You should carefully consider the following risk factors, as well as the other information in this report, before deciding whether to purchase, hold or sell shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that reflect substantive changes from the risk factors included in our previously filed Annual Report on Form 10-K for the year ended December 31, 2016.
Risks Related to Our Business and Industry
*Our success for the foreseeable future is dependent solely on the success of our approved product, Contrave
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(naltrexone HCI and bupropion HCI) extended release, or ER, tablets.
To date, the majority of our resources have been focused on the research and development of Contrave. In September 2014, the FDA approved our NDA for Contrave extended-release tablets as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adults with a BMI of 30 kg/m2 or greater (obese), or 27 kg/m2 or greater (overweight) in the presence of at least one weight-related comorbid condition. In March 2015, the EC granted a CMA for Contrave (under the name Mysimba) that is valid in all 28 EU member states, and also applies to Norway, Iceland and Lichtenstein in the EEA, for Mysimba to be placed on the market. The U.K. held a referendum in June 2016
, which resulted in
51.9% of those who turned out to vote electing to leave the EU. According to Article 50 of Treaty of the European Union, any member state may decide to withdraw from the EU in accordance with its own constitutional requirements. When a member state decides to withdraw, it must notify the European Council of its intention. In March 2017, the U.K. notified the European Council of its intention to withdraw from the EU and thereby triggered the Article 50 procedure. The U.K. is now in the process of negotiating its future relationship with the EU. Article 50(3) of Treaty of the European Union provides that if no agreement is reached two years after notification (March 2019), the U.K. will no longer be a member state of the EU, unless all the other member states agree to extend the negotiation period. Until the exit procedure provided under Article 50 is completed, the U.K. remains a member state of the EU and EU pharmaceutical laws continues to apply to the U.K. and the CMA for Mysimba will remain valid in the U.K. (and the rest of the EU and EEA). Once the exit procedure provided under Article 50 is completed, our ability to market and generate revenue from Mysimba in the U.K. will be subject to the terms of the withdrawal agreement, taking account of the framework for the future relationship between the U.K. and the EU. However, the CMA for Mysimba and our ability to market and generate revenue for Mysimba elsewhere in the EU, Norway, Iceland and Lichtenstein should not be affected.
We are now focused on the commercialization of Contrave in the United States. Our former collaboration partner Takeda commercially launched Contrave in the United States in October 2014.
As of August 2016, all of Takeda’s previous rights and obligations under the collaboration agreement were transitioned to us, and we are now solely responsible for developing and commercializing Contrave within the United States and the rest of the world. Consistent with our strategy for building a global brand, we have entered into multiple partnerships for the potential commercialization of Contrave/Mysimba outside the United States. For South Korea, we have entered into a
distribution
agreement with
Kwang Dong, which obtained regulatory approval of, and has commercially launched, Contrave in South Korea. For Central and Eastern Europe, we have entered into a distribution agreement with Valeant, which has commercially launched Mysimba in Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia and is advancing plans for the launch of Contrave/Mysimba in other markets in Central and Eastern Europe and Turkey. For Western Europe, we have entered into distribution agreements for Spain with Rovi; for Italy with Bruno; for the United Kingdom and Ireland with Consilient; for Denmark, Finland, Norway, Sweden and Iceland with Navamedic; and for Germany, Austria and France with Cheplapharm. In addition, we have entered into distribution agreements with partners in other regions with whom we are working to obtain the necessary regulatory approvals to permit commercialization of Contrave. For Australia, New Zealand and South Africa, we have entered into a distribution agreement with Valeant; for Canada, we have entered into a distribution agreement with Valeant; and for the Middle East (covering Saudi Arabia, the United Arab Emirates, Kuwait, Oman, Qatar, Bahrain, Lebanon, Jordan, Iraq, Iran and Egypt), we have entered into a distribution agreement with Biologix. In parallel, we are continuing partnering discussions for Contrave/Mysimba in other markets in the EU and other territories outside the United States. Our ability to generate revenue for the foreseeable future will depend primarily on the commercial success of Contrave in the United States.
*If Contrave does not achieve broad market acceptance, the revenues that we generate from its sales will be limited.
The commercial success of Contrave or any other product candidates for which we obtain marketing approval from the FDA or other regulatory authorities will depend upon the acceptance of these products by both the medical community and patient population. Coverage and reimbursement of our product by third-party payors, including government payors, generally is also necessary for
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optimal commercial success. The degree of market acceptance of any of our approved products will depend on a number of factors, inc
luding:
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our ability to provide acceptable evidence of safety and efficacy;
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the timing of market introduction of our products as well as competitive products;
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the relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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limitations or warnings contained in a product’s FDA-approved labeling, including the “boxed” warning(s) and pregnancy precautions associated with the active pharmaceutical ingredients, or APIs, in Contrave and included in Contrave’s product label;
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availability of alternative treatments and the potential or perceived advantages or disadvantages of such treatments, including, in the case of Contrave, a number of competitive products approved for the treatment of weight loss or expected to be commercially launched in the near future;
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pricing, discounts and cost effectiveness;
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our Risk Evaluation and Mitigation Strategy, or REMS, if any are imposed;
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the effectiveness of our, our contract sales organization’s, and our collaborators’ sales and marketing strategies, including our telemedicine pilot program;
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the effectiveness of our ability to distribute our products to our customers, including our ability to negotiate the terms of our agreements with third party distributors that are consistent with, or as favorable as, terms that were negotiated when we had a large pharmaceutical partner;
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our and our partners’ ability to obtain sufficient third-party coverage or reimbursement; and
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the willingness of patients to pay out of pocket in the absence of third-party coverage.
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If Contrave does not achieve an adequate level of acceptance by physicians, healthcare payors and patients, we may not generate sufficient revenue from our product, and we may not become or remain profitable. In addition, our efforts to educate prospective patients, the medical community and third-party payors on the benefits of our product may require significant resources and may never be successful.
*We have limited sales and marketing experience and resources.
To date, the marketing of Contrave has been focused on large markets traditionally served by general and family practitioners and internists. General physicians number in the several hundred thousand in the United States and hundreds of thousands outside the United States. Traditional pharmaceutical companies employ groups of sales representatives numbering in the thousands to call on this large generalist physician population. In August 2016, we assumed full responsibility for the continued development and commercialization of Contrave in the United States from our former collaboration partner, Takeda. We have never, as an organization, commercialized a product and there is no guarantee that we will be able to do so successfully. Included in our strategy in the United States is the establishment of a specialty sales force to continue the commercialization of Contrave. While we have established our commercial team and have hired our U.S. sales force, we will need to continue to further develop the team and our marketing strategy in order to successfully market and sell Contrave in the United States which will require significant time and resources, and our ability to market and sell our product and generate profits from Contrave may be delayed or limited. Our sales organization is currently contracted through a contract sales force. Although the contract sales force consists of sales professionals with experience in the pharmaceutical industry, including many with experience selling weight management products, we cannot assure you that their sales efforts will be effective or produce the results we expect. We will be competing with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. Further, we may face difficulties or delays in obtaining and maintaining the required licenses and permits to sell Contrave in individual states and jurisdictions.
Also included in our strategy in the United States is the use of telemedicine, which is advertised on the brand website for Contrave. Telemedicine is relatively new and unproven and it is uncertain whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption. We believe that the successful commercialization of Contrave in the United States may depend on the willingness of patients to use telemedicine to get access to Contrave. Negative publicity concerning this aspect of our strategy, or the telemedicine market as a whole, could limit market acceptance of this as a way to access Contrave. Similarly, patient and healthcare provider concerns or negative publicity regarding patient confidentiality and privacy in the context of telemedicine could limit market acceptance of this aspect of our strategy.
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If our commercializa
tion of Contrave in the United States is unsuccessful or perceived as disappointing, our stock price could decline significantly and the long-term success of the product and our Company could be harmed.
*Certain aspects of our U.S. commercialization strategy for Contrave are dependent upon third parties and 100% of the commercialization of Contrave/Mysimba in foreign countries is dependent upon third parties. If these third parties do not successfully carry out their contractual duties or fail to comply with laws and regulations, we may not be successful in such commercialization
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If we do not enter into additional collaboration, distribution or co-promotion arrangements, we may not be able to effectively market and sell Contrave/Mysimba outside the United States and our ability to generate revenues may be delayed or limited.
We have entered into an agreement with a contract sales organization to sell Contrave in the United States. We also have entered into agreements with telemedicine providers to make telemedicine service available to patients in certain geographies in the United States as part of our telemedicine pilot program.
We have also entered into
multiple partnerships for the potential commercialization of Contrave/Mysimba in
the Partnered Regions. These third parties are not our employees, and we have limited ability to control the amount or timing of resources that they devote to our product. If these third parties fail to provide adequate resources to our product, fail to meet their contractual obligations to us or fail to comply with applicable laws and regulations, our business will suffer. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. If these third parties also contract with our competitors, it could adversely affect our business.
In order to expand the market opportunity for Contrave outside the Partnered Regions, we must either establish additional sales and marketing collaborations, additional distribution or co-promotion arrangements or continue to expend significant resources to develop our own sales and marketing presence. We may not be able to enter into additional collaboration, distribution or co-promotion arrangements on acceptable terms, if at all. If we are unable to enter into additional collaboration, distribution or co-promotion arrangements for Contrave/Mysimba in additional geographies and we must develop our own sales and marketing presence to address the physicians in these geographic areas, we will require additional capital and our ability to market and sell our product and generate revenues from our product may be delayed or limited. Even if we do enter into additional collaboration, distribution or co-promotion arrangements with third parties, we will be reliant on such third parties to successfully develop and/or commercialize our product in these areas. These third parties may fail to develop or effectively commercialize our product because they cannot obtain the necessary regulatory approvals, decide to pursue a competitive potential product that may be developed outside of the collaboration or fail to devote the resources necessary to realize the full commercial potential of our product, especially in light of the resources being devoted by our competitors’ collaboration and co-promotion partners. Any such failures would negatively affect our ability to generate revenues from sales of Contrave/Mysimba outside the United States.
We also face competition in our search for collaborators, co-promoters and distributors. If our competitors are able to establish collaboration, distribution or co-promotion arrangements with pharmaceutical companies who have substantially greater resources than we have, our ability to successfully commercialize Contrave/Mysimba outside the United States will be limited and as a result our competitors may be more successful in marketing and selling their products in these geographic areas.
*Even though Contrave received regulatory approval from the FDA, the EC and South Korea, it will still be subject to ongoing and continued regulatory review and post-marketing requirements in these countries and elsewhere, which may result in significant expense and limit our ability to commercialize this product.
Even though U.S. regulatory approval has been obtained for Contrave, the FDA has imposed restrictions on its indicated uses and marketing and has imposed ongoing requirements for post-marketing studies and other activities. For example, the approved use of Contrave is limited as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management in adults with an initial BMI of 30 kg/m2 or greater (obese), or 27 kg/m2 or greater (overweight) in the presence of at least one weight-related co-morbid condition. The label also contains a “boxed” warning regarding the potential for suicidal thoughts and behaviors as a side effect of the drug. We are also required to conduct a number of post-marketing studies, including a series of studies in obese pediatric patients to evaluate the safety and efficacy of Contrave for weight management in pediatric populations and a group of short-term trials, including a thorough QT study, single-dose pharmacokinetic studies in renal and hepatic impairment, and a drug-drug interaction study. Finally, although FDA approval of Contrave was based in part on 25% interim analysis data from the Light Study, which was terminated in May 2015 and which evaluated the CV safety of Contrave, the FDA determined that the Light Study would not satisfy a post-marketing requirement related to CV outcomes. As a result, the FDA is requiring us to conduct a new placebo-controlled CVOT, with a pre-specified goal to exclude a hazard ratio of 1.4, with the upper bound of the 95% confidence interval. A CVOT, which we refer as the CONVENE trial, was initiated by Takeda in February 2016, with the final study results originally expected to be available by January 2022. However, following the termination of our collaboration with Takeda, we determined that the transfer of the recently-initiated, multi-year CONVENE trial to us from Takeda would have involved substantial complexity due to the scope, size and nature of the trial. After a careful assessment, we determined that the transfer of current clinical trial operations and
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systems may have resulted in a significant interruption to study conduct and possibly data integrity. As a result, Takeda terminated the CONVENE trial in April 2016. We notified the clinical trial sites and the FDA of the deci
sion to terminate the CONVENE trial and we expect to finalize a revised protocol and plan to start a new CVOT under our investigational new drug application after conferring with the FDA. We cannot assure you that a new CVOT will satisfy the FDA’s post-ma
rketing requirements related to CV outcomes or that the FDA will not require us to conduct additional studies during or after the new CVOT. Any issues relating to these restrictions or post-marketing requirements (including any additional studies which th
e FDA may require or a delay in conducting the post-marketing required studies) could have an adverse impact on our ability to achieve market acceptance of or continue marketing Contrave in the United States and to generate revenue from its sale in the Uni
ted States. To the extent that Contrave is approved for sale in other countries in addition to the United States, the EEA and South Korea, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countri
es.
Contrave will also be subject to ongoing requirements established by the FDA and other regulatory authorities in the EU and elsewhere governing the manufacturing, labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information, including, among other things, information related to the stability and consistency and reliability of the quality of Contrave (e.g., strength, purity and potency). These requirements include, among other things, submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practice, or cGMP, regulations and good clinical practice, or GCP, requirements and related requirements in the EU and elsewhere for any clinical trials that we conduct post-approval.
Approved products, manufacturers and manufacturers’ facilities are subject to continual review and periodic inspections. Later discovery of previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or failure to comply with regulatory requirements, may result in, among other things, restrictions on that product or on us or a partner, including:
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withdrawal of the product from the market or voluntary or mandatory product recalls;
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warning letters or untitled letters;
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civil or criminal penalties, including fines;
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withdrawal of regulatory approval;
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suspension of any ongoing clinical trials;
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refusal by the FDA or other regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;
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restrictions on operations, including restrictions on the marketing or manufacturing of the product or the imposition of costly new manufacturing requirements; or
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seizure or detention, or refusal to permit the import or export of products.
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In addition, the policies of the FDA and other regulatory authorities in the EU and elsewhere may change and additional government regulations may be enacted that could impact the marketing of Contrave/Mysimba. 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 in the United States, Europe and elsewhere, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
*Our clinical trials, including the CVOT and other post-marketing required studies, may fail to demonstrate acceptable levels of safety or efficacy of Contrave, which could prevent or significantly delay Contrave’s regulatory approval in countries outside the United States, the EU and South Korea and may adversely impact our ability to maintain regulatory approval in these regions.
Contrave is prone to the risks of failure inherent in drug development, even following approval from the FDA. Even though U.S. and EU regulatory approvals have been obtained for Contrave/Mysimba, the FDA has imposed ongoing requirements for post-marketing studies. Any issues relating to these post-marketing requirements (including any additional studies which the FDA may require or a delay in conducting the post-marketing required studies and issues relating to the safety or efficacy of Contrave) could have an adverse impact on our ability to receive regulatory approval outside the United States, to achieve market acceptance of or continue marketing Contrave in the United States and to generate revenue from its sale in the United States. To the extent that Contrave is approved for sale in other countries, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
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Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication in the United States (or other countries), we must demonstrate with substantial evidence gather
ed in adequate and well-controlled clinical trials that the product candidate is safe and effective for use for that target indication.
In addition, we may need to complete additional preclinical testing of any product candidate to evaluate safety and toxicity and the FDA may require us to conduct additional clinical trials. The results from the preclinical and clinical trials that we have completed for Contrave may not be replicated in future trials, or we may be unable to demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for Contrave (outside the United States, the EU and South Korea) and maintain approval for Contrave in the geographies in which we have approval today. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, including post-marketing clinical trials, even after promising results in earlier trials. If Contrave is not shown to be safe and effective in clinical trials, our clinical development program could be delayed or terminated. Any delays could also result in the need for additional financing, and our failure to adequately demonstrate the efficacy and safety of any other product candidates that we may develop, in-license or acquire would prevent receipt or maintenance of regulatory approval and, ultimately, the commercialization of that product candidate.
We expect intense competition in the obesity marketplace for Contrave and new products may emerge that provide different or better therapeutic alternatives for obesity and weight loss.
Contrave competes with well-established prescription drugs for the treatment of obesity, including Xenical
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(orlistat), marketed by Genentech, Inc. Orlistat has also been launched by GlaxoSmithKline in over-the-counter form under the brand name allí
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, which represents additional competition and potential negative pricing pressure. Orlistat is marketed by a pharmaceutical company with substantially greater resources than we have. In addition, a number of generic pharmaceutical products are prescribed for obesity, including phentermine, phendimetrazine, benzphetamine and diethylpropion. Some of these generic drugs, and others, are prescribed in combinations that have shown anecdotal evidence of efficacy. These products are sold at much lower prices than Contrave. The availability of a large number of branded prescription products, including drugs that are prescribed off-label, generic products and over-the-counter products could limit the demand for, and the price we or our partners are able to charge for Contrave and any future products. Vivus, Inc. commercially launched its combination product, phentermine/topiramate, in the United States under the name Qsymia in September 2012. Eisai Inc., the collaboration partner of Arena Pharmaceuticals, Inc., or Arena, commercially launched lorcaserin in the United States under the name Belviq in June 2013. Moreover, Novo Nordisk’s product, Saxenda, received FDA and European Commission approval and commercially launched in the United States in April 2015, with launches in additional markets planned in the future. These products represent additional competition and potential negative pricing pressure with respect to Contrave. Further, if safety concerns about these products’ use arise after their launch, such concerns may materially and adversely affect the commercialization of Contrave. Currently, there are a number of drug products in development for obesity which could become competitors against our product.
New developments, including the development of other drug technologies and methods of preventing the incidence of disease, occur in the nutritional, pharmaceutical and medical technology industries at a rapid pace. These developments may render our product less competitive. Some of our potential competitors are large pharmaceutical or device firms and have substantially greater resources than we have. These resources could be directed toward the obesity market and include:
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research and development resources, including personnel and technology;
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drug development and clinical trial experience;
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experience and expertise in exploitation of intellectual property rights; and
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As a result of these factors, our competitors may more rapidly develop products than we did or may do in the future or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product. Our competitors may also develop drugs or surgical approaches that are more effective, more useful and less costly than ours and may also be more successful in manufacturing and marketing their products. In addition, our competitors may be more effective in commercializing their products. We currently outsource our manufacturing and therefore rely on third parties for that competitive expertise. There can be no assurance that we will be able to develop or contract for these capabilities on acceptable economic terms, or at all.
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*We and our partners are subject to uncertainty relating to reimbursement policies which, if not favorable to Contrave, could hinder or prevent Contrave’s commercial success.
Our ability and our partners’ ability to commercialize our approved product successfully will depend in part on the extent to which governmental authorities, private health insurers and other third-party payors establish favorable coverage and reimbursement levels for our product and related treatments. As a threshold for coverage and reimbursement, third-party payors generally require that drug products have been approved for marketing by the applicable regulatory authority. Third-party payors also are increasingly challenging the effectiveness of and prices charged for medical products and services. We cannot provide any assurances that we or our partners will be able to obtain adequate third-party coverage or reimbursement for our product in whole or in part.
The obesity therapy market, in particular, continues to be marked by limited coverage and reimbursement from health insurers and other payors, who have historically viewed obesity as a lifestyle issue. For example, state Medicaid programs in the U.S., administered by individual states for qualifying low-income individuals, are permitted to exclude coverage for weight loss drugs. In addition, weight loss drugs are excluded from coverage under the Medicare Part D prescription drug program for eligible seniors and disabled individuals. Medicare is a federal governmental third-party payor whose policies often are emulated or adopted by other payors. Although the Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare program, has removed longstanding policy language that obesity itself cannot be considered an illness, the agency interprets the Part D exclusion of weight loss drugs as applying to novel obesity therapies. However, CMS has since issued a national policy covering bariatric surgery for co-morbid conditions associated with obesity and extended coverage under the Medicare program for intensive behavioral therapy for beneficiaries with obesity. The benefit provides for screening for obesity and counseling for eligible beneficiaries by primary care providers in physician’s offices. Although third-party payors’ willingness to cover and reimburse obesity-related products and services appears to be changing, as exemplified by Medicare changes, we may continue to face a poor coverage and reimbursement environment.
Outside of the U.S., there is also continued uncertainty as to the extent governmental authorities may establish favorable coverage and reimbursement levels for Contrave/Mysimba. On July 21, 2017, the UK’s National Institute for Health and Care Excellence, or NICE, published its final appraisal determination to not recommend funding of Mysimba by the National Health Service in England and Wales. We are currently evaluating the actions we may elect to take in response to the recommendation, which could include an appeal, although there can be no assurance that any such efforts will be successful or that NICE will revise its recommendation.
Currently, Contrave as well as our competitors’ drug products have limited third-party payor coverage. This means that individuals prescribed such drug products often either have significant out-of-pocket costs or pay for the products entirely by themselves. If Contrave does not receive adequate coverage or reimbursement, or if patients are unwilling to pay out of pocket for Contrave, the market acceptance and commercial success of Contrave may be limited.
Our failure to successfully acquire, develop and market additional product candidates or approved products would impair our ability to grow.
As part of our corporate strategy, we may from time to time acquire, in-license, develop and/or market additional products and product candidates. Because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising pharmaceutical product candidates and products.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
In addition, past and future acquisitions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management’s time and attention to develop acquired products or technologies;
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substantial debt or dilutive issuances of securities to pay for acquisitions;
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higher-than-expected acquisition and integration costs;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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Further, any product candidate that we have or may in the future acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. For example,
in 2015, we in-licensed from Bath University the rights to two families of opioid molecules. We are currently conducting experiments to replicate the findings of the initial academic research performed.
All product candidates, including these opioid molecules, are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we may acquire will be commercialized profitably or achieve market acceptance.
*Delays in the commencement of clinical trials, the transfer and delivery of clinical trial information, the transition of clinical trials or completion of clinical trials or the requirement to conduct additional clinical trials could result in increased costs to us and delay or limit our ability to continue development programs, maintain or receive additional regulatory approvals and/or generate revenues.
Delays in the commencement of clinical trials, the transfer and delivery of clinical trial information, the transition of clinical trials, including the transition of any post-marketing studies from Takeda to us, or completion of clinical trials could significantly affect our product development costs or adversely impact our ability to maintain or receive additional regulatory approvals. We do not know whether clinical trials will begin on time or whether clinical trials will be completed on schedule, if at all. The commencement, transfer and delivery of clinical trial information, the transition of clinical trials and completion of clinical trials can be delayed for a number of reasons, including delays related to:
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obtaining regulatory approval to commence a clinical trial, including regulatory approval of the design of a clinical trial;
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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manufacturing sufficient quantities of a product for use in clinical trials;
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obtaining institutional review board, or IRB, approval to conduct a clinical trial at a prospective site;
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recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including competition from other clinical trial programs for the treatment of obesity or similar indications and the restrictions imposed by the design and length of a clinical trial;
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retaining patients who have initiated a clinical trial, but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, or who are lost to further follow-up; and
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timely collection, review and analysis of our clinical trial data.
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A clinical trial may be suspended or terminated by us, a development partner, the FDA (or an equivalent regulatory authority outside the United States), the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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lack of adequate funding or other resources to continue the clinical trial;
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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues; and
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logistical and operational challenges inherent in complex clinical trials.
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Additionally, changes in regulatory requirements and guidance for developing products for weight management may occur and we may need t
o initiate new clinical trials or change protocols of existing clinical trials to account for these changes. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion or termination of clinical trials, may also ulti
mately lead to the termination of a development program and/or the denial of regulatory approval of a product candidate, including the denial of an NDA or regulatory approval outside the United States.
*Contrave may cause undesirable side effects that could delay or prevent commercialization, limit the commercial profile of an approved label, result in significant negative consequences following marketing approval or delay or prevent regulatory approval.
Undesirable side effects caused by our product could cause regulatory authorities to withdraw or limit their approval of the product or could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Contrave has been evaluated in four completed Phase III clinical trials, which we refer to collectively as the Contrave Obesity Research, or COR, program. Across the entire COR program, seven patients experienced serious adverse events that were attributed by investigators as possibly related or related to Contrave treatment. These consisted of cholecystitis (gallbladder inflammation) (2), seizure (2), palpitations (1), paresthesia (1) and vertigo (1). The most frequently observed treatment-emergent adverse events were nausea, constipation, headache, vomiting, dizziness, insomnia, dry mouth and diarrhea. Nausea was the leading adverse event resulting in discontinuation; however, for the majority of patients experiencing nausea, it was mild to moderate, transient and manageable. In the Light Study 50% interim analysis, which interim analysis was completed in connection with the termination of the Light Study in 2015 and was designed only as an early and preliminary assessment of safety to support regulatory approvals of Contrave, there were no unexpected new safety signals observed. Serious adverse events and adverse events leading to discontinuation were generally consistent with the overall safety profile established in the COR program. However, a larger number of CV events are required to determine the effect of Contrave on CV outcomes and these safety conclusions may change in connection with the required post-marketing CVOT.
The safety data we have disclosed to date represents our interpretation of the data at the time of disclosure and it is subject to our further review and analysis. Serious adverse events have been reported to the FDA (and an equivalent applicable regulatory authority) and study investigators as required in accordance with current guidelines and standards. Serious adverse events that are not characterized by clinical investigators as possibly related to our study drug or adverse events that occur in small numbers may not be disclosed to the public until such time the various documents submitted to the FDA as part of the approval process are made public. We are unable to determine if the subsequent disclosure of adverse events will have an adverse effect on our stock price. In addition, our interpretation of the safety data from our clinical trials is contingent upon the review and ultimate approval of the FDA. The FDA may not agree with our methods of analysis or our interpretation of the results.
In addition, each of the constituent drugs of our product has its own side effect profile that is included in the respective current product label. Contrave’s label includes the side effect profiles of each of its constituent drugs, including a “boxed” warning regarding the potential for suicidal thoughts and behaviors as a side effect of the drug. Moreover, patients may experience side effects that are indicated in the constituent drugs’ labels, as was the case with the side effects experienced by patients in our clinical trials of Contrave. In addition, while the constituent drugs that make up Contrave have post-marketing safety records and while we have tested these constituent drugs in combination in our clinical trials of Contrave to date, the safety of the combined use of the constituents of Contrave is not yet fully known, and any future trials may produce side effects not observed to date. Any of the side effects of Contrave, or its individual constituent drugs, could limit the commercial profile of the approved label.
Further, if we or others, including our partners, identify undesirable side effects caused by Contrave, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw or limit their approval of the product;
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regulatory authorities may require the addition of labeling statements, such as an additional “boxed” warning with Contrave or an additional contraindication;
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we may be required to change the way the product is distributed or administered, to conduct additional clinical trials or to change the labeling of the product;
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we or our partners may decide to remove the products from the marketplace;
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we could be sued and held liable for injury caused to individuals exposed to or taking our product; and
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our reputation may suffer.
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Any of
these events could prevent us and our partners from achieving or maintaining market acceptance of Contrave or any other affected product candidate and could substantially increase the costs of commercializing Contrave and significantly impact our ability
and our partners’ ability to successfully commercialize Contrave and generate revenues.
We rely primarily on third parties to assist us in the conduct of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to commercialize our product within our expected timeframes or at all.
We expect to use a CRO to assist us with monitoring, oversight and statistical support for the post-marketing requirements for Contrave/Mysimba, including the CVOT. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of our clinical trials and the subsequent collection, review and analysis of data. These third parties, including CROs and investigators, are not our employees, and we have limited ability to control the amount or timing of resources that they devote to our programs. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and that our regulatory filings are consistent with regulatory requirements. Our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs that assist us with our clinical studies are required to comply with GCPs, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and regulatory authorities may not accept the clinical data in support of our marketing applications or in connection with our post-marketing commitments. We cannot assure you that upon inspection by a given regulatory authority, such authority will determine that any clinical trial complied with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP regulations. If our CROs, consultants or independent investigators fail to devote sufficient time and resources to our drug development programs, or if their performance is substandard or fails to comply with regulatory requirements, it may adversely impact the commercialization of our product. In addition, the execution of clinical trials, the subsequent compilation, review and analysis of the data produced and the preparation of regulatory applications requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties provide the necessary resources and communicate and coordinate with one another. If these third parties are unable to provide the necessary resources or coordinate and communicate with one another, our clinical trials may be delayed or the completion and analysis of the data and the related regulatory applications may be delayed or compromised. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. If these third parties also contract to provide services for our competitors, it could adversely affect our business.
*If the contract manufacturers upon whom we rely fail to produce our product in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we and our partners may face delays in the development and commercialization of Contrave.
We do not currently possess nor do we plan to implement internal manufacturing or packaging processes. We currently utilize the services of contract manufacturers to manufacture and package our clinical and commercial supplies. These supplies include the formulations of our product’s APIs from our API suppliers, the tablets combining those components and the materials used to package these tablets for commercial use and use in clinical trials. If the contract manufacturers upon whom we rely fail to produce our product in the volumes required on a timely basis, we may face delays in the continued development and commercialization of Contrave.
In March 2010, we entered into a long-term manufacturing services agreement, or manufacturing agreement, with Patheon Pharmaceuticals and Patheon Inc., which we collectively refer to as Patheon, pursuant to which Patheon has agreed to manufacture commercial quantities of our Contrave tablet products. Under the terms of the manufacturing agreement, as amended by the parties in November 2013, we are required to purchase from Patheon a certain percentage of our requirements for Contrave tablet products intended for commercial sale, provided certain terms and conditions are met. The initial term of the manufacturing agreement commenced in March 2010 and shall continue in effect until December 31, 2019. Upon expiration of the initial term, the agreement will be automatically renewed for additional two year terms. Patheon may terminate the manufacturing agreement at any time upon specified prior written notice to us. We may also terminate the manufacturing agreement with specified prior written notice to Patheon, subject to our payment of certain termination amounts. Either party may terminate the manufacturing agreement effective immediately upon written notice to the other in the event that (a) the other party dissolves, or is declared insolvent or bankrupt by a court of competent jurisdiction, (b) a voluntary petition of bankruptcy is filed in any court of competent jurisdiction, or (c) the manufacturing agreement is assigned for the benefit of creditors. We may terminate the manufacturing agreement upon specified prior written notice if any governmental or regulatory authority, including, but not limited to, the FDA, takes any action, or raises any objection, that prevents us from importing, exporting, purchasing or selling Contrave tablet products. We are also required to give specified advance notice if we intend to no longer order commercial supplies of Contrave tablet products pursuant to the manufacturing agreement due to the product’s discontinuance in the market. Patheon may terminate the manufacturing agreement upon specified prior written notice to us if we assign any of our rights under the manufacturing agreement to an assignee that, in the
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opinion of Patheon acting reasonably, is (a) not a credit-worthy substitute for us, or (b) a competitor of Patheon. Moreover, either party may terminate the ma
nufacturing agreement upon written notice to the other party where the other party has failed to remedy a material breach of any of its representations, warranties, or other obligations under the manufacturing agreement within a specified period of time fo
llowing receipt of a written notice of the breach, subject to specified terms and conditions.
If we change to other manufacturers in the future, the FDA and comparable foreign regulators must approve these manufacturers’ facilities and processes prior to use, which may require new clinical studies, testing and compliance inspections, and the new manufacturers would have to be educated in or demonstrate successful technology transfer of the processes necessary for the production of our product.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up for commercial production. These problems include difficulties with production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel and production capacity, equipment failures as well as compliance with strictly enforced federal, state and foreign regulations, which include product requirements established by the FDA or other regulatory agencies and stability requirements in other foreign countries that our current product candidate formulations may not be able to meet. If our manufacturers were to encounter any of these difficulties in the United States or in other foreign countries or otherwise fail to comply with their obligations to us, or if we do not accurately forecast our demand, our ability to support the commercial sale of Contrave or to provide product to patients in our clinical trials would be jeopardized. Moreover, our API suppliers acquire the raw materials necessary to make Contrave API from a limited number of sources. Naltrexone, in particular, comes from a very limited number of sources. Any delay or disruption in the availability of these raw materials or a change in raw material suppliers could result in production disruptions, delays or high costs with consequent adverse effects on us. Any delay or interruption in our ability to meet commercial demand for Contrave will result in the loss of potential revenues. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining a clinical trial program and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.
In addition, all manufacturers of our products must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements may be revised from time to time and include, among other things, quality control, quality assurance and the generation and maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. While we are ultimately responsible for ensuring that our contract manufacturers operate in accordance with cGMP requirements and have implemented a quality oversight program, we have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval and/or commercialization, product seizure or recall, or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize Contrave or obtain regulatory approval for or successfully complete any required clinical trials, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay in the sale of Contrave or any of its clinical trials, entail higher costs or result in our or our partners being unable to effectively commercialize Contrave. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis, pursuant to provided specifications and at commercially reasonable prices, we and our partners may be unable to meet demand for Contrave and would lose potential revenues. Now that we have sole responsibility for the commercialization of Contrave in the United States, in the future we may not be able to negotiate terms that are consistent with, or as favorable as, terms that were negotiated when we had a large pharmaceutical company as our collaboration partner. To the extent that Contrave is approved for sale in other geographies in addition to the United States, Europe and South Korea, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those geographies.
*There are labeled adverse side effects to the individual use of bupropion and naltrexone.
A key constituent of Contrave is bupropion, which has been approved by the FDA for the treatment of depression and to assist smoking cessation. The FDA has directed manufacturers of all antidepressant drugs to include in their product labels a “boxed” warning and expanded warning statements regarding an increased risk of suicidal thinking and behavior in children and adolescents being treated with these drugs. The package insert for bupropion includes such a “boxed” warning statement. In December 2006, the FDA held an advisory committee meeting regarding suicidal thinking and behavior in adults being treated with antidepressant drugs. The advisory committee recommended that the “boxed” warning be extended to cover adults up to their mid-20s. The package insert for Contrave includes a “boxed” warning regarding the potential for suicidal thoughts and behaviors as a side effect of the drug. To the extent that any additional warnings or labeling changes related to suicidal thinking and behavior in adults are required, we expect that any such additional warnings or other labeling changes will also be required on labeling for Contrave. In July 2009, the FDA issued a news release announcing that it was requiring manufacturers to put a “boxed” warning on the prescribing information for smoking cessation drugs including Zyban
®
, which is a branded form of bupropion. The warning highlights the risk of serious mental health
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events including changes in behavior, depressed mood, hostility, and suicidal thoughts. Although Contrave is not intended to be promoted for or used in the treatment of major depression or smoking cessat
ion, a similar warning is included in the labeling for Contrave, particularly because it is likely that there will be obese patients who smoke or depressed obese patients who will use Contrave.
The FDA has also directed manufacturers of antidepressant drugs to create Medication Guides to be distributed to patients regarding the risk of suicidal thinking and behavior in children and adolescents. Although we have not included children or adolescents in the Contrave clinical trials, the FDA required us to create a Medication Guide for Contrave. These warnings and other requirements may have the effect of limiting the market acceptance by targeted physicians and patients of Contrave.
The other constituent of Contrave, naltrexone, has been approved by the FDA for the treatment of alcohol and opioid dependence. The FDA has directed the manufacturers of naltrexone for these indications to include in their product labels a “boxed” warning and expanded warnings statements regarding hepatotoxicity, or liver toxicity. A similar warning statement is included in the labeling for Contrave.
Each of the constituent drugs included in the Contrave combination has in its package insert a “Category C” pregnancy precaution. This means that animal studies have shown that each of these constituent drugs has the potential to cause birth defects and that there have been no adequate and well-controlled studies of the constituent drugs in pregnant women, but that the FDA has determined that the benefits from the use of such drugs in pregnant women may be acceptable despite the potential risks. In addition, although Contrave is not known to be teratogenic, it appears from a recent FDA action, in which the FDA stated that weight loss offers no potential benefit to a pregnant woman and may result in fetal harm, that the FDA is likely to classify all weight loss pharmaceutical products as Category X. Contrave, the obesity therapeutics approved by the FDA in 2012 and Orlistat all have Category X pregnancy precautions.
Any of these known side effects and any associated warning statements or classification or categorization of risk may limit the commercial profile of the approved label for Contrave and prevent us from achieving or maintaining market acceptance of Contrave.
*The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of “off-label” uses, and we may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, resulting in damage to our reputation and business.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about approved drugs, such as Contrave. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling, also known as “off-label” promotion. Physicians, including those that prescribe Contrave through a telemedicine platform, may nevertheless prescribe our product for their patients in a manner that is inconsistent with the approved label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. If the FDA determines that our promotional materials or training or the statements made by our sales representatives constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, which could have an adverse impact on our reputation and financial results. Moreover, in the EU, direct-to-consumer advertising for a prescription-only medicine is expressly prohibited by law.
If the suppliers upon whom we rely for API fail to produce such ingredients in the volumes that we or our partners require on a timely basis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we or our partners may face delays in the further development or commercialization of Contrave.
We do not manufacture any of our API nor do we plan to develop any capacity to do so. Instead, we rely on suppliers of API to provide component materials to our other contract manufacturers, who produce finished pharmaceutical products incorporating the API. The failure or inability of our API suppliers to satisfy our API requirements on a timely basis could limit or halt our ability to sell Contrave in the United States, the EU or elsewhere that we have or may receive regulatory approval for sale.
Although naltrexone itself is not addictive, synthesis of naltrexone is a multi-step process with a natural opiate starting material that has the potential for abuse and is therefore regulated as a controlled substance under the federal Controlled Substances Act or applicable foreign equivalents. As such, manufacturers of naltrexone API must be registered with the Drug Enforcement Administration, or DEA, or applicable foreign equivalents. Manufacturers making naltrexone also must obtain annual quotas from the DEA for the opiate starting material. Because of the DEA-related requirements and modest current demand for naltrexone API, there currently exist a limited number of manufacturers of this API. Therefore, API costs for naltrexone are greater than for the other constituents of our product. Demand for Contrave may require amounts of naltrexone greater than the currently available worldwide supply or our or our partners’ current forecasts for the supply to us of Contrave or its components. Any lack of sufficient quantities of naltrexone would limit our ability to continue to commercialize Contrave in the United States and complete any additional required
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clinical trials and would limit our ability to commercialize Contrave/Mysimba outside the United States and Europe. Although we are evaluating
additional possible manufacturers to supplement our current naltrexone manufacturing capacity, including those in the United States and Europe, we may not be successful in accessing additional manufacturing supply of naltrexone API or other necessary compo
nents of our product at the appropriate quantities, quality or price.
We have no material, long-term commitments or supply agreements with any of our API suppliers. Although we may seek to establish additional long-term supply commitments in the future, we may be required to agree to minimum volume requirements, exclusivity arrangements or other restrictions. We may not be able to enter into long-term agreements on commercially reasonable terms, or at all. Consequently, we and our partners may not be able to successfully commercialize Contrave if we are unable to secure long-term supply commitments for our API components. Further, now that we have sole responsibility for the commercialization of Contrave in the United States, in the future we may not be able to negotiate terms that are consistent with, or as favorable as, terms that were negotiated when we had a large pharmaceutical company as our collaboration partner.
In addition, our API suppliers must comply with cGMP requirements enforced by the FDA through its facilities inspection program and must maintain and comply with their respective drug master files, or DMFs, on file with the FDA or other similar regulatory bodies. These requirements include, among other things, quality control, quality assurance and the generation and maintenance of records and documentation. Suppliers of our API may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. While we are ultimately responsible for ensuring that our contract manufacturers operate in accordance with cGMP requirements and have implemented a quality oversight program, we have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any product supplied is compromised due to our suppliers’ failure to adhere to applicable laws or for other reasons, we may not be able to successfully commercialize Contrave, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials or commercialization of Contrave, entail higher costs or result in our and our partners being unable to effectively commercialize our product. Furthermore, if our suppliers fail to deliver the required commercial quantities of API on a timely basis, pursuant to the required specifications set forth in their respective DMF and at commercially reasonable prices, and we are unable to timely secure and qualify additional suppliers with applicable regulatory authorities, we and our partners may not be able to successfully commercialize Contrave and/or we and our partners may be unable to meet demand for our product and would lose potential revenues. To the extent that Contrave is approved for sale in other countries in addition to the United States and Europe, we may be subject to similar restrictions and requirements imposed by laws and government regulators in those countries.
*Contrave is a combination of generically-available pharmaceutical products, and our success is dependent on our ability and our partners’ ability to compete against off-label generic substitutes and demonstrate the advantages of our proprietary combination products.
Off-label use occurs when physicians prescribe a drug that is approved by the FDA for one indication for a different, unapproved indication. We believe that a practitioner seeking safe and effective therapy is not likely to prescribe such off-label generics in place of Contrave because the dosage strengths, pharmacokinetic profiles and titration regimens recommended for Contrave are not available using existing generic preparations of immediate release, or IR, naltrexone and bupropion ER, and there are no oral generic ER formulations of naltrexone. However, a physician could seek to prescribe off-label generics in place of Contrave. Such off-label prescriptions could significantly diminish the market potential of our product and significantly impact our ability to generate revenues.
With regard to off-label substitution at the pharmacy level, we expect that the novel dose ratios and novel pharmacokinetic properties of our product, as well as the differences in its approved indications, provide sufficient distinction such that generic preparations are not considered therapeutic equivalents by the FDA. State pharmacy laws in many instances only permit pharmacists to substitute generic products for branded products if the products are therapeutic equivalents. Therefore, the lack of therapeutic equivalency should limit generic substitution by pharmacies and/or pharmacy benefit managers. However, we cannot be certain that pharmacists and/or pharmacy benefit managers will not seek prescriber authorization to substitute generics in place of Contrave, which could significantly diminish its market potential and significantly impact our ability and our partners’ ability to successfully commercialize our product and generate revenues.
In addition, although we believe the current market prices for the generic forms of naltrexone make generic substitution by physicians, pharmacists or pharmacy benefit managers unlikely, should the prices of the generic forms decline, the motivation for generic substitution may become stronger. Wide scale generic substitution by physicians and at the pharmacy level could have substantial negative consequences to our business.
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*Our development and commercialization strategy depends upon access to findings of safety and effectiveness based on data not developed by us but which the FDA may reference in reviewing our U.S. marketing applications. In territories outside the United
States, we must either negotiate access to these safety and effectiveness findings or develop them ourselves.
The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. This statutory provision expressly allows the FDA to rely, for purposes of approving an NDA, on findings of safety and effectiveness based on data not developed by the filer of the NDA. Under these guidelines, we were able to move directly into Phase II clinical trials for Contrave because our NDA for Contrave relied, in part, upon the FDA’s findings of safety and effectiveness for the previously-approved products that are incorporated into Contrave. In the EU, the individual components or constituents of the fixed dose combination in Contrave (Mysimba) are considered as having a well-established medicinal use pursuant to Part II Section 1 of Annex I to Directive 2001/83/EC. EU pharmaceutical law allows for reference to scientific literature if active substances have been in systematic and documented use as a medicinal product in the EU for at least ten years with recognized efficacy and an acceptable level of safety. Article 10b of Directive 2001/83/EC regulates active substances used in the composition of authorized medicinal products but not hitherto used in combination for therapeutic purposes. EU pharmaceutical law requires results of new pre-clinical tests or new clinical trials relating to that combination to be provided. However, the applicant is not required to repeat the pre-clinical testing and clinical trials to establish safety and efficacy of the individual constituents or components. Contrave was authorized centrally following a favorable benefit/risk assessment provided by the European Medicines Agency based upon a full dossier submitted under Article 8(3) of Directive 2001/83/EC. Therefore, it is treated as a new reference medicinal product and benefits from a separate period of regulatory data and market protection.
In territories where data is not freely available, we may not have the ability to commercialize our products without negotiating rights from third parties to refer to their clinical data in our regulatory applications, which could require the expenditure of significant additional funds to generate our own data. We may be unable to obtain rights to the necessary clinical data and may be required to develop our own proprietary safety and manufacturing dossiers. In addition, even though we have taken advantage of Section 505(b)(2) for approval of Contrave, the FDA may also require us to perform additional studies or measurements to support changes from the previously-approved products incorporated into our product.
To the extent that a Section 505(b)(2) application relies on the FDA’s finding of safety and effectiveness of a previously-approved drug, the applicant is required to make certifications to the FDA with respect to any patents listed for the approved product in the FDA’s publication called “Approved Drug Products with Therapeutic Equivalence Evaluations,” otherwise known as the “Orange Book.” Specifically, the applicant must certify when the application is submitted that: (1) there is no relevant patent information listed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patent is invalid or will not be infringed by the manufacture, use, or sale of the new product. A certification that the new product will not infringe the already-approved product’s Orange Book listed patents or that such patents are invalid is called a paragraph IV certification. If the 505(b)(2) applicant has provided a paragraph IV certification to the FDA, the applicant must also send notice of the paragraph IV certification to the NDA holder and patent owner. We have made paragraph IV certifications that Contrave does not infringe the bupropion ER formulation patents listed in the Orange Book, and have sent the appropriate notice to the patent holder and NDA holder.
*We have received three-year Hatch-Waxman exclusivity in the U.S. for Contrave, but have already received patent certifications and are engaged in litigation that may permit the FDA to approve an ANDA to Contrave as early as October 2017.
We have obtained three years of Hatch-Waxman marketing exclusivity for Contrave from the date of approval by the FDA on September 10, 2014. Under this form of exclusivity, the FDA is precluded from approving a 505(b)(2) NDA or ANDA for the same drug product for the protected indication (for example, a product that incorporates the change or innovation represented by our product) for a period of three years, although the FDA may accept and commence review of such applications. In April 2015, we and Takeda received notification of a Paragraph IV certification for certain patents for Contrave
which are listed in the FDA’s Orange Book. The certification resulted from the filing by Actavis Laboratories FL, Inc. of an ANDA challenging such patents for Contrave. In June 2015, we and Takeda filed a lawsuit in the
U.S. District Court for the District of Delawar
e
against
Actavis Laboratories Fl., Inc. and certain of its affiliates, which we refer to collectively as Actavis, on the basis that Actavis’ proposed generic produ
cts infringe certain patents for Contrave.
In accordance with the Hatch-Waxman Act, as a result of having filed a lawsuit within 45 days of the Paragraph IV certification notice, FDA approval of the ANDA will be stayed until the earlier of (i) 30 months from Takeda’s receipt of the notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. In July 2015, Actavis filed an answer, affirmative defenses and counterclaim to our complaint, and in August 2015, we and Takeda filed an answer to Actavis’ counterclaims. Moreover, in July 2015, the court ordered a stipulation between us, Takeda and Actavis in which we and Takeda agreed to dismiss all defendants except Actavis without prejudice, and Actavis agreed that the related Actavis entities will be bound to judgments and orders of the court against Actavis and will be subject to discovery as if they were parties. In September 2015, the court entered a scheduling order, setting a claim construction hearing for May 2016 and a three-day bench trial to
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begin in June 2017.
After reviewing Actavis’ ANDA, we and Takeda subsequently dropped U.S. Patent Nos. 8,088,786, 8,318,788, 8,722,085 and 8,916,195 from the lawsuit. In April 201
6, we and Takeda filed an amended complaint against Actavis asserting newly issued U.S. Patent No. 9,125,868. In June 2016, in response to the May 2016 claim construction hearing, the court adopted our proposed constructions for the majority of the disput
ed claim terms.
In August 2016, in connection with the end of the transition period associated with the separation agreement entered into between us and Takeda, Takeda transferred to us the responsibility for management of this patent infringement lawsuit
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The bench trial for this matter commenced on June 5, 2017, in connection with which we agreed to drop U.S. Patent No. 9,125,868 from the lawsuit. The bench trial concluded on June 7, 2017, and the parties are currently waiting the District Court’s decis
ion.
Although we plan to vigorously enforce Contrave intellectual property rights, there are uncertainties inherent in any litigation and we cannot predict the outcome. However, the Hatch-Waxman marketing exclusivity might not prevent the FDA from approv
ing a 505(b)(1) NDA that relies on its own clinical data. Further, if another company obtains approval for an identical product candidate for the same new indication we are studying before we do, our approval of the new indication could be blocked until th
e other company’s Hatch-Waxman marketing exclusivity expires, unless we conduct additional studies in support of a 505(b)(1) NDA.
*We may never receive approval or commercialize our products outside of the United States, the EU or other countries in the Partnered Regions in which we or our commercialization partner(s) have approval for Contrave.
In order to market any products outside of the United States, the EU and South Korea, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety, efficacy and manufacturing. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others.
Failure to obtain regulatory approval for Contrave in other countries outside of the United States, the EU or other countries in the Partnered Regions in which we or our commercialization partner(s) have approval for Contrave, or any delay or setback in obtaining such approval, could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that Contrave may not be approved for all indications requested, which could limit the uses of Contrave and have an adverse effect on their commercial potential or require costly, post-marketing follow-up studies.
A variety of risks associated with operating our business and marketing our product internationally could materially adversely affect our business.
In addition to our U.S. operations, we have a subsidiary in Ireland and may establish additional international business entities in the future. We face risks associated with our international operations, including possible unfavorable regulatory, pricing and reimbursement, political, tax and labor conditions, which could harm our business. We are subject to numerous risks associated with international business activities, including:
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difficulties in staffing and managing foreign operations;
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foreign government taxes, regulations and permit requirements;
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U.S. and foreign government tariffs, trade restrictions, price and exchange controls and other regulatory requirements;
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anti-corruption laws, including the Foreign Corrupt Practices Act, or the FCPA;
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economic weakness, including inflation, natural disasters, war, events of terrorism or political instability in particular foreign countries;
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fluctuations in currency exchange rates, which could result in increased operating expenses and reduced revenues, and other obligations related to doing business in another country;
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compliance with tax, employment, immigration and labor laws, regulations and restrictions for employees living or traveling abroad;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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changes in diplomatic and trade relationships.
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Our business activities outside of the United States are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including the U.K.’s Bribery Act 2010, or the U.K. Bribery Act. The FCPA and similar anti-corruption laws generally prohibit the offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to non-U.S. government officials in order to improperly influence any act or decision, secure any other improper advantage, or obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the company and to devise and maintain an adequate system of internal accounting controls. The U.K. Bribery Act prohibits giving, offering, or promising bribes to any person, including non-U.K. government officials and private persons, as well as requesting, agreeing to receive, or accepting bribes from any person. In addition, under the U.K. Bribery Act, companies which carry on a business or part of a business in the U.K. may be held liable for bribes given, offered or promised to any person, including non-U.K. government officials and private persons, by employees and persons associated with the company in order to obtain or retain business or a business advantage for the company. Liability is strict, with no element of a corrupt state of mind, but a defense of having in place adequate procedures designed to prevent bribery is available. Furthermore, under the U.K. Bribery Act there is no exception for facilitation payments. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government and the purchasers of pharmaceuticals are government entities; therefore, any dealings with these prescribers and purchasers may be subject to regulation under the FCPA. Recently the SEC and the U.S. Department of Justice have increased their FCPA enforcement activities with respect to pharmaceutical companies. In addition, under the Dodd–Frank Wall Street Reform and Consumer Protection Act, private individuals who report to the SEC original information that leads to successful enforcement actions may be eligible for a monetary award. We are engaged in ongoing efforts that are designed to ensure our compliance with these laws, including due diligence, training, policies, procedures and internal controls. However, there is no certainty that all employees and third-party business partners (including our distributors, wholesalers, agents, contractors, and other partners) will comply with anti-bribery laws. In particular, we do not control the actions of manufacturers and other third-party agents, although we may be liable for their actions. Violation of these laws may result in civil or criminal sanctions, which could include monetary fines, criminal penalties, and disgorgement of past profits, which could have a material adverse impact on our business and financial condition.
These and other risks associated with our international operations may materially adversely affect our business, financial condition and results of operations.
We face potential product liability exposure, and, if successful claims are brought against us, we may incur substantial liability.
The use of our product in clinical trials and the sale of our product expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for our product;
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impairment of our business reputation;
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withdrawal of clinical trial participants;
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costs of related litigation;
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distraction of management’s attention from our primary business;
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substantial monetary awards to patients or other claimants;
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the inability to commercialize our product.
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Although we have commercial product liability insurance, which includes coverage for our ongoing and future clinical trials we perform, our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
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Healthcare reform
measures could hinder or prevent our product’s commercial success.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems to contain healthcare costs and improve quality. While reform proposals often involve expanding coverage to more individuals, healthcare reform may also involve increased government price controls, additional regulatory mandates and other measures designed to lower medical and pharmaceutical costs. Within the United States, the pharmaceutical industry has been a particular focus of healthcare reform both federally and at the state level.
For example, in March 2010, the President signed into law one of the most significant health reform measures in decades. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the PPACA, substantially changes the way health care is financed by both governmental and private insurers, including several payment reforms that establish payments to hospitals and physicians based in part on quality measures, subjects biologic products to potential competition by lower-cost “biosimilars,” and significantly impacts the pharmaceutical and medical device industries. The PPACA includes, among other things, the following measures:
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annual, non-deductible fees on any entity that manufactures or imports certain prescription branded drugs and biologics;
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increased Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program for both branded and generic drugs and expanded rebates owed by manufacturers to include rebates on Medicaid managed care utilization;
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a Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical research;
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requirements for manufacturers to discount drug prices to eligible patients in the coverage gap by 50% at the pharmacy level and for mail order services in order for their outpatient drugs to be covered under Medicare Part D;
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an extension of eligibility criteria for Medicaid programs;
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an increase in the number of entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and
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a licensure framework for follow-on biologic products.
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The PPACA provisions on comparative clinical effectiveness research extend the initiatives of the American Recovery and Reinvestment Act of 2009, also known as the stimulus package, which included $1.1 billion in funding to study the comparative effectiveness of healthcare treatments and strategies. This stimulus funding was designated for, among other things, conducting, supporting or synthesizing research that compares and evaluates the risks and benefits, clinical outcomes, effectiveness and appropriateness of products. The PPACA also appropriates additional funding to comparative clinical effectiveness research. Although Congress has indicated that this funding is intended to improve the quality of health care, it remains unclear how the research will impact current Medicare coverage and reimbursement or how new information will influence other third-party payor policies.
In addition, the PPACA provides for a prevention and health promotion outreach and education campaign to raise public awareness of health improvement, including obesity reduction and obesity-related services that are available to Medicaid enrollees. The PPACA also provides funding for projects designed to reduce childhood obesity.
Other legislative changes have also been proposed and adopted since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, following passage of the Bipartisan Budget Act of 2015, will stay in effect through 2025, unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals.
In the EU and some other international markets, governments or payors have adopted local policy to contain costs for provisions of health care at low cost to consumers and to regulate pharmaceutical prices, patient eligibility or reimbursement levels to control costs for the government-sponsored healthcare system. Many countries have announced or implemented measures to reduce healthcare costs to constrain their overall level of government expenditures. These measures vary by country and may include, among other things, patient access restrictions, suspensions on price increases, prospective and possibly retroactive price reductions and other recoupments and increased mandatory discounts or rebates, recoveries of past price increases, and greater importation of drugs from lower-cost countries to higher-cost countries. If our product is approved in these markets, these measures may negatively impact our revenues. In addition, certain countries set prices by reference to the prices in other countries where approved products are marketed.
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Thus, our inability to secure adequate prices for our products, if approved, in a particular country may n
ot only limit the marketing of these products within that country, but may also adversely affect our ability to obtain acceptable prices in other markets. This may create the opportunity for third-party cross border trade or influence our decision to sell
or not to sell a product, if approved, thus adversely affecting our revenues.
We cannot predict what effect the PPACA or other healthcare reform or cost control initiatives that may be adopted in the future will have on our business. Further, t
here have been judicial and Congressional challenges to certain aspects of the Health Care Reform Law, and we expect there will be additional challenges and amendments to the Health Care Reform Law in the future, particularly with the change in the U.S. Presidential administration.
The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may adversely affect:
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our ability to set a price we believe is fair for our approved product;
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our ability to generate revenues and achieve or maintain profitability; and
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the availability of capital.
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We may not be able to manage our business effectively if we are unable to attract and retain key personnel.
We may not be able to attract or retain qualified management, commercial, scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Diego, California area. Our retention efforts may be particularly challenging in light of the difficult regulatory climate for obesity drugs and the recent departures among our senior management team. Our industry has experienced a high rate of turnover of management personnel in recent years. As our business continues to grow, and we continue to transition from primarily a drug development company to a commercial product organization, we expect to experience changes in our executive team, including potential departures and the addition of new executives with commercialization expertise or other necessary skill sets. We may also experience some departures from our current executive team as individuals transition to new experiences and/or retirement. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the successful development and commercialization of Contrave/Mysimba, our ability to raise additional capital and our ability to implement our overall business strategy.
We are highly dependent on the development, regulatory, commercial and financial expertise of our senior management, particularly Michael A. Narachi, our President and Chief Executive Officer, and Thomas R. Cannell, our Chief Operating Officer and President of Global Commercial Products. Although we have employment agreements with each of our executive officers, these agreements are terminable at will at any time with or without notice and, therefore, we may not be able to retain their services as expected. If we lose any members of our senior management team, including Mr. Narachi and Dr. Cannell, we may not be able to find suitable replacements, and our business may be harmed as a result. We are not aware of any key personnel who has plans to retire or leave our company in the immediate future. In addition to the competition for personnel, the San Diego area in particular is characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.
In addition, we have scientific and clinical advisors who assist us in formulating our product development and clinical and regulatory strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may have arrangements with other companies to assist in the development of products that may compete with ours.
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*If we fail to comply with healthcare laws and regulations, we could face substantial penalties and our business, operations and financial condition could be a
dversely affected.
As a manufacturer of pharmaceuticals, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights (including privacy rights), among other topics, may be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business, without limitation. The healthcare laws and regulations that may affect our ability to operate include:
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the federal Anti-Kickback Statute (as amended by the PPACA, which modified the intent requirement of the federal Anti-Kickback Statute so that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it to have committed a violation), which prohibits, among other things, persons and entities from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims laws, including the civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other federal healthcare programs that are false or fraudulent, and which may apply to entities like us which promote pharmaceutical products and provide coding and billing advice to customers, and under the PPACA, through which the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal false claims laws;
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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits, 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, or the HITECH Act, and their implementing regulations, which imposes certain requirements on certain types of individuals and entities (including corporations like us that maintain database(es) of patient information that may include information protected by HIPAA) relating to the privacy, security and transmission of individually identifiable health information;
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the Federal Food, Drug, and Cosmetic Act, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of health information in certain 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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Additionally, the compliance environment is changing, with more states mandating implementation of compliance programs, compliance with industry ethics codes, and spending limits, and other states requiring reporting to state governments of gifts, compensation, and other remuneration to physicians. The PPACA also imposes annual reporting and disclosure requirements on certain device and drug manufacturers for which payment is available for their products under Medicare, Medicaid, or the Children’s Health Insurance Program, for any “transfer of value” made or distributed to physicians and teaching hospitals. Such information is now publicly available in a searchable format. In addition, device and drug manufacturers are also required to report and disclose any investment interests held by physicians and their immediate family members during the preceding calendar year. Manufacturers were required to begin collecting requisite information on August 1, 2013, with the first reports due in 2014. Failure to submit requisite information may result in civil monetary penalties of up to an aggregate of $150,000 per year (and up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests not reported in an annual submission. Further, under the PPACA, pharmaceutical manufacturers and distributors must provide the U.S. Department of Health and Human Services with an annual report on the drug samples they provide to physicians. The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different compliance and/or reporting requirements, increases the possibility that a pharmaceutical company may run afoul of one or more laws.
If our operations, or the operations of any of our third party contractors, 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 penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs, imprisonment, contractual damages, reputational harm, and the curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur
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significant legal expenses and divert our management’s attention from the o
peration of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our third-party manufacturers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and other hazardous compounds. We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state or federal authorities may curtail the use of these materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. If we are subject to any liability as a result of our third-party manufacturers’ activities involving hazardous materials, our business and financial condition may be adversely affected.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product could be delayed.
Risks Related to Intellectual Property
*Our market opportunity for Contrave may be limited by the relatively small number of issued U.S. patents and foreign patents that we own or in-license. In addition, although we have additional U.S. and international patent applications pending which seek further protection of our product, these applications may not issue on a timely basis or at all.
Contrave is currently protected by U.S. patent number 7,375,111, which we refer to as the Weber/Cowley composition patent, and U.S. patent number 7,462,626, which we refer to as the Weber/Cowley methods patent. Provided maintenance fees are paid, the Weber/Cowley composition patent is expected to expire in March 2025, and the Weber/Cowley methods patent is expected to expire in July 2024. Collectively, we refer to the Weber/Cowley composition patent and the Weber/Cowley methods patent as the Weber/Cowley patents. We own the Weber/Cowley patents, but they are subject to our license agreement with Oregon Health & Science University. The Weber/Cowley patents cover the current composition of Contrave and methods of administering it to treat obesity. We and/or our licensors have filed a number of international counterparts to the Weber/Cowley patents in foreign countries. A European counterpart application to the Weber/Cowley patent has issued in the European Patent Office, or EPO, as EP1617832B1, and provides protection for Contrave in the various EPO countries in which the patent has been registered. A second counterpart application to the Weber/Cowley patent has been issued as EP2316456B1. Several international counterparts to the Weber/Cowley patents have also issued in other foreign jurisdictions. However, we cannot provide assurance that other pending international counterparts will issue on a timely basis or at all. There is also no assurance that the currently pending claims in those foreign countries will not be rejected, that any such rejections and any future rejections will ultimately be overcome, nor that any claims that may issue will be sufficiently broad to protect Contrave in those foreign countries. Furthermore, we cannot be certain that the scope of any issued foreign patent will be consistent with the currently pending claims, as there is a significant likelihood that the scope of the currently pending claims will be modified. If a competitor is willing to challenge the scope or validity of the Weber/Cowley patents, the competitor could file an NDA seeking approval for three years after the date we obtained approval from the FDA of the NDA for Contrave. For example, in April 2015, we and Takeda received notification of a Paragraph IV certification for certain patents for Contrave
which are listed in the FDA’s Orange Book. The certification resulted from the filing by Actavis of an ANDA challenging such patents for Contrave. In June 2015, we and Takeda filed a lawsuit in the
U.S. District Court for the District of Delawar
e
against
Actavis on the basis that Actavis’ proposed generic produ
cts infringe certain patents for Contrave.
In accordance with the Hatch-Waxman Act, as a result of having filed a lawsuit within 45 days of the Paragraph IV certification notice, FDA approval of the ANDA will be stayed until the earlier of (i) 30 months from Takeda’s receipt of the notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. In July 2015, Actavis filed an answer, affirmative defenses and counterclaim to our complaint, and in August 2015, we and Takeda filed an answer to Actavis’ counterclaims. Moreover, in July 2015, the court ordered a stipulation between us, Takeda and Actavis in which we and Takeda agreed to dismiss all defendants except Actavis without prejudice, and Actavis agreed that the related Actavis entities will be bound to
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judgments and orde
rs of the court against Actavis and will be subject to discovery as if they were parties. In September 2015, the court entered a scheduling order, setting a claim construction hearing for May 2016 and a three-day bench trial to begin in June 2017.
After
reviewing Actavis’ ANDA, we and Takeda subsequently dropped U.S. Patent Nos. 8,088,786, 8,318,788, 8,722,085 and 8,916,195 from the lawsuit. In April 2016, we and Takeda filed an amended complaint against Actavis asserting newly issued U.S. Patent No. 9,12
5,868. In June 2016, in response to the May 2016 claim construction hearing, the court adopted our proposed constructions for the majority of the disputed claim terms.
In August 2016, in connection with the end of the transition period associated with th
e separation agreement entered into between us and Takeda, Takeda transferred to us the responsibility for management of this patent infringement lawsuit.
The bench trial for this matter commenced on June 5, 2017, in connection with which we agreed to drop
U.S. Patent No. 9,125,868 from the lawsuit. The bench trial concluded on June 7, 2017, and the parties are currently waiting the District Court’s decision.
Although we plan to vigorously enforce Contrave intellectual property rights, there are uncertain
ties inherent in any litigation and we cannot predict the outcome.
We have also filed patent applications, directed to various treatment and formulation aspects of Contrave, in the United States and certain foreign countries under the Patent Cooperation Treaty, or PCT. Use of our proprietary tri-layer Contrave tablet for weight loss is protected in the United States by U.S. patent numbers 8,088,786 and 8,318,788, which are expected to expire in February 2029 and November 2027, respectively. Corresponding patents have issued in several foreign countries, for example, in the European Patent Office as EP
2089005 B1
. In addition, the dose escalation schedule of Contrave is protected by U.S. patent numbers 8,722,085 and 9,125,868, which are expected to expire in November 2027. U.S. patent numbers 8,815,889 and 9,457,005, directed to methods of treating insulin resistance using Contrave, including in obese patients, are expected to expire in July 2024. Corresponding patents have issued in several foreign countries, for example, in the European Patent Office as EP
2135603 B1.
Use of our proprietary sustained-release formulation of Contrave for weight loss is protected by U.S. patent numbers 8,916,195 and 9,107,837 which are expected to expire in February 2030 and June 2027, respectively. U.S. patent numbers 8,969,371, 9,119,850 and 9,633,575, which are expected to expire in July 2034 and June 2033, protect the use of Contrave for treating overweight or obesity in select patient populations that are at increased risk of a major adverse cardiovascular event. U.S. patent number 9,248,123, which is expected to expire in January 2032, protects the use of Contrave for treating overweight or obesity in select patient populations with major depressive disorder.
The PCT is an international treaty providing a unified procedure under which the initial filing of a single patent application can provide an effective filing date in each participating country in which appropriate steps are subsequently taken. Such steps have been taken in various foreign countries, including Europe and Japan, with respect to a number of our PCT filings. Thus, we now have issued patents and pending patent applications in those foreign countries, along with our previous filings in the United States and certain non-PCT countries. These filings seek to provide further protection for Contrave in the United States and overseas; however, we cannot provide assurance that the claims in the other patent applications will issue in their current form or at all.
*We may face additional competition outside of the United States as a result of a lack of patent enforcement in foreign countries and off-label use of other dosage forms of the generic components in our product.
While we have filed patent applications in many countries outside the United States, and have obtained some patent coverage for Contrave in certain foreign countries, we do not currently have widespread patent protection for Contrave outside the United States and have no protection in many foreign jurisdictions. Even if international patent applications ultimately issue or receive approval, it is likely that the scope of protection provided by such patents will be different from, and possibly less than, the scope provided by our corresponding U.S. patents. The success of our international market opportunity is dependent, in part, upon the enforcement of patent rights in various other countries. A number of countries in which we have filed or intend to file patent applications have a history of weak enforcement and/or compulsory licensing of intellectual property rights. Even if we have patents issued in these jurisdictions, there can be no assurance that our patent rights will be sufficient to prevent generic competition or unauthorized use. We may face competition from the off-label use of other dosage forms of the generic components in our product. In addition, others may attempt to commercialize our product combination in the countries of the EU, Canada, Mexico, Japan or other markets, in some of which we do not have patent protection for our product. Due to the lack of patent protection for these combinations in some territories outside the United States and the potential for correspondingly lower prices for the drugs in those markets, it is possible that patients will seek to acquire the generic IR component of our product (naltrexone IR) in those other territories. The off-label use of the generic IR component in the United States or the importation of the generic IR component from foreign markets could adversely affect the commercial potential for our product and adversely affect our overall business and financial results.
We have in-licensed all or a portion of the rights to Contrave from third parties. If we default on any of our material obligations under those licenses, we could lose rights to our product.
We have in-licensed and otherwise contracted for rights to our product, and we may enter into similar licenses in the future to supplement our product pipeline. Under the relevant agreements, we are subject to commercialization, development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach these license agreements, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. Loss of any of these licenses or the exclusive rights provided therein could harm our financial condition and operating results.
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Restrictions on our patent rights relating to Contrave may lim
it our and our partners’ ability to prevent third parties from competing against us.
Our success will depend on our and our partners’ abilities to obtain and maintain patent protection for Contrave, preserve our trade secrets, prevent third parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. Composition of matter patents on APIs are generally considered to be the strongest form of intellectual property protection for pharmaceutical products as they apply without regard to any method of use. Entirely new individual chemical compounds, often referred to as new chemical entities, are typically entitled to composition of matter coverage. Current law also allows novel and unobvious combinations of old compounds to receive composition of matter coverage for the combination. However, we cannot be certain that the current law will remain the same, or that our product will be considered novel and unobvious by the PTO and courts.
In addition to composition of matter patents and patent applications, we also have issued and filed method of use patents and patent applications. This type of patent protects the use of Contrave only for the specified method. However, this type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if these competitors do not actively promote their product for our targeted indication, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute.
Although we believe we and our licensors have conducted appropriate prior art searches relating to our key patents and patent applications, there is no assurance that all of the potentially relevant prior art has been found. Moreover, because the constituents of our combination product have been on the market as separate monotherapeutic products for many years, it is possible that these monotherapies have previously been used off-label in such a manner that such prior usage would affect the validity of our method of use patents.
Patent applications in the United States and most other countries are confidential for a period of time until they are published, and publication of discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain that we and the inventors of the issued patents and applications that we in-licensed were the first to conceive inventions covered by the patents and pending patent applications or that we and those inventors were the first to file patent applications for such inventions.
We also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants, some of whom assist with the development of other obesity drugs. We and our partners also have agreements with our employees and selected consultants that obligate them to assign their inventions to us. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants that are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.
If we or our partners are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
Our commercial success depends upon our and our partners’ abilities to develop, manufacture, market and sell our product and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product and/or proprietary technologies may give rise to claims of infringement of the patent rights of others. There may be issued patents of third parties of which we are currently unaware that may be infringed by our product or proprietary technologies. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us or our partners, which may later result in issued patents that Contrave or proprietary technologies may infringe.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our product and/or proprietary technologies infringe their intellectual property rights. If one of these patents is found to cover Contrave, proprietary technologies or their uses, we or our partners could be enjoined by a court and required to pay damages and could be unable to commercialize our product or use our proprietary technologies unless we or they obtained a license to the patent. A license may not be available to us or our partners on acceptable terms, if at all. In addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us or our partner from making, using or selling our products, technologies or methods pending a trial on the merits, which could be years away.
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There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industrie
s generally. If a third party claims that we or our partners infringe its intellectual property rights, we may face a number of issues, including, but not limited to:
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infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert our management’s attention from our core business;
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substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third party’s rights, and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees;
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a court prohibiting us from selling or licensing the product unless the third party licenses its product rights to us, which it is not required to do;
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if a license is available from a third party, we may have to pay substantial royalties and fees and/or grant cross-licenses to intellectual property rights for our products; and
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redesigning our product or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time.
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We will be obtaining our bupropion, naltrexone, our finished Contrave tablets combining these components, and the packaging for these tablets from third-party manufacturers. Each aspect of product design, formulation, manufacturing, packaging, and use has the potential to implicate third-party patent rights. We have taken various measures to reduce the potential for infringement. However, we could be exposed to potential patent infringement liability from other third parties who hold patents on various formulations of bupropion and naltrexone.
No assurance can be given that patents do not exist, have not been filed, or could not be filed or issued, which contain claims covering these or other aspects of our products, technology or methods, as implemented by us or by third-party manufacturers with whom we contract. Because of the large number of patents issued and patent applications filed in our field, we believe there is a risk that third parties may allege they have patent rights encompassing our products, technology or methods. Such third-party patent rights, if relevant, could prevent us or our partners from adopting or marketing a particular formulation or product, or could expose us to patent infringement liability.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on the Weber/Cowley patents covering Contrave, as well as our other issued patents, are due to be paid to the PTO in several stages over the lifetimes of the patents. We have systems in place to remind us to pay these fees, and we employ an outside firm, Computer Patent Annuities, to pay annuity fees due to foreign patent agencies on our issued and pending foreign patent applications. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply and, in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
*We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.
We have received U.S. trademark registration number 3396021 for our corporate logo for use in connection with pharmaceutical preparations and substances for the treatment of obesity, inducement of weight loss and prevention of weight gain. We have obtained trademark registrations in Canada, the EU, and Japan for the same mark. In addition, we have received U.S. trademark registration number 3396807 for our corporate name OREXIGEN for use in connection with pharmaceutical preparations for the treatment of disorders of the central nervous system, or CNS, printed instructional, educational and teaching materials in the field of treatment and management of disorders of the CNS, and providing medical information in the field of disorders of the CNS. We have obtained trademark registrations in Brazil, Canada, the EU, Japan and Russia for the same mark. We have obtained foreign trademark registrations for the corporate name Orexigen Therapeutics, Inc. in the EU and Japan. We have received U.S. trademark registration number 3393576 for the mark CONTRAVE for use in connection with pharmaceutical preparations for use in the treatment of obesity and inducing weight loss. We have also obtained foreign trademark registrations for the mark CONTRAVE in
Australia, Brazil, Canada, the EU, Lebanon, Mexico,
Russia,
Japan,
Saudi Arabia
and South Korea and
have pending applications in Bahrain, Canada,
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China, Egypt, India, Iran, Jordan, Kuwait, Oman, Qatar, South Africa and Vietnam. In addition, applications for a Contrave logo for use in connection with pharmaceutical preparations for use in the treatment of obesity and ind
ucing weight loss, certain printed materials and medical information services is pending Canada. The Contrave logo is registered in the U.S., Europe and Japan.
An intent to use application for the mark MYSIMBA has been allowed in the United States in conne
ction with pharmaceutical preparations, printed materials, and medical information services. We have obtained trademark registrations in Albania, Australia, the EU, Norway, South Korea, Switzerland and Turkey for the same mark. In addition, applications
for the mark MYSIMBA are pending in Bosnia and Herzegovina, Canada, Macedonia, Montenegro, Kosovo, Serbia, South Africa and India.
However, no assurance can be given that our allowed trademark applications will actually become registered, or that our regis
tered trademarks can be maintained or enforced. During trademark registration proceedings in the various countries, we have received and expect to receive rejections. Although we are given an opportunity to respond to those rejections, there can be no assu
rance that the rejections can be successfully overcome. In addition, in the PTO and in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to cancel registered trademarks. No assurance can be give
n that opposition or cancellation proceedings will not be filed against our trademarks, nor can there be any assurance that our trademarks would survive such proceedings.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industries, 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.
Risks Related to Our Finances and Capital Requirements
*We have incurred significant operating losses since our inception and anticipate that we will incur continued losses for the foreseeable future.
We have focused primarily on developing our first approved product, Contrave. We have financed our operations almost exclusively through the sale of our preferred and common stock and debt and have incurred losses in each year since our inception in September 2002. As of June 30, 2017, we had an accumulated deficit of approximately $744.8 million. These losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect to continue to incur significant and increasing operating losses for the foreseeable future and such losses have had, and will continue to have, an adverse effect on our stockholders’ equity. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses.
*We have a limited history of generating revenue from our product and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. We have a limited history of generating revenue, and we do not know when, or if, we will generate any significant revenue. Takeda commercially launched Contrave in October 2014 and we assumed responsibility for developing and commercializing Contrave within the United States and the rest of the world in August 2016. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability and/or our partners’ ability to maintain regulatory approval of, effectively commercialize and successfully complete future clinical trials for Contrave, and our ability to:
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effectively market and sell Contrave in the United States;
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maintain regulatory approval of Contrave/Mysimba in the EU and our partner’s ability to do so in South Korea;
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manufacture commercial quantities of Contrave at acceptable cost levels; and
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effectively market and sell Contrave/Mysimba in the Partnered Regions and elsewhere outside the United States, if approved.
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We anticipate incurring significant costs associated with the continued development and commercialization of our approved product, Contrave. We do not expect to be profitable in the near future, if ever. If we or our partners are unable to generate product revenues, we will not become sustainably profitable and may be unable to continue operations without continued funding.
*We may need additional funds and/or need to enter into additional collaborative or other agreements in order to fund research and development activities, including post-marketing studies or clinical trials for Contrave/Mysimba, and commercialize Contrave in the United States and Contrave/Mysimba outside the United States, and we may be unable to raise capital when needed or be
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able to enter into such an agreement, which would force us to delay, reduce or eliminate research, development, and commercialization activities.
Developing products for the obesity market, conducting clinical trials, establishing outsourced manufacturing relationships and successfully manufacturing and marketing drugs that we may develop is expensive. We believe that our existing cash, cash equivalents and short-term investments will be sufficient to meet our projected operating requirements through at least the next 12 months. However, we have based these estimates on assumptions that may prove to be wrong, and we could spend our available financial resources much faster than we currently expect. Further, we may need additional capital to:
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fund our operations and to conduct post-marketing requirements for Contrave;
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develop and commercialize Contrave/Mysimba; and
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qualify and outsource the commercial-scale of Contrave under cGMP.
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The amount and timing of our potential future funding requirements will depend on many factors, including, but not limited to:
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the successful commercialization of Contrave/Mysimba;
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the rate of progress and cost of clinical activity, including the new CVOT for Contrave, and the scope and cost of the additional post-marketing requirements for Contrave, including expenses to support the trials and milestone payments that may become payable;
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the terms and timing of any collaborative, licensing, co-promotion, distribution or other arrangements that we may establish with respect to Contrave/Mysimba;
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the costs of establishing additional sales, marketing and distribution capabilities in order to further commercialize Contrave/Mysimba in the United States and geographies outside the United States, should we elect to do so;
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the costs involved in enforcing or defending patent claims or other intellectual property rights;
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the costs and timing of additional regulatory approvals for Contrave/Mysimba; and
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the extent to which we in-license, acquire or invest in other indications, products, technologies and businesses.
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Future capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies. We currently have no commitments or agreements relating to any of these types of transactions.
Unless and until we can generate a sufficient amount of product revenue and achieve profitability, we expect to finance future cash needs through public or private equity offerings, milestone payments, debt, receivables or royalty financings, or corporate collaboration and licensing arrangements, as well as through interest income earned on cash and investment balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our development programs or our commercialization efforts.
Our quarterly and annual operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly and annual fluctuations. Our net loss and other operating results may be affected by numerous factors, including:
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the level of underlying demand for Contrave, wholesalers’ buying patterns with respect to Contrave, discounts given to certain Contrave customers, and our ability to successfully market Contrave following the transition from Takeda;
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variations in the level of expenses, including, but not limited to, variation based on foreign currency exchange rates, related to our product or future development programs;
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regulatory developments affecting our product or those of our competitors;
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the timing of future payments, if any, we may receive under partnership, distributorship or similar agreements;
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our execution of any additional collaborative, licensing, distribution or similar arrangements, and the timing of payments we may make or receive under these arrangements;
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addition or termination of clinical trials or funding support; and
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any intellectual property infringement lawsuit in which we may become involved.
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If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price of o
ur common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly and annual comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
*Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.
In March 2016, we sold
$165 million aggregate principal amount of 2016 Notes, initially convertible into an aggregate of up to 21,999,999 shares of common stock and related warrants to purchase up to 21,999,999 shares of common stock.
In September 2015, we sold 2,000,000 shares of our common stock and warrants to purchase 500,000 shares of our common stock. In December 2013, we sold $115 million aggregate principal amount of 2013 Notes, of which approximately $80.0 million in aggregate principal amount was outstanding as of December 31, 2016 and of which approximately $49.6 million in aggregate principal was exchanged for new 2017 Exchange Notes of equal principal amount in February 2017. Any conversions or exercises of some or all of these 2016 Notes, 2013 Notes, 2017 Exchange Notes or warrants, as applicable, will result in additional dilution of existing stockholders. To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership will be diluted. Debt, receivables and royalty financings typically contain covenants that restrict operating activities and may impair our ability to in-license potential products or product candidates. Debt, receivables and royalty financings may also be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing stockholders’ ownership.
If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish potentially valuable rights to our current product candidates, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, our ability to achieve profitability or to respond to competitive pressures would be significantly limited and we may be required to delay, significantly curtail or eliminate the development of our product.
*Our outstanding convertible notes may impact our financial results, result in the dilution of existing stockholders, and restrict our ability to take advantage of future opportunities.
In March 2016, we sold
$165 million aggregate principal amount of 2016 Notes and related warrants. The 2016 Notes may be converted, under the conditions specified in those 2016 Notes, into shares of our common stock and the warrants may be exercised, under the conditions specified in those warrants, into shares of our common stock.
In addition, in December 2013, we sold $115.0 million aggregate principal amount of 2013 Notes. In December 2016, we repurchased 2013 Notes representing an aggregate of approximately $35.0 million in principal. In February 2017, we exchanged approximately $49.6 million in aggregate of principal amount of 2013 Notes for 2017 Exchange Notes of equal principal amount. We will be required to pay interest on the 2013 Notes and 2017 Exchange Notes until they come due, are called by us, or are converted, and the payment of that interest will reduce our net income. The sale of the 2013 Notes may also affect our earnings per share figures, as accounting requirements require that we include in our calculation of earnings per share the number of shares of our common stock into which the 2013 Notes are convertible. On June 27, 2014, our stockholders approved a flexible conversion option that allows us to pay the conversion right on these 2013 Notes in cash and/or shares. The flexible conversion right may allow us to exclude from the earnings per share calculation the shares of our common stock into which the 2013 Notes are convertible. However, we cannot guarantee that the flexible conversion option would result in the accounting treatment described above. The 2013 Notes may be converted, under the conditions and at the premium specified in those 2013 Notes, into shares of our common stock and/or into the cash equivalent of shares of our common stock.
Upon the occurrence of certain fundamental changes or, in the case of the 2016 Notes, adverse events related to the regulatory approval for and commercialization of Contrave, and net sales of the Company, holders of the 2013 Notes, 2017 Exchange Notes and 2016 Notes will, at their option, have the right to require us to repurchase for cash all or a portion of their notes, pursuant to the terms and conditions set forth in the applicable indenture.
If converted into shares, the 2016 Notes, 2017 Exchange Notes and 2013 Notes will result in the dilution of our shareholders. Also, when exercised, the warrants that we issued in connection with the 2016 Notes will result in the dilution of our shareholders. Further, if repurchased, converted or exercised into cash, the 2013 Notes, the 2017 Exchange Notes, the 2016 Notes and the related warrants may require the payment of significant additional amounts to the holders of these securities. The payment of the interest payments, the repayment of the principal, the potential payment of the conversion premium and/or cash exercise amounts and the potential repurchase of the 2016 Notes, the 2017 Exchange Notes and the 2013 Notes will require the use of a substantial amount of our cash, and if such cash is not available, we may be required to sell other assets or enter into alternate financing arrangements at
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terms that may or may not be desirable. The existence of the 2016 Notes, the 2017 Exchange Notes and the 2013 Notes and the obligations we incurred by issuing them may restrict our ability to take advantage of certain future opportunities, such a
s engaging in future debt or equity financing activities, which may reduce or impair our ability to acquire new businesses or invest in our existing businesses.
*The Holders of our 2016 Notes have the right to require us to repurchase, for cash, their 2016 Notes in the case of certain fundamental changes or adverse changes related to the regulatory approval for and commercialization of Contrave and net sales of the Company.
The indenture for our 2016 Notes provides that the holders of the 2016 Notes will, at their option, have the right to require us to repurchase, for cash, all or a portion of their 2016 Notes in certain circumstances, including: (a) a change in control of the company or other fundamental changes; (b) our common stock ceases to be listed or quoted on the NASDAQ Global Select Market or Global Market; and (c) following specific adverse events related to our business that include: (i) a suspension or withdrawal, by the FDA, of the marketing approval of Contrave; (ii) changes to the drug label for Contrave or the implementation of a REMS for Contrave, in any case, in a manner that would be reasonably expected to have a materially adverse impact on annual net sales of Contrave in the United States; (iii) we cease selling Contrave in the United States, either ourselves or through affiliates, distributors, partners or licensees; (iv) approval, by the FDA, of an ANDA for a AB-rated generic version of Contrave and actual sales of such generic version in the United States; and (v) consolidated net product sales for fiscal year 2017 that are less than $100 million, in aggregate. Certain of the events that would trigger the repurchase obligation are outside of our control, including certain of the events that would be classified as a change in control or fundamental change. We cannot assure you that we will avoid these events. For example, given our and our distribution partners’ limited history selling and forecasting sales for Contrave/Mysimba in the United States and worldwide, we cannot guarantee that consolidated net product sales for fiscal year 2017 will be greater than or equal to $100 million. If we are required to repurchase the 2016 Notes, it will require a significant amount of cash, and if such cash is not available, we may be required to enter into alternate financing arrangements at terms that may or may not be desirable.
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and elsewhere around the world. Domestic and international equity markets have experienced and may continue to experience heightened volatility and turmoil based on domestic and international economic conditions and concerns. In the event these economic conditions and concerns continue and the markets continue to remain volatile, our results of operations could be adversely affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may further decline. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are not federally insured. If economic instability continues, we cannot provide assurance that we will not experience losses on these investments.
Our foreign subsidiaries may not be able to successfully maintain advantageous tax status and resulting tax rates, which could adversely affect our business and financial condition, results of operations and growth prospects.
We anticipate being able to achieve favorable tax treatment through the performance of certain business functions and ownership of certain assets in tax-efficient jurisdictions, including Ireland, together with intra-company service and transfer pricing agreements, each on an arm’s length basis. Taxing authorities, such as the U.S. Internal Revenue Service, or IRS, actively audit and otherwise challenge these types of arrangements, and have done so in the pharmaceutical industry. We expect that these challenges will continue as a result of the recent increase in scrutiny and political attention on corporate tax structures. The IRS may challenge our structure and transfer pricing arrangements through an audit or lawsuit. Responding to or defending such a challenge could be expensive and consume time and other resources, and divert management’s time and focus from operating our business. We cannot predict whether taxing authorities will conduct an audit or file a lawsuit challenging this structure, the cost involved in responding to any such audit or lawsuit, or the outcome. If we are unsuccessful, we may be required to pay taxes for prior periods, interest, fines or penalties, and may be obligated to pay increased taxes in the future, any of which could require us to reduce our operating expenses, decrease efforts in support of our products or seek to raise additional funds, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
*If we fail to satisfy applicable listing standards, including compliance with the minimum market value of listed securities requirement, our common stock may be delisted from the NASDAQ Global Market.
On June 28, 2017, we received a letter from the Listing Qualifications Department of the NASDAQ Stock Market notifying us that, based upon its review for the last 30 consecutive business days, we did not meet the continuing listing requirements of NASDAQ Marketplace Rule 5450(b)(2)(A), which requires that we maintain a minimum market value of listed securities of at least $50 million.
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NASDAQ also informed us that we did not meet the alternative continued listing standards based on m
inimum stockholders’ equity or total assets/total revenue.
The notification from the NASDAQ Stock Market does not have an immediate effect on the listing of our common stock and our common stock will continue to trade on the NASDAQ under the symbol “OREX”.
Under NASDAQ’s Listing Rules, we have 180 calendar days from the date of the notification to regain compliance. If, at any time during this period, the market value of our common stock closes at $50 million or more for a minimum of 10 consecutive business
days, we will regain compliance with this requirement. Moreover, if we have at least $50 million of total revenue and at least $50 million of total assets for the fiscal year ended December 31, 2017, we may regain compliance through the continuing listing
requirements of NASDAQ Marketplace Rule 5450(b)(3)(A). If we are unable to regain compliance during the 180-day period, we will receive an additional notification that our securities are subject to delisting. We could, at that time, request a hearing to r
emain on the NASDAQ Global Market, which request will ordinarily suspend such delisting determination until a decision is made by NASDAQ subsequent to the hearing. Alternatively, we could apply for listing on the NASDAQ Capital Market, provided we meet the
continued listing requirements of that market.
There can be no assurances, however, that we will be successful in regaining compliance with the continued listing requirements and maintaining the listing of our common stock on the NASDAQ Global Market. Delisting from the NASDAQ could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. In addition, under the terms of the indentures for our 2013 Notes, 2016 Notes and 2017 Exchange Notes, the delisting of our common stock from the NASDAQ Global Select Market or Global Market would give noteholders the right to require us to repurchase, for cash, all or a portion of their notes. Requests to repurchase all or any portion of our outstanding notes would require a significant amount of cash, and if such cash is not available, we would be required to enter into alternate financing arrangements on terms that may or may not be desirable. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. If our common stock is delisted by the NASDAQ the price of our common stock may decline and our common stock may be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the pink sheets where an investor may find it more difficult to dispose of their common stock or obtain accurate quotations as to the market value of our common stock. Further, if we are delisted, we would incur additional costs under requirements of state “blue sky” laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our common stock and the ability of our stockholders to sell our common stock in the secondary market.
*We may lose the ability to use our net operating loss, or NOL, carryforwards, which could prevent or delay us from offsetting future taxable income.
We have incurred substantial losses during our history and do not expect to become profitable in 2017 and may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Our federal and state net operating loss carryforwards begin to expire in 2027 and 2017, respectively. Additionally, the future utilization of our net operating loss carryforwards and credits to offset future taxable income is subject to annual limitations, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as a result of ownership changes that have occurred in prior years or may occur in the future, which could defer our ability to utilize or prevent us from fully utilizing our net operating loss carryforwards, and credits, which could have an adverse effect on our results of operations. We completed an ownership change analysis in accordance with Section 382 from inception through December 31, 2015. As a result of the study, it was determined that we experienced several ownership changes during the studied period. We have reduced our NOL and credit carryforwards as disclosed in our financial statement for the effect of Sections 382 and 383.
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Risks Relating to Securities Markets and Investment in Our Stock
*The market price of our common stock has fluctuated and is likely to continue to fluctuate, which could reduce the market price of our common stock.
The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Over the last several years, the overall capital markets have been highly volatile. Since the commencement of trading in connection with our initial public offering, or IPO, the publicly traded shares of our common stock have themselves experienced significant price and volume fluctuations. During the quarter ended June 30, 2017, the price per share for our common stock on the NASDAQ Global Market has ranged from a low sale price of $2.42 to a high sale price of $3.81. This market volatility is likely to continue and could reduce the market price of our common stock, regardless of our operating performance. In addition, the trading price of our common stock could change significantly over short periods of time in response to many factors, including:
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announcements regarding the commercial sales and related revenue(s) for Contrave;
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FDA or international regulatory actions, announcements and public disclosures, including failure to maintain regulatory approval for Contrave in the EU or South Korea or receive approval in other additional foreign jurisdictions;
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announcements regarding our clinical trials, including the
randomized, open-label clinical trial of overweight or obese patients we completed in 2015 (which we refer to as the Ignite Study), the Light Study and the post-marketing required clinical trials for Contrave;
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announcements regarding our competitors, including Vivus’, Novo Nordisk’s and Eisai’s approved obesity products, including sales, safety and efficacy results, and their respective regulatory submissions and/or the results of their respective clinical trials;
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announcements regarding our other competitors’ regulatory submissions and/or the results of their clinical trials;
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announcements regarding our relationships with third parties;
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announcements regarding bupropion or naltrexone;
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announcements regarding manufacturing or supply developments for Contrave;
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failure of any of our products to achieve commercial success;
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developments concerning current or future strategic collaborations;
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announcements of the introduction of new products by us or our competitors;
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market conditions in the pharmaceutical and biotechnology sectors;
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announcements concerning product development results or intellectual property rights of others;
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litigation or public concern about the safety of our products;
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actual and anticipated fluctuations in our quarterly operating results;
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deviations in our operating results from the estimates of securities analysts or other analyst comments;
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additions or departures of key personnel;
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healthcare reform measures and other third-party coverage and reimbursement policies;
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changes in or announcements relating to third-party coverage and reimbursement policies for Contrave/Mysimba; and
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discussion of us or our stock price by the financial and scientific press and in online investor communities.
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The realization of any of the risks described in these “Risk Factors” could also have a dramatic and material adverse impact on the market price of our common stock.
Future sales of our common stock may depress our stock price.
Any future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market sales of any such shares of common stock or the availability of any such shares of common stock for sale would have on the market price of our common stock.
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In addition, persons who were our stockholders prior to the sale of shares in our IPO continue to hold a substantial number of shares of our common stock that they may be able to sell in the public market, subject to the limitations
of Rule 144 of the Securities Act of 1933, as amended. Significant portions of these shares are held by a small number of stockholders. Sales by our current stockholders of a substantial number of shares, or the expectation that such sales may occur, could
significantly reduce the market price of our common stock. For example, certain of our executive officers have established selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting specified sales of our common stock over a specifie
d period of time.
We have also registered all common stock that we may issue under our employee benefits plans. As a result, these shares can be freely sold in the public market upon issuance, subject to restrictions under the securities laws. In addition, our directors and executive officers may in the future establish programmed selling plans under Rule 10b5-1 of the Exchange Act for the purpose of effecting sales of our common stock, in addition to the already established plans. If any of these events cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.
*Our executive officers, directors, principal stockholders and their respective affiliates will exercise significant influence over stockholder voting matters in a manner that may not be in the best interests of all of our stockholders.
As of June 30, 2017, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates together controlled approximately 28.7% of our outstanding common stock, assuming no exercise of outstanding options or warrants. As a result, these stockholders will collectively be able to significantly influence all matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. The concentration of ownership may delay, prevent or deter a change in control of our company even when such a change may be in the best interests of some stockholders, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing market price of our common stock.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
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a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
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a prohibition on stockholder action through written consent;
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a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the Chief Executive Officer, the President or by a majority of the total number of authorized directors;
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advance notice requirements for stockholder proposals and nominations;
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a requirement of approval of not less than 66
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% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend specific provisions of our certificate of incorporation; and
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the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval.
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In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including to delay or impede a merger, tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, of our common stock will be your sole source of gain on an investment in our stock.
We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. We do not anticipate paying any cash dividends on our common
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stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock
will be your sole source of gain for the foreseeable future.
*We may become involved in securities-related litigation, including securities class action litigation, or securities-related investigations, that could divert management’s attention and harm our business and could subject us to significant liabilities.
The stock markets have from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. We may become involved in this and other types of shareholder litigation in the future. Moreover, as a public company, we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities, which would entail expenditure of additional financial and management resources. For example, in April 2015, we received a formal request from the SEC’s Division of Enforcement for documentation related to, among other things, a Current Report on Form 8-K that we filed with the SEC on March 3, 2015. On May 10, 2017, the SEC staff informed us in writing that they had concluded their investigation and did not recommend any further action. Litigation, and investigations by regulatory authorities, are often expensive and divert management’s attention and resources, which could adversely affect our business.
In May 2013, we received a shareholder demand alleging that certain option grants to our President and Chief Executive Officer, Michael A. Narachi, our then-current Chief Business Officer and acting-Chief Financial Officer, Joseph P. Hagan, and our then-current Senior Vice President, General Counsel and Secretary, Heather D. Turner, in 2011 were granted in excess of the 1,500,000 share limit set forth in Section 3.3 of the Orexigen Therapeutics, Inc. 2007 Equity Incentive Award Plan, or Plan, as to the number of shares of our common stock with respect to which one or more stock awards may be granted to any one eligible participant during any of our fiscal years. We refer to this limit as the 162(m) Award Limit. Our board of directors established a demand review committee composed of independent directors to conduct an investigation with respect to the shareholder demand and to make recommendations to our board of directors. The demand review committee engaged independent counsel as part of its investigation and evaluated (1) the terms of the Plan, (2) the initial issuance procedures for the option grants to Mr. Narachi, Mr. Hagan and Ms. Turner during 2011, (3) the authority available to the compensation committee of our board of directors under its charter and the Plan, (4) the expectations of the award recipients and (5) the intent of our board of directors and the compensation committee regarding the availability of an exemption from the deductibility limitations of Section 162(m) of the Code for such option grants. Following its investigation, the demand review committee determined that the 162(m) Award Limit first became effective as of June 2, 2011, and that, therefore, awards granted under the Plan prior to June 2, 2011, did not count toward the 162(m) Award Limit. The demand review committee determined that the awards granted to Mr. Hagan between June 2, 2011 and December 31, 2011 did not exceed the 162(m) Award Limit. The demand review committee further determined that the options granted to Mr. Narachi and Ms. Turner, including the portion of such awards in excess of the 162(m) Award Limit, were validly approved under the Plan, although the portion of those awards in excess of the 162(m) Award Limit does not qualify as performance-based compensation under Section 162(m). In September 2013, the compensation committee amended the Plan, with the approval of our board of directors, to take the following actions: (1) to clarify that the 162(m) Award Limit only applies to awards or the portion thereof intended to qualify as performance-based compensation under Section 162(m); and (2) to confirm that the compensation committee has the authority to make awards in excess of the 162(m) Award Limit, which board action we refer to as the Plan Amendment. The Plan Amendment is deemed effective as of June 10, 2011, consistent with the authority of the compensation committee as administrator of the Plan as of that date. Any grants under the Plan in excess of the 162(m) Award Limit are not intended to qualify as performance-based compensation under Section 162(m).
On December 9, 2013, the same shareholder who made a demand on the board in May 2013 filed a derivative lawsuit purportedly on behalf of us against certain of our officers and current and former members of our board of directors in the United States District Court for the Southern District of California, captioned
Turgeman v. Narachi, et al
. The lawsuit asserted claims for breach of fiduciary duty, waste and unjust enrichment based on, among other things, the alleged grant of stock options to certain officers in excess of the 162(m) Award Limit, repricing stock options allegedly in violation of our equity incentive plan, the board of directors’ conduct in responding to the May 2013 shareholder demand, and making allegedly false and misleading statements. The lawsuit sought, among other things, declaratory relief, corporate governance reforms, rescission of certain stock option awards, rescission of the Plan Amendment, injunctive relief, damages, restitution, disgorgement and attorney’s fees. On July 23, 2014, we and the individual defendants filed a motion to dismiss the
Turgeman
complaint. On March 9, 2015, the court granted the motion to dismiss with thirty days leave to amend. An amended complaint was filed on April 8, 2015. The amended complaint asserted the same derivative claims as the original complaint and asserted a putative claim on behalf of plaintiff and our shareholders for breach of contract for alleged violations of the 2007 Equity Incentive Plan. On May 8, 2015, we and the individual defendants filed a motion to dismiss the amended complaint.
On March 31, 2017, the Court granted the motion to dismiss, dismissing the breach of fiduciary duty claim with
prejudice but granting plaintiff twenty-one days leave to amend the breach of contract claim. On April 21, 2017, plaintiffs and defendants stipulated to dismissal with prejudice of the breach of contract claim. On April 24, 2017, the court entered judgment
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dismissing the entire action with prejudice.
On March 10, 2015, a purported class action lawsuit was filed against us and certain of our officers in the United States District Court for the Southern District of California, captioned
Colley v. Orexigen, et al.
The following day, two additional putative class action lawsuits were filed in the same court, captioned
Stefanko v. Orexigen, et al.,
and
Yantz v. Orexigen, et al
., asserting substantially similar claims. On June 22, 2015, the court consolidated the lawsuits and appointed a lead plaintiff. On August 20, 2015, the lead plaintiff filed a consolidated complaint. The consolidated complaint purports to assert claims on behalf of a class of purchasers of the Company’s stock between March 3, 2015 and May 12, 2015. It alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by purportedly making false and misleading statements regarding the interim results and termination of the Light Study. The consolidated complaint seeks an unspecified amount of damages, attorneys’ fees and equitable or injunctive relief. On October 5, 2015, defendants filed a motion to dismiss the consolidated complaint. On May 19, 2016, the District Court granted the motion to dismiss, dismissing portions of the consolidated complaint with prejudice and portions without prejudice. The Court granted the lead plaintiff 30 days to file an amended complaint with respect to those portions not dismissed with prejudice. On June 16, 2016, the lead plaintiff filed a notice of intent not to file an amended complaint but to proceed directly to an appeal of the Court’s decision dismissing the consolidated complaint. As a result, the court entered judgment dismissing the consolidated complaint with prejudice on June 27, 2016. The
lead plaintiff filed a Notice of Appeal with the Ninth Circuit Court of Appeals on July 26, 2016.
The appeal has been fully briefed. No hearing date has been set. Defendants filed their answering brief on February 2, 2017 and the lead plaintiff filed a reply brief on February 16, 2017. No hearing date has been set.
Although management believes that this appeal lacks merit and intends to defend against them vigorously, there are uncertainties inherent in any litigation and we cannot predict the outcome.
On June 3, 2016, plaintiff Ben Wilkin, a
shareholder who had previously made a shareholder demand to inspect certain books and
records of the Company, filed a derivative lawsuit purportedly on behalf of us against certain of our current and former officers and members of the board of directors in the Delaware Chancery Court, captioned Wilkin v. Narachi, et al. The lawsuit asserts claims for breach of fiduciary duty and waste of corporate assets based on essentially the same set of facts underlying the Colley, Stefanko and Yantz consolidated class action. The lawsuit seeks, among other things, damages, corporate governance reforms, injunctive relief, restitution, disgorgement and attorney’s fees. Orexigen and the individual defendants filed a motion to dismiss on October 31, 2016, asserting that plaintiff failed to plead demand futility and otherwise failed to state a claim. Instead of opposing the motion to dismiss, on January 13, 2017, plaintiff filed an amended complaint pursuant to Chancery Rule 15(aaa). The amended complaint asserts nearly identical allegations and claims as the original complaint. Orexigen and the individual defendants filed a motion to dismiss on March 27, 2017. A hearing on Orexigen’s and the individual defendants’ motion to dismiss is scheduled for November 17, 2017. Management believes that the claims lack merit and intends to defend against them vigorously.