food delivery services as four diet delivery
services went out of business. Even NutriSystem, which is priced at the low end of $250-$300/month, felt the effects of the recession,
cut prices and offered weeks of free food for auto-ship clients. The share of dieters that wants diet food delivery averaged 5.8%
over the past eight years, but that fell to 4.5% in 2012.
Type 2 Diabetes
According to a report
compiled by data analytics firm GlobalData, the top ten diabetes drug manufacturers have generated a total of $62 billion in 2014
global sales, a rise of 5.1% year-on-year. (This number includes approximately $16 billion in insulin sales to sufferers of Type
1 diabetes.) Among them, Novo Nordisk, Sanofi and Merck (Merck & Co had the highest diabetes drug sales, followed by Pfizer
and Eli Lilly).
Novo Nordisk
Novo Nordisk led the
global diabetes market in 2014, with sales of $11.3 billion. Its main diabetes products include a Glucagon-like peptide-1 (GLP-1),
Victoza (liraglutide), for the treatment of type 2 diabetes 2 and a long-lasting insulin injection, Levemir.
Currently, Novo Nordisk
has also been aggressively involved in research and development in its area of expertise. Its basal insulin, Tresiba, was launched
in the EU market, and received FDA approval in September of 2015. Reuters’ analysts say, Tresiba will achieve sales of $
2.2 billion by 2020.
In addition, Novo Nordisk
is also developing a long-acting, weekly injected oral diabetes drug-semaglutide. With strong sales momentum and promising product
line, Novo Nordisk may double its diabetes product sales within a decade. Its CEO, Kare Schultz, claims that in 2020 there will
be 40 million diabetics using Novo Nordisk’s drug, increasing at least 10% in annual sales.
Sanofi
The French drug-maker
Sanofi ranked second in the GlobalData’s list, with $10.7 billion in diabetes drug sales 2014.
The long-acting insulin,
the world’s best-selling drugs, lost its patent protection in the United States in February, 2015, and the bio-similar LY2963016
jointly developed by Eli Lilly and Boehringer is awaiting approval.
The diabetes market
competition becomes increasingly fierce, along with emergence of Tresiba, Novo Nordisk’s new rival, which greatly affected
the sales of Sanofi’s Lantus. In 2014, the drug generated $7 billion in sales, but only 1.6 billion euros in first-quarter
sales in 2015, down 5% globally and 13% in the US.
However, the new launches
including Lyxumia, Toujeo and inhaled insulin Afrezza, will help to make up for the sales shortfall by Lantus in the future.
Merck
Merck ranked third,
bringing in $7.4 billion in sales in 2014, a 0.7% decrease compared to 2013. Merck relies on its DPP-4 inhibitor Januvia and combination
drug Janumet which contribute to sales. Januvia contributes up to $6 billion in sales per year, but faces competition from the
generic drug market.
Recently, however,
Merck announced that Januvia passed a key heart safety test in a large study trial, proving that it would not increase the risk
of heart failure. Bernstein & Co. analyst Tim Anderson said that positive trial news can stimulate Januvia/ Janumet sales
growth by 10% by 2020.
Pfizer & Eli Lilly
Pfizer and Eli Lilly,
with $7.3 billion and $4.5 billion of diabetes sales placed fourth and fifth respectively. In 2013, Pfizer signed a contract with
Merck for co-development of a new drug for patients with type 2 diabetes.
Meanwhile, Eli Lilly
relies on its fast-acting insulin, Humalog, to contribute to rapid sales growth, and is waiting for its newly approved antidiabetic
drugs–Trulicity to boost sales. In addition, Lilly’s combination diabetes drug Glyxambi, co-marketed with Boehringer,
received FDA approval in February 2015, and another diabetes drug, Synjardy, was also approved in Europe in May, 2015. The two
drugs are expected to bolster Eli lilly’s sales in 2016.
Regulation
U.S. Food and Drug Administration
In the United States,
the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“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 requires 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 post approval, may subject an applicant to administrative or judicial sanctions. These
sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval,
a clinical hold, warning letters, 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 our business.
Our product candidates
must be approved by the FDA through the NDA process before they may be legally marketed in the United States. The process required
by the FDA before a drug may be marketed in the United States generally involves the following:
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Completion
of extensive nonclinical, sometimes referred to as pre-clinical laboratory tests, pre-clinical
animal studies and formulation studies in accordance with applicable regulations, including
the FDA’s Good Laboratory Practice (“GLP”) regulations;
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Submission
to the FDA of an IND, which must become effective before human clinical trials may begin;
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Performance
of adequate and well-controlled human clinical trials in accordance with applicable IND and
other clinical trial-related regulations, sometimes referred to as current good clinical
practices (“cGCPs”) to establish the safety and efficacy of the proposed
drug for its proposed indication;
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Submission
to the FDA of an NDA, for a new drug;
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A
determination by the FDA within 60 days of its receipt of an NDA to file the NDA for
review;
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Satisfactory
completion of an FDA pre-approval inspection of the manufacturing facility or facilities
where the drug is produced to assess compliance with the FDA’s current good manufacturing
practice requirements (“cGMP”) to assure that the facilities, methods and
controls are adequate to preserve the drug’s identity, strength, quality and purity;
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Potential
FDA audit of the pre-clinical and/or clinical trial sites that generated the data in
support of the NDA; and
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FDA
review and approval of the NDA prior to any commercial marketing or sale of the drug
in the United States.
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The data required to
support an NDA is generated in two distinct development stages, pre-clinical and clinical. For new chemical entities, the pre-clinical
development stage generally involves synthesizing the active component, developing the formulation and determining the manufacturing
process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the laboratory, which supports
subsequent clinical testing. The conduct of the pre-clinical tests must comply with federal regulations, including GLPs. The sponsor
must submit the results of the pre-clinical tests, together with manufacturing information, analytical data, any available clinical
data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from
the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational
plan and the protocol(s) for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the
FDA raises concerns or questions regarding the proposed clinical trials and places the IND on clinical hold within that 30-day
time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns
or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to
begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated.
The clinical stage
of development involves the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified
investigators, generally physicians not employed by or under the trial sponsor’s 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 (“IRB”)s 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 whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to
anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or
his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the
reporting of ongoing clinical trials and completed clinical trial results to public registries.
Clinical trials are
generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials. Phase
1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then multiple
doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action,
side effect tolerability and safety of the drug. Phase 2 clinical trials typically involve studies in disease-affected patients
to determine the dose required to produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic
information is collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of
efficacy. Phase 3 clinical trials generally involve large numbers of patients at multiple sites, in multiple countries (from several
hundred to several thousand subjects) and are designed to provide the data necessary to demonstrate the efficacy of the product
for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide an
adequate basis for product approval. Phase 3 clinical trials may include comparisons with placebo and/or other comparator treatments.
The duration of treatment is often extended to mimic the actual use of a product during marketing. Generally, two adequate and
well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA.
Post-approval trials,
sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials 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 clinical trials.
Progress reports
detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must
be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory
animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, if at all. The FDA, the IRB or the sponsor may suspend or terminate a clinical trial
at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable
health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial
is not being conducted in accordance with the IRB’s 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 trial. We may also suspend or
terminate a clinical trial based on evolving business objectives and/or competitive climate. Concurrent with clinical trials,
companies usually complete additional animal studies and must also develop additional information about the chemistry and physical
characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance
with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate
and, 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.
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 a 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 (REMS)
to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS.
The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides, physician communication
plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or
dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following
initial marketing.
Orphan Drug Designation
We may choose to pursue
Orphan Drug Designation. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended
to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in
the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that
the cost of developing and making a drug or biological product available in the United States for this type of disease or condition
will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA. After the
FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly
by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval
process.
If a product that has
orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation,
the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market
the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products
for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication
for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products
for seven years if a competitor obtains approval of the same biological product as defined by the FDA or if our product candidate
is determined to be contained within the competitor’s product for the same indication or disease. If a drug or biological
product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may
not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar, but not identical, benefits.
Expedited Development and Review Programs
The FDA has a Fast
Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet
certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended
to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition.
Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The
sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a Fast Track product at any time during
the clinical development of the product. Unique to a Fast Track product, the FDA may consider for review sections of the marketing
application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission
of the various sections of the application, the FDA agrees to accept certain sections of the application prior to complete submission
of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission
of the first section of the application.
Any product submitted
to the FDA for marketing, including under a Fast Track program, may be eligible for other types of FDA programs intended to expedite
development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has
the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement
in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional
resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort
to facilitate the review. Additionally, a product may be eligible for accelerated approval. Drug or biological products studied
for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit
over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and
well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely
to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity.
As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval
perform adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug shown to be effective
can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions as it deems necessary
to assure safe use of the drug, such as:
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distribution restricted
to certain facilities or physicians with special training or experience; or
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distribution conditioned
on the performance of specified medical procedures.
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The limitations imposed
would be commensurate with the specific safety concerns presented by the drug. In addition, the FDA currently requires as a condition
for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch
of the product. Fast Track designation, priority review and accelerated approval do not change the standards for approval but
may expedite the development or approval process.
Pediatric Trials
Recently, the Food
and Drug Administration Safety and Innovation Act (“FDASIA”) which was signed into law on July 9, 2012, amended
the FDCA. FDASIA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that
includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an
initial Pediatric Study Plan (“PSP”) within sixty days of an end of Phase 2 meeting or as may be agreed between the
sponsor and FDA. The initial PSP must include an outline of the pediatric study or studies that the sponsor plans to conduct,
including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including
such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement
to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach agreement on the
PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered
based on data collected from nonclinical studies, early phase clinical trials, and/or other clinical development programs.
Post-Marketing Requirements
Following approval
of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the FDA, including,
among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences
with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution
requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer
advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved
labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and
requirements for promotional activities involving the internet. Although physicians may prescribe legally available drugs for
off-label uses, manufacturers may not market or promote such off-label uses. Modifications or enhancements to the product or its
labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, which may or
may not be received or may result in a lengthy review process.
Prescription drug advertising
is subject to federal, state and foreign regulations. In the United States, the FDA regulates prescription drug promotion, including
direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their
first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug
Marketing Act (“PDMA”), a part of the FDCA.
In the United States,
once a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations
require that products be manufactured in specific approved facilities and in accordance with cGMP. We rely, and expect to continue
to rely upon third parties for the production of clinical and commercial quantities of its products in accordance with cGMP regulations.
cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of
records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other
entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the
FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for
compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of
production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and
documentation requirements with respect to manufacturing and quality assurance activities. NDA holders using contract manufacturers,
laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances,
qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at
any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions
that interrupt the operation of any such facilities or the ability to distribute products manufactured, processed or tested by
them. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of
an approved NDA, including, among other things, recall or withdrawal of the product from the market.
The FDA also may require
post-approval testing, sometimes referred to as Phase 4 testing, risk minimization action plans and post-marketing surveillance
to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of
the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements
can have negative consequences, including but not limited to, adverse publicity, judicial or administrative enforcement, 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 product’s approved labeling, including
the addition of new warnings and contraindications, and also may require the implementation of other risk management measures.
In addition, new government requirements, including those resulting from new legislation, may be established, or the FDA’s
policies may change, which could delay or prevent regulatory approval of our products under development.
Other Regulatory Matters
Manufacturing, sales,
promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in
addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services, other divisions of
the Department of Health and Human Services, the Drug Enforcement Administration, the Consumer Product Safety Commission, the
Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state
and local governments. In the United States, sales, marketing and scientific/educational programs must also comply with state
and federal fraud and abuse laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the U.S. Omnibus
Budget Reconciliation Act of 1990 and more recent requirements in the Health Care Reform Law, as amended by the Health Care and
Education Affordability Reconciliation Act (“ACA”). If products are made available to authorized users of the Federal
Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled
substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must
meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion
and other activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of
pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing,
storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
The failure to comply
with regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to
meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure
of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a firm
to enter into supply contracts, including government contracts. In addition, even if a firm complies with FDA and other requirements,
new information regarding the safety or efficacy of a product could lead the FDA to modify or withdraw product approval. Prohibitions
or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.
Changes in regulations,
statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes
to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation
of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely
affect the operation of our business.
U.S. Patent Term Restoration and Marketing
Exclusivity
Depending upon the
timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman
Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost
during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining
term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally
one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission
date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension
and the application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark
Office (“USPTO”), in consultation with the FDA, reviews and approves the application for any patent term extension
or restoration. In the future, we intend to apply for restoration of patent term for one of its currently owned or licensed patents
to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors
involved in the filing of the relevant NDA.
Marketing exclusivity
provisions under the FDCA can also delay the submission or the approval of certain marketing applications. The FDCA provides a
five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an
NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing
the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not accept for review an abbreviated new drug application (“ANDA”) or a 505(b)(2) NDA submitted
by another company for another drug based on the same active moiety, regardless of whether the drug is intended for the same indication
as the original innovator drug or for another indication, where the applicant does not own or have a legal right of reference
to all the data required for approval. However, an application may be submitted after four years if it contains a certification
of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also
provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other
than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval
of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity covers
only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit
the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Five-year
and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA
would be required to conduct or obtain a right of reference to all of the pre-clinical studies and adequate and well-controlled
clinical trials necessary to demonstrate safety and effectiveness. 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, if granted, adds six months to existing exclusivity periods and patent terms. This
six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary
completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.
European Union Drug Development
In the European Union,
our future products may also be subject to extensive regulatory requirements. As in the United States, medicinal products can
only be marketed if a marketing authorization from the competent regulatory agencies has been obtained.
Similar to the United
States, the various phases of pre-clinical and clinical research in the European Union are subject to significant regulatory controls.
Although the EU Clinical Trials Directive 2001/20/EC (“Directive”) 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 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 (“NCA”) and one or more
Ethics Committees (“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.
The EU clinical trials
legislation is currently undergoing a revision process mainly aimed at uniforming and streamlining the clinical trials authorization
process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing their transparency.
European Union Drug Review and Approval
In the European Economic
Area (“EEA”), which is comprised of the 27 Member States of the European Union, excluding Croatia, plus Norway, Iceland
and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization (“MA”).
There are two types of marketing authorizations, Community MA and National MA.
The Community MA, which
is issued by the European Commission through the Centralized Procedure, based on the opinion of the CHMP of the EMA and which
is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such
as biotechnology medicinal products, orphan medicinal products and medicinal products containing a new active substance indicated
for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure
is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant
therapeutic, scientific or technical innovation or which are in the interest of public health in the 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 (“RMS”). The competent authority of the RMS prepares a draft assessment report, a draft
summary of the product characteristics (“SPC”) and a draft of the labeling and package leaflet, which are sent to
the other Member States (referred to as the Member States Concerned) for their approval. If the Member States Concerned raise
no objections, based on a potential serious risk to public health, to the assessment, SPC, labeling, or packaging proposed by
the RMS, the product is subsequently granted a national MA in all the Member States (i.e. in the RMS and the Member States Concerned).
Under the above described
procedures, before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of
the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
European Union New Chemical Entity
Exclusivity
In the European Union,
new chemical entities, sometimes referred to as new active substances, qualify for eight years of data exclusivity upon marketing
authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities
in the European Union from referencing the innovator’s data to assess a generic application for eight years, after which
generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years.
The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the
marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific
evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.
European Union Orphan Designation and
Exclusivity
In the European Union,
the EMA’s Committee for Orphan Medicinal Products 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 affecting
not more than 5 in 10,000 persons in the European Union Community and for which no satisfactory method of diagnosis, prevention,
or treatment has been authorized (or the product would be a significant benefit to those affected). Additionally, designation
is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or
serious and chronic condition and 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 medicinal product.
In the European Union,
orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten 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. 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.
Health Insurance Portability and Accountability
Act
Under the federal Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”), the United States Department of Health and Human Services
(“HHS”) has issued regulations to protect the privacy and security of protected health information used or disclosed
by health care providers. HIPAA also regulates standardization of data content, codes and formats used in health care transactions
and standardization of identifiers for health plans and providers. Penalties for violations of HIPAA regulations include civil
and criminal penalties.
Our plans on developing
policies and procedures to comply with these regulations by any respective compliance enforcement dates. The requirements under
these regulations may change periodically and could have an effect on our business operations if compliance becomes substantially
more costly than under current requirements.
In addition to federal
privacy regulations, there are a number of state laws governing confidentiality of health information that will be applicable
to our operations. New laws governing privacy may be adopted in the future as well. We will take steps to comply with health information
privacy requirements to which it is aware will apply. However, we can provide no assurance that we will be in compliance with
diverse privacy requirements in all of the jurisdictions in which we do business. Failure to comply with privacy requirements
could result in civil or criminal penalties, which could have a materially adverse impact on our business.
Federal and State Physician Self-referral
Prohibitions
We are subject to the
federal physician self-referral prohibitions, commonly known as the Stark Law, and to similar restrictions under California’s
Physician Ownership and Referral Act (“PORA”). Together these restrictions generally prohibit us from billing a patient
or any governmental or private payor for any drug when the physician ordering the drug, or any member of such physician’s
immediate family, has an investment interest in or compensation arrangement with us, unless the arrangement meets an exception
to the prohibition.
Both the Stark Law
and PORA contain an exception for referrals made by physicians who hold investment interests in a publicly traded company that
has stockholders’ equity exceeding $75 million at the end of its most recent fiscal year or on average during the previous
three fiscal years, and which satisfies certain other requirements. In addition, both the Stark Law and PORA contain an exception
for compensation paid to a physician for personal services rendered by the physician.
However, in the event
that we enter into any compensation arrangements with physicians we cannot be certain that regulators would find these arrangements
to be in compliance with Stark, PORA or similar state laws. In such event, we would be required to refund any payments we receive
pursuant to a referral prohibited by these laws to the patient, the payor or the Medicare program, as applicable.
Sanctions for a violation of the Stark Law
include the following:
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denial
of payment for the services provided in violation of the prohibition;
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refunds
of amounts collected by an entity in violation of the Stark Law;
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a
civil penalty of up to $15,000 for each service arising out of the prohibited referral;
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possible
exclusion from federal healthcare programs, including Medicare and Medicaid;
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a
civil penalty of up to $100,000 against parties that enter into a scheme to circumvent
the Stark Law’s prohibition.
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These prohibitions
apply regardless of the reasons for the financial relationship and the referral. No finding of intent to violate the Stark Law
is required for a violation. In addition, under an emerging legal theory, knowing violations of the Stark Law may also serve as
the basis for liability under the Federal False Claims Act.
Further, a violation
of PORA is a misdemeanor and could result in civil penalties and criminal fines. Finally, other states have self-referral restrictions
with which the Company has to comply that differ from those imposed by federal and California law. It is possible that any financial
arrangements that we may enter into with physicians could be subject to regulatory scrutiny at some point in the future, and we
cannot provide assurance that we will be found to be in compliance with these laws following any such regulatory review.
Federal and State Anti-kickback Laws
The Federal Anti-kickback
Law makes it a felony for a provider or supplier, including a laboratory, to knowingly and willfully offer, pay, solicit or receive
remuneration, directly or indirectly, in order to induce business that is reimbursable under any federal health care program.
A violation of the Anti-kickback Law may result in imprisonment for up to five years and fines of up to $250,000 in the case of
individuals and $500,000 in the case of organizations. Convictions under the Anti-kickback Law result in mandatory exclusion from
federal health care programs for a minimum of five years. In addition, HHS has the authority to impose civil assessments and fines
and to exclude health care providers and others engaged in prohibited activities from Medicare, Medicaid and other federal health
care programs.
Actions which violate
the Anti-kickback Law or similar laws may also involve liability under the Federal False Claims Act, which prohibits the knowing
presentation of a false, fictitious or fraudulent claim for payment to the U.S. Government. Actions under the Federal False
Claims Act may be brought by the Department of Justice or by a private individual in the name of the government.
Although the Anti-kickback
Law applies only to federal health care programs, a number of states, including New York, have passed statutes substantially similar
to the Anti-kickback Law pursuant to which similar types of prohibitions are made applicable to all other health plans and third-party
payors.
Federal and state law
enforcement authorities scrutinize arrangements between health care providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to induce patient care referrals and opportunities. The law enforcement authorities,
the courts and Congress have also demonstrated a willingness to look behind the formalities of a transaction to determine the
underlying purpose of payments between health care providers and actual or potential referral sources. Generally, courts have
taken a broad interpretation of the scope of the Anti-kickback Law, holding that the statute may be violated if merely one purpose
of a payment arrangement is to induce future referrals.
In addition to statutory
exceptions to the Anti-kickback Law, regulations provide for a number of safe harbors. If an arrangement meets the provisions
of a safe harbor, it is deemed not to violate the Anti-kickback Law. An arrangement must fully comply with each element of an
applicable safe harbor in order to qualify for protection.
Among the safe harbors
that may be relevant to us is the discount safe harbor. The discount safe harbor potentially applies to discounts provided by
providers and suppliers, including laboratories, to physicians or institutions where the physician or institution bills the payor
for the drug, not when the Company bills the payor directly. If the terms of the discount safe harbor are met, the discounts will
not be considered prohibited remuneration under the Anti-kickback Law. The Company anticipates that this safe harbor may be potentially
applicable to any agreements that it enters into to sell its products to hospitals where the hospital submits a claim to the payor.
The personal services
safe harbor to the Anti-kickback Law provides that remuneration paid to a referral source for personal services will not violate
the Anti-kickback Law provided all of the elements of that safe harbor are met. One element is that, if the agreement is intended
to provide for the services of the physician on a periodic, sporadic or part-time basis, rather than on a full-time basis for
the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact
charge for such intervals. Failure to meet the terms of the safe harbor does not render an arrangement illegal. Rather, such arrangements
must be evaluated under the language of the statute, taking into account all facts and circumstances.
In the event that the
Company enters into relationships with physicians, hospitals and other customers, there can be no assurance that our relationships
with those physicians, hospitals and other customers will not be subject to investigation or a successful challenge under such
laws. If imposed for any reason, sanctions under the Anti-kickback Law or similar laws could have a negative effect on our business.
Other Federal and State Fraud and Abuse Laws
In addition to the
requirements that are discussed above, there are several other health care fraud and abuse laws that could have an impact on our
business. For example, provisions of the Social Security Act permit Medicare and Medicaid to exclude an entity that charges the
federal health care programs substantially in excess of its usual charges for its services. The terms “usual charge”
and “substantially in excess” are ambiguous and subject to varying interpretations.
Further, the Federal
False Claims Act prohibits a person from knowingly submitting a claim, making a false record or statement in order to secure payment
or retaining an overpayment by the federal government. In addition to actions initiated by the government itself, the statute
authorizes actions to be brought on behalf of the federal government by a private party having knowledge of the alleged fraud.
Because the complaint is initially filed under seal, the action may be pending for some time before the defendant is even aware
of the action. If the government is ultimately successful in obtaining redress in the matter or if the plaintiff succeeds in obtaining
redress without the government’s involvement, then the plaintiff will receive a percentage of the recovery. Finally, the
Social Security Act includes its own provisions that prohibit the filing of false claims or submitting false statements in order
to obtain payment. Violation of these provisions may result in fines, imprisonment or both, and possible exclusion from Medicare
or Medicaid programs.
Environmental Laws
We expect to be subject
to regulation under federal, state and local laws and regulations governing environmental protection and the use, storage, handling
and disposal of hazardous substances. The cost of complying with these laws and regulations may be significant. Our planned activities
may require the controlled use of potentially harmful biological materials, hazardous materials and chemicals. We cannot eliminate
the risk of accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these
materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have.
Intellectual Property
International Publication Date 29 September 2011:
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1.
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A method for determining a putative agent
that treats or prevents cancer and/or obesity or that increases insulin sensitivity,
the method comprising determining whether the agent inhibits Fyn kinase activity or the
interaction between Fyn and LKB-1.
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a.
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contacting cells with the putative
agent and measuring cell growth;
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b.
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contacting cells with the putative
agent and measuring cell energy expenditure; or
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c.
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contacting cells with the putative
agent and measuring phosphorylation of LKB-1 tyrosine residue 261 and/or tyrosine residue
365, wherein a decrease in cell growth or phosphorylation of LKB-1 tyrosine residue 261
and/or tyrosine residue 365 or an increase in cell energy expenditure indicates that
the putative agent inhibits Fyn kinase activity or the interaction between Fyn and LKB-1
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3.
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Provides a method of preventing or treating
cancer and/or obesity or increasing insulin sensitivity in a subject, the method comprising
administering to the subject a therapeutically effective amount of an agent or pharmaceutical
composition that inhibits Fyn kinase or the interaction between Fyn and LKB1.
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4.
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Provides the use of an agent that inhibits
Fyn kinase activity or the interaction between Fyn and LKB1 to prevent or treat cancer.
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5.
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Provides the use of an agent that inhibits
Fyn kinase activity or the interaction between Fyn and LKB1 to increase insulin sensitivity.
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NBP has retained qualified
patent counsel in all matters relating to our technologies. This has been accomplished in conjunction with the resources of the
Albert Einstein College of Medicine. The Company believes that clear and extensive patent coverage for its technologies is central
to long-term success and will invest accordingly. This applies to both domestic and international patent coverage.
NBP has received notice
of allowance from the USPTO for a trademark covering the use of the name.
NBP also seeks to ensure
a competitive position and add to its intellectual property portfolio through partnerships, joint development and joint venture
agreements.
Corporate Information and History
The Company was incorporated
in Delaware on April 17, 2013. On May 17, 2016, we entered into an Agreement and Plan of Reorganization by and among Nexus Bio
Pharma, Inc. a Delaware corporation (“Nexus”), the Company and Nexus Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of the Company. Acquisition Corp. merged with Nexus with the latter as the surviving company in the merger.
Our principal executive offices are located at JLABS @ TMCx, Suite J, 2450 Holcombe Boulevard, Houston, Texas 77021, and our telephone
number is (832) 758-7488. Our fiscal year end is February 28.
EMPLOYEES
As of July 5, 2017, we had one (1) full
time employee. We have not experienced any work stoppages and we consider relations with our employees to be good.