The following Risk Factors do not reflect any material changes to the Risk
Factors set forth in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, other than the revisions or additions to the risk factors set forth below with an
asterisk (*) next to the title. The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form
10-Q
and those we may make from time to time. If any of the following risks actually occur, our business, operating results, prospects or financial condition could be harmed. Additional risks not presently known to
us, or that we currently deem immaterial, may also affect our business operations.
Risks Related to Our Company
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We have limited marketing experience, and have only recently begun establishing our sales force, distribution and reimbursement capabilities, and we may not be able to successfully commercialize INGREZZA, or any
of our product candidates if they are approved in the future.
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Our ability to produce revenues ultimately depends on
our ability to sell our products and secure adequate third-party reimbursement if and when they are approved by the FDA. We currently have limited experience in marketing and selling pharmaceutical products. With respect to INGREZZA in particular,
we have only recently hired our sales force to sell INGREZZA, and have only recently begun establishing our distribution and reimbursement capabilities, all of which will be necessary to successfully commercialize INGREZZA. While we have recently
hired personnel and engaged consultants with experience marketing and selling pharmaceutical products, there can be no guarantee that we will be able to establish or maintain the personnel, systems, arrangements and capabilities necessary to
successfully commercialize INGREZZA or any product candidate approved by the FDA in the future. If we fail to establish or maintain successful marketing, sales and reimbursement capabilities or fail to enter into successful marketing arrangements
with third parties, our product revenues may suffer.
30
*
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We currently depend on a single source supplier for each of the production of INGREZZA and its active pharmaceutical ingredients. The loss of either of these suppliers, or delays or problems in the supply of
INGREZZA, could materially and adversely affect our ability to successfully commercialize INGREZZA.
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The manufacture
of pharmaceutical products requires significant expertise and capital investment, including the development of process controls required to consistently produce the active pharmaceutical ingredients and the finished product in sufficient quantities
while meeting detailed product specifications on a repeated basis. Manufacturers of pharmaceutical products may encounter difficulties in production, including difficulties with production costs and yields, process controls, quality control and
quality assurance, including testing of stability, impurities and impurity levels and other product specifications by validated test methods, and compliance with strictly enforced U.S., state and
non-U.S.
regulations. If our third-party suppliers for INGREZZA encounter these or any other manufacturing, quality or compliance difficulties, we may be unable to meet commercial demand for INGREZZA, which could materially and adversely affect our ability
to successfully commercialize INGREZZA.
In addition, if our suppliers fail or refuse to supply us with INGREZZA or its active
pharmaceutical ingredient for any reason, it would take a significant amount of time and expense to qualify a new supplier. The FDA and similar international regulatory bodies must approve manufacturers of the active and inactive pharmaceutical
ingredients and certain packaging materials used in pharmaceutical products. The loss of a supplier could require us to obtain regulatory clearance and to incur validation and other costs associated with the transfer of the active pharmaceutical
ingredients or product manufacturing processes. If there are delays in qualifying new suppliers or facilities or a new supplier is unable to meet FDA or a similar international regulatory bodys requirements for approval, there could be a
shortage of INGREZZA, which could materially and adversely affect our ability to successfully commercialize INGREZZA.
*
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We have no manufacturing capabilities. If third-party manufacturers of INGREZZA or any of our product candidates fail to devote sufficient time and resources to our concerns, or if their performance is
substandard, our clinical trials and product introductions may be delayed and our costs may rise.
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We have in the
past utilized, and intend to continue to utilize, third-party manufacturers to produce the drug compounds we use in our clinical trials and for the commercialization of our products. We have limited experience in manufacturing products for
commercial purposes and do not currently have any manufacturing facilities. Consequently, we depend on, and will continue to depend on, several contract manufacturers for all production of products for development and commercial purposes, including
INGREZZA. If we are unable to obtain or retain third-party manufacturers, we will not be able to develop or commercialize our products, including INGREZZA. The manufacture of our products for clinical trials and commercial purposes is subject to
specific FDA regulations, including current Good Manufacturing Practice regulations. Our third-party manufacturers might not comply with FDA regulations relating to manufacturing our products for clinical trials and commercial purposes or other
regulatory requirements now or in the future. Our reliance on contract manufacturers also exposes us to the following risks:
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contract manufacturers may encounter difficulties in achieving volume production, quality control and quality assurance, and also may experience shortages in qualified personnel. As a result, our contract manufacturers
might not be able to meet our clinical schedules or adequately manufacture our products in commercial quantities when required;
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switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult or impossible for us to find a replacement manufacturer quickly on acceptable terms, or at all;
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our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store or distribute our products; and
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drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the U.S. Drug Enforcement Administration, and other agencies to ensure strict compliance with current Good Manufacturing Practices
and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers compliance with these regulations and standards.
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Our current dependence upon third parties for the manufacture of our products may reduce our profit margin, if any, on the sale of INGREZZA or
our future products and our ability to develop and deliver products on a timely and competitive basis.
*
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Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, which could prevent or significantly delay their regulatory approval.
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Before obtaining regulatory approval for the sale of any of our potential products, we must subject these product candidates to extensive
preclinical and clinical testing to demonstrate their safety and efficacy for humans. Clinical trials are expensive, time-consuming and may take years to complete.
31
In connection with the clinical trials of our product candidates, we face the risks that:
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the FDA or similar foreign regulatory authority may not approve an Investigational New Drug (IND) Application or foreign equivalent filings required to initiate human clinical studies for our drug candidates or the FDA
may require additional preclinical or clinical studies as a condition of the initiation of Phase I clinical studies, progression from Phase I to Phase II, or Phase II to Phase III, or for NDA approval;
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the product candidate may not prove to be effective or as effective as other competing product candidates;
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we may discover that a product candidate may cause harmful side effects or results of required toxicology studies may not be acceptable to the FDA;
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the results may not replicate the results of earlier, smaller trials;
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the FDA or similar foreign regulatory authorities may require use of new or experimental endpoints that may prove insensitive to treatment effects;
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we or the FDA or similar foreign regulatory authorities may suspend the trials;
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the results may not be statistically significant;
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patient recruitment may be slower than expected;
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patients may drop out of the trials; and
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regulatory requirements may change.
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These risks and uncertainties impact all of our clinical
programs. Specifically, our VMAT2 inhibitor program will be impacted if any of the events above lead to delayed timelines for the enrollment in, or completion of, clinical trials of INGREZZA for Tourette syndrome. Similarly, with respect to our
gonadotropin-releasing hormone (GnRH) program with AbbVie, any of the clinical, regulatory or operational events described above could delay timelines for the completion of the Phase III endometriosis program or the Phase III uterine fibroids
program, or change our planned clinical and regulatory activities for the opicapone program in Parkinsons disease. Additionally, any of these events described above could result in suspension of a program and/or obviate any filings for
necessary regulatory approvals.
In addition, late-stage clinical trials are often conducted with patients having the most advanced stages
of disease. During the course of treatment, these patients can die or suffer other adverse medical effects for reasons that may not be related to the pharmaceutical agent being tested but which can nevertheless adversely affect clinical trial
results. Any failure or substantial delay in completing clinical trials for our product candidates may severely harm our business.
Even
if the clinical trials are successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the
extent that the results of the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend
significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
We depend on our current collaborators for the development and commercialization of our product candidates that we
out-license
and
in-license,
and may need to enter into future collaborations to develop and commercialize certain of our product candidates.
Our strategy for fully developing and commercializing elagolix is dependent upon maintaining our current collaboration agreement with AbbVie.
This collaboration agreement provides for significant future payments should certain development, regulatory and commercial milestones be achieved, and royalties on future sales of elagolix. Under this agreement, AbbVie is responsible for, among
other things, conducting clinical trials and obtaining required regulatory approvals for elagolix; as well as manufacturing and commercialization of elagolix in the event it receives regulatory approval.
Because of our reliance on AbbVie, the development and commercialization of elagolix could be substantially delayed, and our ability to
receive future funding could be substantially impaired, if AbbVie:
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failed to gain the requisite regulatory approval of elagolix;
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did not successfully launch and commercialize elagolix;
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did not conduct its collaborative activities in a timely manner;
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did not devote sufficient time and resources to our partnered program;
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32
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terminated its agreement with us;
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developed, either alone or with others, products that may compete with elagolix;
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disputed our respective allocations of rights to any products or technology developed during our collaboration; or
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merged with a third party that wants to terminate our agreement.
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In March 2015, we entered
into a collaboration and license agreement with Mitsubishi Tanabe to develop and commercialize INGREZZA in Japan and other select Asian markets. We will rely on Mitsubishi Tanabe to achieve certain development, regulatory and commercial milestones
which, if achieved, could generate significant future revenue for us. Our collaboration with Mitsubishi Tanabe is subject to risks and uncertainties similar to those described above. In addition, we may need to enter into other
out-licensing
collaborations to assist in the development and commercialization of other product candidates we are developing now or may develop in the future, and any such future collaborations would be subject to
similar risks and uncertainties.
In February 2017, we entered into a license agreement with BIAL for the development and
commercialization of opicapone for the treatment of human diseases and conditions, including Parkinsons disease, in the United States and Canada. Under the terms of the agreement, we are responsible for the management of all opicapone
development and commercialization activities; however, we will depend on BIAL to supply all drug product and investigation medicinal product for our development and commercialization activities. In addition, pursuant to the license agreement, the
parties have established a joint steering committee with overall coordination and strategic oversight over activities under the agreement and to provide a forum for regular exchange of information, and BIAL has the right to
co-promote
licensed products during certain periods of time and to engage in certain marketing-related activities in cooperation with us. Accordingly, our strategy for developing and commercializing opicapone is
dependent upon maintaining our current collaboration with BIAL. Because of our reliance on BIAL for certain aspects related to the development and commercialization of opicapone, any disagreement with BIAL, or BIALs decision to not devote
sufficient time and resources to our collaboration or to not conduct activities in a timely manner, could substantially delay and/or prohibit our ability to develop and commercialize opicapone.
These issues and possible disagreements with AbbVie, Mitsubishi Tanabe, BIAL or any future corporate collaborators could lead to delays in the
collaborative research, development or commercialization of our product candidates. Furthermore, disagreements with these parties could require or result in litigation or arbitration, which would be time-consuming and expensive. If any of these
issues arise, it may delay the development and commercialization of drug candidates and, ultimately, our generation of product revenues.
We do not
and will not have access to all information regarding the product candidates we licensed to AbbVie.
We do not and will not have
access to all information regarding the products being developed and potentially commercialized by AbbVie, including potentially material information about clinical trial design and execution, safety reports from clinical trials, spontaneous safety
reports if a product candidate is later approved and marketed, regulatory affairs, process development, manufacturing, marketing and other areas known by AbbVie. In addition, we have confidentiality obligations under our agreement with AbbVie. Thus,
our ability to keep our shareholders informed about the status of product candidates under our collaboration with AbbVie will be limited by the degree to which AbbVie keeps us informed and allows us to disclose such information to the public. If
AbbVie fails to keep us informed about the clinical development and regulatory approval of our collaboration and product candidates licensed to it, we may make operational and investment decisions that we would not have made had we been fully
informed, which may materially and adversely affect our business and operations.
*
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We have recently received FDA approval for INGREZZA for tardive dyskinesia and that approval subjects us to ongoing obligations and continued regulatory review, which may result in significant additional expense
and market withdrawal. Additionally, our other product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or
experience unanticipated problems with our products.
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We received FDA regulatory approval for INGREZZA in April
2017. This approval and other regulatory approvals for any of our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements
for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. With respect to FDAs approval of INGREZZA for TD, we are subject to certain
post-marketing requirements and commitments. Failure to comply with these post-marketing requirements and commitments could result in withdrawal of our marketing approval for INGREZZA. In addition, with respect to INGREZZA, and any product candidate
that the FDA or a comparable foreign regulatory authority approves, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to
extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing
33
information and reports, registration, as well as continued compliance with current Good Manufacturing Practices for any clinical trials that we conduct post-approval. Later discovery of
previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among
other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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product injunctions or the imposition of civil or criminal penalties.
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The FDAs policies
may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any of our product candidates or future indications for currently approved products. 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, which would adversely affect our business,
prospects and ability to achieve or sustain profitability.
Governmental and third-party payors may impose sales and pharmaceutical pricing controls
on our products or limit coverage and/or reimbursement for our products that could limit our product revenues and delay sustained profitability.
Our ability to commercialize any products successfully, including INGREZZA, will depend in part on the extent to which coverage and adequate
reimbursement for these products and related treatments will be available. The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may reduce our potential revenues. These
payors efforts could decrease the price that we receive for any products we may develop and sell in the future.
Assuming we obtain
coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require
co-payments
that patients find unacceptably high. Patients who are prescribed
medications for the treatment of their conditions, and their prescribing physicians, 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 all or a significant portion of the cost of our products. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or
lower cost therapeutic alternatives are already available or subsequently become available regardless of whether they are approved by the FDA for that particular use.
Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as
by limiting coverage and the amount of reimbursement for particular medications. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and
reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of
our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. In addition, communications from government officials regarding health care costs and
pharmaceutical pricing could have a negative impact on our stock price, even if such communications do not ultimately impact coverage or reimbursement decisions for our products.
There may also be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than
the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs,
including research, development, manufacture, sale and distribution. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize INGREZZA or any other product candidate
for which we obtain marketing approval. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our
operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
34
*
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If physicians and patients do not accept INGREZZA or any of our other products, we may not generate sufficient revenue.
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The commercial success of INGREZZA or any of our other products, if approved for marketing, will depend upon the acceptance of those products
as safe and effective by the medical community and patients.
The market acceptance of INGREZZA or any of our other products could be
affected by a number of factors, including:
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the timing of receipt of marketing approvals for indications;
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the safety and efficacy of the products;
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the pricing of our products;
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the availability of coverage and adequate reimbursement for the products;
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the success of existing products addressing our target markets or the emergence of equivalent or superior products; and
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the cost-effectiveness of the products.
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In addition, market acceptance depends on the
effectiveness of our marketing strategy and distribution support, and, to date, although we have hired experienced sales and marketing professionals, we have very limited sales and marketing experience. If the medical community and patients do not
ultimately accept our products as being safe, effective, superior and/or cost-effective, we may not generate sufficient revenue.
*
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Because the development of our product candidates is subject to a substantial degree of technological uncertainty, we may not succeed in developing any of our product candidates.
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All of our product candidates are currently in research or clinical development with the exception of INGREZZA, which has recently been
approved by the FDA for tardive dyskinesia. Only a small number of research and development programs ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of development may not reach the
market for a number of reasons. These reasons include the possibilities that the potential products may:
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be found ineffective or cause harmful side effects during preclinical studies or clinical trials;
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fail to receive necessary regulatory approvals on a timely basis or at all;
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be precluded from commercialization by proprietary rights of third parties;
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be difficult to manufacture on a large scale; or
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be uneconomical to commercialize or fail to achieve market acceptance.
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If any of our product
candidates encounters any of these potential problems, we may never successfully market that product candidate.
*
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Our indebtedness and liabilities could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations.
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To date, we have sold $517.5 million aggregate principal amount of 2.25% convertible senior notes due 2024 (2024
Notes). We may also incur additional indebtedness to meet future financing needs. Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other
things:
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increasing our vulnerability to adverse economic and industry conditions;
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limiting our ability to obtain additional financing;
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requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
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limiting our flexibility to plan for, or react to, changes in our business;
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diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2024 Notes; and
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placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
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35
Our business may not generate sufficient funds, and we may otherwise be unable to maintain
sufficient cash reserves, to pay amounts due under the 2024 Notes and any additional indebtedness that we may incur. In addition, our cash needs may increase in the future. In addition, any future indebtedness that we may incur may contain financial
and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would
be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.
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The conditional conversion feature of the 2024 Notes, if triggered, may adversely affect our financial condition and operating results.
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In the event the conditional conversion feature of the 2024 Notes is triggered, holders of 2024 Notes will be entitled to convert their 2024
Notes at any time during specified periods at their option. If one or more of the holders of the 2024 Notes elects to convert their notes, unless we satisfy our conversion obligation by delivering only shares of our common stock, we would be
required to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity. Furthermore, even if holders of the 2024 Notes did not elect to convert their notes, we could be required under
applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2024 Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
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We have a history of losses and expect to incur negative operating cash flows for the foreseeable future, and we may never achieve sustained profitability.
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Since our inception, we have incurred significant net losses and negative cash flow from operations. As a result of historical operating
losses, we had an accumulated deficit of approximately $1.1 billion as of December 31, 2016. We do not expect to be profitable, or generate positive cash flows from operations, for the year ending December 31, 2017.
In April 2017, we received FDA approval of INGREZZA for tardive dyskinesia, however we have not yet obtained regulatory approvals for any
other product candidates. Even if we succeed in commercializing INGREZZA or developing and commercializing another of our drugs, we may not be profitable. We also expect to continue to incur significant operating and capital expenditures as we:
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commercialize INGREZZA for tardive dyskinesia;
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seek regulatory approvals for our product candidates;
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develop, formulate, manufacture and commercialize our product candidates;
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in-license
or acquire new product development opportunities;
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implement additional internal systems and infrastructure; and
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hire additional clinical, scientific, sales and marketing personnel.
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We expect to experience
negative cash flow in the coming years as we fund our operations,
in-licensing
or acquisition opportunities, and capital expenditures. We will need to generate significant revenues to achieve and maintain
profitability and positive cash flow on an annual basis. We may not be able to generate these revenues, and we may never achieve profitability on an annual basis in the future. Our failure to achieve or maintain profitability on an annual basis
could negatively impact the market price of our common stock. Even if we become profitable on an annual basis, we cannot assure you that we would be able to sustain or increase profitability on an annual basis.
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We have recently increased the size of our organization, and will need to continue to increase the size of our organization. We may encounter difficulties with managing our growth, which could adversely affect our
results of operations.
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As of June 30, 2017, we employed approximately 400 employees. Although we have already
increased the size of our organization, we may need to add additional qualified personnel and resources, especially now that we have a commercial sales force. Our current infrastructure may be inadequate to support our development and
commercialization efforts and expected growth. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees, and may take time away from
running other aspects of our business, including development and commercialization of our product candidates.
Our future financial
performance and our ability to commercialize INGREZZA and any other product candidates that receive regulatory approval will depend, in part, on our ability to manage any future growth effectively. In particular, as we commercialize
36
INGREZZA, we will need to support the training and ongoing activities of our sales force and will likely need to continue to expand the size of our employee base for managerial, operational,
financial and other resources. To that end, we must be able to:
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manage our development efforts effectively;
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integrate additional management, administrative and manufacturing personnel;
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further develop our marketing and sales organization; and
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maintain sufficient administrative, accounting and management information systems and controls.
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We may not be able to accomplish these tasks or successfully manage our operations and, accordingly, may not achieve our research,
development, and commercialization goals. Our failure to accomplish any of these goals could harm our financial results and prospects.
We license
some of our core technologies and drug candidates from third parties. If we default on any of our obligations under those licenses, or violate the terms of these licenses, we could lose our rights to those technologies and drug candidates or be
forced to pay damages.
We are dependent on licenses from third parties for some of our key technologies. These licenses typically
subject us to various commercialization, reporting and other obligations. If we fail to comply with these obligations, we could lose important rights. If we were to default on our obligations under any of our licenses, we could lose some or all of
our rights to develop, market and sell products covered by these licenses. For example, BIAL may terminate our license agreement, pursuant to which we have rights to develop and commercialize opicapone, if we fail to use commercially reasonable
efforts, fail to file an NDA for a licensed product by a specified date, or otherwise breach the license agreement. In addition, if we were to violate any of the terms of our licenses, we could become subject to damages. For example, on
December 1, 2015, The Mount Sinai School of Medicine of the City University of New York (Mount Sinai) filed a complaint against us, seeking unspecified monetary damages, future sublicensing fees and attorneys fees, alleging that we
violated the terms of our license with Mount Sinai by inappropriately sublicensing Mount Sinai technology to AbbVie. While we believe that we have meritorious defenses to the claims made in the complaint and intend to vigorously defend ourselves
against such claims, we are not able to predict the ultimate outcome of this action. Likewise, if we were to lose our rights under a license to use proprietary research tools, it could adversely affect our existing collaborations or adversely affect
our ability to form new collaborations. We also face the risk that our licensors could, for a number of reasons, lose patent protection or lose their rights to the technologies we have licensed, thereby impairing or extinguishing our rights under
our licenses with them.
The independent clinical investigators and contract research organizations that we rely upon to conduct our clinical trials
may not be diligent, careful or timely, and may make mistakes, in the conduct of our trials.
We depend on independent clinical
investigators and contract research organizations (CROs) to conduct our clinical trials under their agreements with us. The investigators are not our employees, and we cannot control the amount or timing of resources that they devote to our
programs. If our independent investigators fail to devote sufficient time and resources to our drug development programs, or if their performance is substandard, or not in compliance with Good Clinical Practices, it may delay or prevent the approval
of our FDA applications and our introduction of new drugs. The CROs we contract with for execution of our clinical trials play a significant role in the conduct of the trials and the subsequent collection and analysis of data. Failure of the CROs to
meet their obligations could adversely affect clinical development of our products. Moreover, these independent investigators and CROs may also have relationships with other commercial entities, some of which may compete with us. If independent
investigators and CROs assist our competitors at our expense, it could harm our competitive position.
We may be subject to claims that we or our
employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is commonplace in the
biotechnology industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject
to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their 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 costs and be a distraction to management.
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If we are unable to retain and recruit qualified scientists or if any of our key senior executives discontinues his or her employment with us, it may delay our development efforts or impact our commercialization
of INGREZZA or any product candidate approved by the FDA.
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We are highly dependent on the principal members of our
management and scientific staff. The loss of any of these people could impede the achievement of our objectives, including the successful commercialization of INGREZZA or any product candidate approved by the FDA. Furthermore, recruiting and
retaining qualified scientific personnel to perform research and development work in the future, along with personnel with experience marketing and selling pharmaceutical products, is critical to our success. We may be unable to attract and retain
personnel on acceptable terms given the competition among biotechnology, pharmaceutical and health care companies, universities and
non-profit
research institutions for experienced scientists and individuals
with experience marketing and selling pharmaceutical products. In addition, we rely on a significant number of consultants to assist us in formulating our research and development strategy and our commercialization strategy. Our consultants may have
commitments to, or advisory or consulting agreements with, other entities that may limit their availability to us.
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If the market opportunities for our products and product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.
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Certain of the diseases that INGREZZA and our product candidates are being developed to address are in underserved and underdiagnosed
populations. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who will seek treatment utilizing our products or product candidates, may not be accurate. If our estimates of the
prevalence or number of patients potentially on therapy prove to be inaccurate, the market opportunities for INGREZZA and our product candidates may be smaller than we believe they are, our prospects for generating expected revenue may be adversely
affected and our business may suffer.
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We could face liability if a regulatory authority determines that we are promoting INGREZZA, or any of our product candidates that receives regulatory approval, for
off-label
uses.
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A company may not promote
off-label
uses for its drug products. An
off-label
use is the use of a product for an indication that is not described in the products
FDA-approved
label in the United States or for uses in other jurisdictions that differ from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for
off-label
uses. Although the FDA and other regulatory agencies do not regulate a physicians choice of drug treatment made in the physicians independent medical judgment, they do restrict promotional
communications from companies or their sales force with respect to
off-label
uses of products for which marketing clearance has not been issued. A company that is found to have promoted
off-label
use of its product may be subject to significant liability, including civil and criminal sanctions. We intend to comply with the requirements and restrictions of the FDA and other regulatory agencies with
respect to our promotion of our products, including INGREZZA, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a result, we may be subject to criminal and civil liability. In
addition, our managements attention could be diverted to handle any such alleged violations. A significant number of companies have been the target of inquiries and investigations by various U.S. federal and state regulatory, investigative,
prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys Offices, the Office of Inspector General of
the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various U.S. federal and state laws and regulations, including claims
asserting antitrust violations, violations of the federal False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare
and/or Medicaid reimbursement. If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a
qui tam
suit and it is determined that we violated prohibitions relating to the promotion of
products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing
scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects, and reputation.
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Because our operating results may vary significantly in future periods, our stock price may decline.
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Our quarterly revenues, expenses and operating results have fluctuated in the past and are likely to fluctuate significantly in the future.
Our financial results are unpredictable and may fluctuate, for among other reasons, due to commercial sales of INGREZZA, the impact of Medicare Part D coverage; our achievement of product development objectives and milestones, clinical trial
enrollment and expenses, research and development expenses and the timing and nature of contract manufacturing and contract research payments. In addition, we recently received regulatory approval from the FDA for INGREZZA in tardive dyskinesia and
our revenues will be dependent on our ability to sell INGREZZA and to secure adequate third-party reimbursement. A high portion of our costs are predetermined on an annual basis, due in part to our significant research and development costs. Thus,
small declines in revenue could disproportionately affect financial results in a quarter. Because of these factors, our financial results in one or more future quarters may fail to meet the expectations of securities analysts or investors, which
could cause our stock price to decline.
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The price of our common stock is volatile.
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The market prices for securities of
biotechnology and pharmaceutical companies historically have been highly volatile, and the market for these securities has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of
particular companies. Furthermore, the price of our common stock may be dependent upon the valuations and recommendations of the analysts who cover our business. If our results do not meet these analysts forecasts, the expectations of our
investors or the financial guidance we provide to investors in any period, which is based on assumptions that may be incorrect or that may change from quarter to quarter, the market price of our common stock could decline. Over the course of the
last 12 months, the price of our common stock has ranged from approximately $37.00 per share to approximately $55.00 per share. The market price of our common stock may fluctuate in response to many factors, including:
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the status and cost of our post-marketing commitments for INGREZZA;
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the results of our clinical trials;
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developments concerning new and existing collaboration agreements;
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announcements of technological innovations or new therapeutic products by us or others;
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general economic and market conditions, including economic and market conditions affecting the biotechnology industry;
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developments in patent or other proprietary rights;
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developments related to the FDA;
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future sales of our common stock by us or our stockholders;
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comments by securities analysts;
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additions or departures of key personnel;
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fluctuations in our operating results;
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developments related to
on-going
litigation;
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health care reimbursement;
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failure of any of our product candidates, if approved, to achieve commercial success; and
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public concern as to the safety of our drugs.
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If we cannot raise additional funding, we may be unable to complete development of our product candidates or establish commercial and manufacturing capabilities in the future.
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We may require additional funding to commercialize INGREZZA for tardive dyskinesia, to continue our research and product development programs,
to conduct preclinical studies and clinical trials, for operating expenses and to pursue regulatory approvals for additional product candidates and indications, for the costs involved in filing and prosecuting patent applications and enforcing or
defending patent claims, if any, product
in-licensing
and any possible acquisitions, establish manufacturing capabilities in the future and we may require additional funding to expand commercial and marketing
efforts for other product candidates or indications. We believe that our existing capital resources, together with investment income, and future payments due under our strategic alliances, will be sufficient to satisfy our current and projected
funding requirements for at least the next 12 months. However, these resources might be insufficient to conduct research and development programs, fully commercialize products and operate the company to the full extent currently planned. If we
cannot obtain adequate funds, we may be required to curtail significantly our commercial plans or one or more of our research and development programs or obtain funds through additional arrangements with corporate collaborators or others that may
require us to relinquish rights to some of our technologies or product candidates.
Our future capital requirements will depend on many
factors, including:
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the commercial success of INGREZZA;
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debt service obligations on the 2024 Notes;
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continued scientific progress in our research and development programs;
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the magnitude and complexity of our research and development programs;
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progress with preclinical testing and clinical trials;
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the time and costs involved in obtaining regulatory approvals;
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the costs involved in filing and pursuing patent applications, enforcing patent claims, or engaging in interference proceedings or other patent litigation;
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competing technological and market developments;
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the establishment of additional strategic alliances;
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developments related to
on-going
litigation;
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the cost of commercialization activities and arrangements, including manufacturing of our product candidates; and
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the cost of product
in-licensing
and any possible acquisitions.
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We intend to seek additional funding through strategic alliances, and may seek additional funding through public or private sales of our
securities, including equity securities. For example, for so long as we continue to satisfy the requirements to be deemed a well-known seasoned issuer, we can utilize a shelf registration statement currently on file with the Securities and Exchange
Commission (SEC), to allow us to issue an unlimited number of securities from time to time. In addition, we recently issued $517.5 million of convertible debt and we have previously financed capital purchases and may continue to pursue
opportunities to obtain additional debt financing in the future. Additional equity or debt financing might not be available on reasonable terms, if at all. Any additional equity financings will be dilutive to our stockholders and any additional debt
financings may involve operating covenants that restrict our business.
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Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
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Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, new SEC regulations and NASDAQ rules, are creating uncertainty for companies such as ours. These laws, regulations and standards are subject to varying interpretations in some cases due to
their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards
have resulted in, and are likely to continue to result in, increased sales, general and administrative expenses and management time related to compliance activities. If we fail to comply with these laws, regulations and standards, our reputation may
be harmed and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.
Risks Related to Our Industry
Health care reform
measures and other recent legislative initiatives could adversely affect our business.
The business and financial condition of
pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the United States, comprehensive health care reform legislation was enacted by the
Federal government and we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals. In addition, increasing emphasis on reducing the cost of health
care in the United States will continue to put pressure on the rate of adoption and pricing of prescription pharmaceuticals. Moreover, in some foreign jurisdictions, pricing of prescription pharmaceuticals is already subject to government
control. Additionally, other recent federal and state legislation imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new legislation,
manufacturers are required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding distribution
of the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, notification and purchaser license verification responsibilities related to counterfeit, diverted, stolen, and
intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
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Additionally, in March 2010, the ACA was signed into law, which was intended to broaden access to
health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and
impose additional health policy reforms. Among the provisions of the ACA of importance to our potential drug candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
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extension of a manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturers Medicaid rebate liability;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale
discounts off
negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturers outpatient drugs to be covered under Medicare Part D;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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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, which has resulted in action to repeal or replace certain aspects of the ACA. For example, 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 or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or
medical devices. More recently, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017, and Senate Republicans have released a draft bill known as the Better Care Reconciliation Act of 2017, each of which
would repeal certain aspects of the ACA if ultimately enacted. The prospects for enactment of these legislative initiatives remain uncertain. Further, Congress also could consider other legislation to replace elements of the ACA.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013 and will remain in effect through 2025 unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012,
among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, increased the statute of limitations period for the government to recover overpayments to providers from three to five
years.
Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance
initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will be fully implemented in 2019. At this time it is unclear how the introduction of the Medicare quality payment program will impact overall
physician reimbursement. Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and proposed bills
designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage
criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result in a similar reduction in
payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.
We are currently unable to predict what additional legislation or regulation, if any, relating to the health care industry may be enacted in
the future or what effect recently enacted federal legislation or any such additional legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in our stock price or limit
our ability to raise capital or to enter into collaboration agreements for the further development and commercialization of our programs and products.
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We face intense competition, and if we are unable to compete effectively, the demand for our products may be reduced.
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The biotechnology and pharmaceutical industries are subject to rapid and intense technological change. We face, and will continue to face,
competition in the development and marketing of our products and product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies.
Competition may also arise from, among other things:
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other drug development technologies;
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methods of preventing or reducing the incidence of disease, including vaccines; and
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new small molecule or other classes of therapeutic agents.
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Developments by others may render
our product candidates or technologies obsolete or noncompetitive.
We are commercializing and performing research on or developing
products for the treatment of several disorders including endometriosis, tardive dyskinesia, uterine fibroids, Tourette syndrome, essential tremor, classic congenital adrenal hyperplasia, pain, and other neurological and endocrine-related diseases
and disorders, and there are a number of competitors to our products and product candidates. If one or more of our competitors products or programs are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and potential competitors have substantially greater:
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research and development resources, including personnel and technology;
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preclinical study and clinical testing experience;
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manufacturing, marketing and distribution experience; and
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If we are unable to protect our intellectual property, our competitors could
develop and market products based on our discoveries, which may reduce demand for our products.
Our success will depend on our
ability to, among other things:
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obtain patent protection for our products;
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preserve our trade secrets;
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prevent third parties from infringing upon our proprietary rights; and
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operate without infringing upon the proprietary rights of others, both in the United States and internationally.
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Because of the substantial length of time and expense associated with bringing new products through the development and regulatory approval
processes in order to reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Accordingly, we intend to seek patent protection
for our proprietary technology and compounds. However, we face the risk that we may not obtain any of these patents and that the breadth of claims we obtain, if any, may not provide adequate protection of our proprietary technology or compounds.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how
and continuing
technological innovation to develop and maintain our competitive position, which we seek to protect, in part, through confidentiality agreements with our commercial collaborators, employees and consultants. We also have invention or patent
assignment agreements with our employees and some, but not all, of our commercial collaborators and consultants. However, if our employees, commercial collaborators or consultants breach these agreements, we may not have adequate remedies for any
such breach, and our trade secrets may otherwise become known or independently discovered by our competitors.
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In addition, although we own a number of patents, the issuance of a patent is not conclusive as
to its validity or enforceability, and third parties may challenge the validity or enforceability of our patents. We cannot assure you how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in
court or in other proceedings. It is possible that a competitor may successfully challenge our patents or that challenges will result in limitations of their coverage. Moreover, competitors may infringe our patents or successfully avoid them through
design innovation. To prevent infringement or unauthorized use, we may need to file infringement claims, which are expensive and time-consuming. In addition, in an infringement proceeding a court may decide that a patent of ours 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 its technology. Interference proceedings declared by the United States Patent and Trademark Office may be necessary
to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and be a distraction to management.
We cannot assure you that we will be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
The technologies we use in our research as well as the drug targets we select may infringe the patents or violate the proprietary rights of
third parties.
We cannot assure you that third parties will not assert patent or other intellectual property infringement
claims against us or our collaborators with respect to technologies used in potential products. If a patent infringement suit were brought against us or our collaborators, we or our collaborators could be forced to stop or delay developing,
manufacturing or selling potential products that are claimed to infringe a third partys intellectual property unless that party grants us or our collaborators rights to use its intellectual property. In such cases, we could be required to
obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms,
or at all. Even if our collaborators or we were able to obtain rights to the third partys intellectual property, these rights may be
non-exclusive,
thereby giving our competitors access to the same
intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.
Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper
activities, including
non-compliance
with regulatory standards and requirements.
We are
exposed to the risk of employee fraud or other misconduct. Misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors, or by employees of our commercial partners could include
failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws, to report financial information or
data accurately, to maintain the confidentiality of our trade secrets or the trade secrets of our commercial partners, or to disclose unauthorized activities to us. In particular, sales, marketing and other business arrangements in the healthcare
industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. Employee and independent contractor misconduct could also involve the improper use of individually identifiable information,
including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors in
connection with our current and future business activities are and will continue to be subject, directly or indirectly, to federal and state healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face
penalties, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations.
Our business operations and activities may be directly, or indirectly, subject to various federal and state healthcare laws, including without
limitation, fraud and abuse laws, false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of
business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws may impact, among
other things, our current activities with principal investigators and research subjects, as well as current and future sales, marketing, patient
co-payment
assistance and education programs.
Such laws include:
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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 providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation 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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the federal civil and criminal false claims, including the civil False Claims Act, and civil monetary penalties laws, which impose criminal and civil penalties against individuals or entities for, among other things,
knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which also imposes obligations, including mandatory contractual terms, on certain types of
individuals and entities, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health
Insurance Program, with specific exceptions, to report annually to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations
to report annually to CMS ownership and investment interests held by the 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; state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government; state laws that 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 governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs.
It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our
operations or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages,
monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar
agreement to resolve allegations of
non-compliance
with these laws, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of
which could adversely affect our ability to operate.
In addition, any sales of our product once commercialized outside the United States
will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
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We face potential product liability exposure far in excess of our limited insurance coverage.
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The use of any of our potential products in clinical trials, and the sale of any approved products, including INGREZZA, may expose us to
liability claims. These claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling our products. We have obtained limited product liability insurance coverage for our clinical trials in the amount
of $10 million per occurrence and $10 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming
increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. Upon FDA approval of INGREZZA we expanded our insurance coverage to include
product liability insurance related to the sale of INGREZZA in the amount of $20 million per occurrence and $20 million in the aggregate. However, we may be unable to obtain commercially reasonable product liability insurance for any
products approved in the future for marketing. On occasion, juries have awarded large judgments in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us
would decrease our cash reserves and could cause our stock price to fall.
Our activities involve hazardous materials, and we may be liable for any
resulting contamination or injuries.
Our research activities involve the controlled use of hazardous materials. We cannot
eliminate the risk of accidental contamination or injury from these materials. If an accident occurs, a court may hold us liable for any resulting damages, which may harm our results of operations and cause us to use a substantial portion of our
cash reserves, which would force us to seek additional financing.
Cyber security breaches and other disruptions could compromise our information and expose us to liability,
which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store
confidential and sensitive electronic information on our networks and in our data centers. This information includes, among other things, our intellectual property and proprietary information, the confidential information of our collaborators
and licensees, and the personally identifiable information of our employees. It is important to our operations and business strategy that this electronic information remains secure and is perceived to be secure. Despite security measures,
however, our information technology and network infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such cyber attack or breach could compromise our networks and data
centers 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, delays and impediments to our discovery, development, and commercialization efforts, and damage to our reputation.