Our Business Overview
Palatin™
is a biopharmaceutical company developing first-in-class medicines
based on molecules that modulate the activity of the melanocortin
and natriuretic peptide receptor systems. Our product candidates
are targeted, receptor-specific therapeutics for the treatment of
diseases with significant unmet medical need and commercial
potential. Palatin’s strategy is to develop products and then
form marketing collaborations with industry leaders to maximize
product commercial potential.
Melanocortin Receptor System. The melanocortin receptor
(“MCr”) system has effects on inflammation and immune
system response, food intake, metabolism, and sexual function.
There are five melanocortin receptors, MC1r through MC5r.
Modulation of these receptors, through use of receptor-specific
agonists, which activate receptor function, or receptor-specific
antagonists, which block receptor function, can have significant
pharmacological effects.
Our new
product development activities in inflammation disease indications
focus primarily on development of MCr peptides for ocular
conditions, but also include conditions in the gut and kidney.
Utilizing peptides which are agonists at MC1r, and in some
instances agonists at additional melanocortin receptors, we are
developing products to treat inflammatory and autoimmune diseases
such as dry eye disease, which is also known as
keratoconjunctivitis sicca, uveitis, diabetic retinopathy, and
inflammatory bowel disease. We believe that our MC1r agonist
peptides have broad anti-inflammatory effects and utilize
mechanisms engaged by the endogenous melanocortin system in
regulation of the immune system and resolution of inflammatory
responses. We are also developing peptides that are active at more
than one melanocortin receptor and small molecule MCr
agonists.
Our
U.S. Food and Drug Administration (“FDA”) approved
melanocortin receptor agonist, Vyleesi® (bremelanotide
injection), is an “as needed” therapy used in
anticipation of sexual activity and self-administered in the thigh
or abdomen via a single-use subcutaneous auto-injector by
premenopausal women with hypoactive sexual desire disorder
(“HSDD”). Vyleesi is the first FDA-approved
melanocortin agent and the first and only FDA-approved as-needed
treatment for premenopausal women with HSDD.
Natriuretic Peptide Receptor System. The natriuretic peptide
receptor (“NPR”) system regulates cardiovascular
functions, and therapeutic agents modulating this system have
potential to treat fibrotic diseases, cardiovascular diseases,
including reducing cardiac hypertrophy and fibrosis, heart failure,
acute asthma, pulmonary diseases, and hypertension. We have
designed and are developing potential NPR candidate drugs selective
for one or more of the natriuretic peptide receptors, including
natriuretic peptide receptor-A (“NPR-A”), natriuretic
peptide receptor B (“NPR-B”), and natriuretic peptide
receptor C (“NPR-C”).
Our Business Strategy. Key elements of our business strategy
include:
●
Maximizing revenue
from Vyleesi by marketing Vyleesi in the United States, supporting
our existing licensees for China and South Korea, and licensing
Vyleesi for the United States and additional regions;
●
Maintaining a team
to create, develop and commercialize MCr and NPR products
addressing unmet medical needs;
●
Entering into
strategic alliances and partnerships with pharmaceutical companies
to facilitate the development, manufacture, marketing, sale, and
distribution of product candidates that we are
developing;
●
Partially funding
our product development programs with the cash flow generated from
Vyleesi and existing license agreements, as well as any future
research, collaboration, or license agreements; and
●
Completing
development and seeking regulatory approval of certain of our other
product candidates.
Pipeline Overview
The
following chart illustrates the status of our drug development
programs and Vyleesi, which has been approved by the FDA for the
treatment of premenopausal women with acquired, generalized
HSDD.
Melanocortin Receptor Programs
Our Current Product Development Strategy. We are designing
and developing potent and highly selective MC1r agonist peptides
and agonist peptides specific for more than one melanocortin
receptor for treatment of a variety of inflammatory and autoimmune
indications. We believe that our agonist peptides suppress certain
inflammatory cytokines, and modulate the activities of immune
cells, such as monocytes and T cells, to reduce immune response,
and may utilize mechanisms engaged by the endogenous melanocortin
system in regulation of the immune system and resolution of
inflammatory responses.
We have
conducted preclinical animal studies with MC1r and multiple MCr
peptide drug candidates for selected inflammatory disease and
autoimmune indications. MC1r plays a role in many diseases,
including inflammatory bowel disease and ocular indications such as
uveitis, diabetic retinopathy, and dry eye disease. Work with
rodent animal models have demonstrated therapeutic responses that
are statistically significant compared to placebo, and that are
equal to or superior to established positive controls in animal
models. However, success in animal models does not necessarily mean
that any of our drug candidates will be able to successfully treat
diseases in human patients.
PL9643 for Dry Eye Disease and Anti-Inflammatory Ocular
Indications. PL9643, a peptide melanocortin agonist active
at multiple MCrs, including MC1r and MC5r, is our lead clinical
development candidate for anti-inflammatory ocular indications,
including dry eye disease, which is also known as
keratoconjunctivitis sicca. Dry eye disease is a syndrome with
symptoms including irritation, redness, discharge and blurred
vision. It may result from an autoimmune disease such
Sjögren’s syndrome, an ocular lipid or mucin deficiency,
blink disorders, abnormal corneal sensitivity, or environmental
factors. It is estimated to affect over 30 million people in the
United States.
We have
developed a PL9643 ophthalmic solution (topical eye drops) in a
single use delivery device, and a Phase 3 clinical trial designed
to support a New Drug Application (“NDA”) will start in
the fourth quarter of calendar year 2021. Our Phase 2 clinical
trial demonstrated improvements in both the signs and symptoms of
dry eye disease in moderate to severe patients after just two weeks
of treatment, with no adverse safety signals and excellent
tolerability. We held an end-of-Phase 2 meeting with the FDA in
June 2021, which included all aspects of the PL9643 development
plan, including study design, endpoints, interim assessment, and
patient population for the Phase 3 program. Preliminary data
readout from the Phase 3 clinical trial is expected in the second
half of calendar year 2022. If results of the initial Phase 3
clinical trial are positive, we will initiate a second Phase 3
clinical trial, with an NDA submitted to the FDA as early as the
second half of calendar year 2023.
Oral PL8177 for Inflammatory Bowel Diseases. PL8177, a
selective MC1r agonist peptide, is our lead clinical development
candidate for inflammatory bowel diseases, including ulcerative
colitis. We have completed subcutaneous dosing of human subjects in
a Phase 1 single and multiple ascending dose clinical safety study,
and a human microdose pharmacokinetic study to evaluate a
polymer-enabled, delayed-release, oral formulation of
PL8177.
For
ulcerative colitis and other inflammatory bowel diseases we will
administer PL8177 in our oral formulation to deliver PL8177 to the
interior wall of the diseased bowel. PL8177 activates MC1r present
on the interior wall of the bowel in ulcerative colitis and other
inflammatory bowel diseases. We believe that delivering PL8177
directly to MC1r in the bowel wall will maximize treatment effect
while minimizing any systemic or off-target effects.
A Phase
2 study in ulcerative colitis using our polymer-enabled,
delayed-release, oral formulation of PL8177 is scheduled to start
in the first half of calendar year 2022, and may take up to one
year to complete.
Melanocortin Peptides for Diabetic Retinopathy. We conducted
preclinical studies with melanocortin peptides in diabetic
retinopathy models and have selected a peptide candidate for
further development work. We are working on a formulation for
administration. If results support advancing the program, we will
conduct required safety studies and manufacture drug product under
Good Manufacturing Practices (“GMP”) regulations
preparatory to filing an IND and initiating clinical
studies.
Ocular Research Programs. We are conducting research in
several additional ocular areas, including both front of the eye
and back of the eye indications, exploring use of our compounds to
treat additional indications.
Vyleesi for HSDD. Vyleesi, the registered trademark for
bremelanotide injection, was approved by the FDA on June 21, 2019
for the treatment of premenopausal women with acquired, generalized
HSDD. AMAG Pharmaceuticals, Inc. (“AMAG”), which had
exclusively licensed Vyleesi for North America, initiated sales and
marketing efforts for Vyleesi in the United States in August 2019,
with a national launch in September 2019. In July 2020, Palatin and
AMAG entered into a termination agreement, pursuant to which the
license agreement was terminated, Palatin regained all North
America rights for Vyleesi, and AMAG made a $12.0 million payment
to Palatin at closing and a $4.3 million payment to Palatin in the
first quarter of calendar 2021. Palatin assumed Vyleesi
manufacturing agreements, and AMAG transferred information, data
and assets related exclusively to Vyleesi, including existing
inventory. AMAG provided certain transition services to Palatin for
a period to ensure continued patient access to Vyleesi during the
transition period, for which Palatin reimbursed AMAG for the agreed
upon costs of the transition services.
Vyleesi
faces competition primarily from Addyi® (flibanserin), which
was introduced into the market in October 2015 for the treatment of
HSDD in pre-menopausal women and is marketed by Sprout
Pharmaceuticals, Inc. We are not aware of any company actively
developing another melanocortin receptor agonist drug for the
treatment of HSDD. However, we are aware of several other drugs at
various stages of development, most of which are being developed
for the treatment of HSDD that are to be taken on a chronic,
typically once-daily, basis. There may be other companies
developing new drugs for FSD indications other than HSDD, which may
compete with Vyleesi, some of which may be in clinical trials in
the U.S. or elsewhere. Vyleesi may also face competition with
products prescribed “off-label” by healthcare
providers.
Vyleesi
is distributed nationally through specialty pharmacies. Our
marketing strategy focuses on efforts to establish Vyleesi as the
preferred option for women and healthcare providers seeking a
treatment for HSDD, which we implement through media such as
direct-to-consumer marketing in search and social media channels.
We also focus our Vyleesi marketing efforts towards healthcare
professionals, who play a significant role in increasing HSDD and
Vyleesi awareness among their patients. As the commercial potential
of Vyleesi is demonstrated, Palatin will explore licensing
marketing and distribution rights for the United States to a
marketing partner.
In
early September 2017, we entered into a license agreement with
Fosun for exclusive rights to commercialize Vyleesi in China. We
received an upfront payment of $5.0 million, less required tax
withholding, and when regulatory approval for a Vyleesi product is
obtained in China we will receive a $7.5 million milestone payment.
We may receive up to $92.5 million in sales related milestones and
will receive high-single digit to low double-digit royalties on net
sales in China. In November 2017, we entered into a license
agreement with Kwangdong for exclusive rights to commercialize
Vyleesi in Korea, and received an upfront payment of $0.5 million,
less required tax withholding. Upon the first commercial sale of
Vyleesi in Korea we will receive a $3.0 million milestone payment
and will receive mid-single digit to low double-digit royalties on
all net sales and may receive up to $37.5 million in sales related
milestones.
We
retain worldwide rights for Vyleesi for HSDD and all other
indications outside Korea and China. We are actively seeking
potential partners for marketing and commercialization rights for
Vyleesi for HSDD outside the licensed territories, including
entering into a license agreement for marketing and
commercialization rights for Vyleesi in the United States. However,
we may not be able to enter into suitable agreements with potential
partners on acceptable terms, if at all.
The
most common adverse events which may occur with use of Vyleesi are
nausea, flushing, injection site reactions, headache, and vomiting.
Vyleesi is contraindicated in women with uncontrolled hypertension
or known cardiovascular disease. In addition, the Vyleesi label
includes precautions that it may cause (i) small, transient
increases in blood pressure with a corresponding decrease in heart
rate; (ii) focal hyperpigmentation (darkening of the skin on
certain parts of the body), including the face, gums (gingiva) and
breasts; and (iii) nausea.
Natriuretic Peptide Receptor Programs
Natriuretic Peptide Receptor Systems. The NPR system has
numerous cardiovascular functions, and therapeutic agents
modulating this system may be useful in treatment of cardiovascular
and fibrotic diseases. While the therapeutic potential of
modulating this system is well appreciated, development of
therapeutic agents has been difficult due, in part, to the short
biological half-life of native peptide agonists. We have made
potential NPR candidate drugs that are selective for one or more
different natriuretic peptide receptors, including NPR-A, NPR-B,
and NPR-C.
PL3994 for Mechanism of Action Studies. PL3994 is an NPR-A
agonist and synthetic mimetic of the endogenous neuropeptide
hormone atrial natriuretic peptide (“ANP”). PL3994
activates NPR-A, a receptor known to play a role in cardiovascular
homeostasis. Consistent with being an NPR-A agonist, PL3994
increases plasma cyclic guanosine monophosphate
(“cGMP”) levels, a pharmacological response consistent
with the effects of endogenous natriuretic peptides on
cardiovascular function and smooth muscle relaxation. PL3994 also
decreases activity of the renin-angiotensin-aldosterone system
(“RAAS”), a hormone system that regulates blood
pressure and fluid balance. The RAAS system is frequently
over-activated in heart failure patients, leading to worsening of
cardiovascular function.
In
conjunction with clinicians at a major research institution, we
have entered into a Phase 2A clinical trial with PL3994 supported
by a grant from the American Heart Association. We have conducted
Phase 1 safety studies with PL3994, with no serious or severe
adverse events. Consistent with the PL3994 mechanism of action,
elevations in plasma cGMP levels, increased diuresis and increased
natriuresis were all observed for several hours after single
subcutaneous doses.
Because
of the limited patent term remaining on PL3994, we do not intend to
pursue PL3994 as a pharmaceutical product but are utilizing it to
establish the mechanism of action and pharmaceutical utility of
synthetic mimetics of ANP.
PL5028 for Cardiovascular and Fibrotic Disease. PL5028, an
NPR-A agonist and NPR-binder we developed, is in preclinical
development for cardiovascular and fibrotic diseases, including
reducing cardiac hypertrophy and fibrosis. We have ongoing academic
collaborations with several institutions with PL5028.
Technologies We Use
We used
a rational drug design approach to discover and develop proprietary
peptide, peptide mimetic and small molecule agonist compounds,
focusing on melanocortin and natriuretic peptide receptor systems.
Computer-aided drug design models of receptors are optimized based
on experimental results obtained with peptides and small molecules
that we develop. With our approach, we believe we are developing an
advanced understanding of the factors which drive
agonism.
We have
developed a series of proprietary technologies used in our drug
development programs. One technology employs novel amino acid
mimetics in place of selected amino acids. These mimetics provide
the receptor-binding functions of conventional amino acids while
providing structural, functional and physiochemical advantages. The
amino acid mimetic technology is employed in PL3994.
Competition
General. Our products under development will compete on the
basis of quality, performance, cost effectiveness and application
suitability with numerous established products and technologies. We
have many competitors, including pharmaceutical, biopharmaceutical
and biotechnology companies. Furthermore, there are several
well-established products in our target markets that we will have
to compete against. Other companies may also introduce products
using new technologies that may be competitive with our proposed
products. Most of the companies selling or developing competitive
products have financial, technological, manufacturing and
distribution resources significantly greater than ours and may
represent significant competition for us. In addition, approved
products such as Vyleesi may eventually face competition from
generic versions that will sell at significantly reduced prices, be
preferred by managed care and health insurance payers, and be
eligible for automatic pharmacy substitution even when a prescriber
writes a prescription for our product. The timing and extent of
future generic competition is dependent upon both our intellectual
property rights and the FDA regulatory process but cannot be
accurately predicted.
The
pharmaceutical and biotechnology industries are characterized by
extensive research efforts and rapid technological change. Many
biopharmaceutical companies have developed or are working to
develop products similar to ours or that address the same markets.
Such companies may succeed in developing technologies and products
that are more effective or less costly than any of those that we
may develop. Such companies may be more successful than us in
developing, manufacturing, and marketing products.
We
cannot guarantee that we will be able to compete successfully in
the future or that developments by others will not render our
proposed products under development or any future product
candidates obsolete or noncompetitive or that our collaborators or
customers will not choose to use competing technologies or
products.
Vyleesi for Treatment of HSDD. There is competition and
financial incentive to develop, market and sell drugs for the
treatment of HSDD and other forms of FSD. Flibanserin, sold under
the trade name Addyi, is the only drug other than Vyleesi currently
approved in the United States for treatment of HSDD. Flibanserin, a
non-hormonal oral serotonin 5-HT1A agonist, 5-HT2A antagonist,
which requires chronic dosing, was approved by the FDA on August
18, 2015 for treatment of premenopausal women with HSDD. The FDA
approval included a risk evaluation and mitigation strategy
(“REMS”) because of the increased risk of severe
hypotension and syncope due to the interaction between flibanserin
and alcohol, and a Boxed Warning to highlight the risks of severe
hypotension and syncope in patients who drink alcohol during
treatment with flibanserin, in those who also use moderate or
strong CYP3A4 inhibitors, and in those who have liver impairment.
The Boxed Warning was modified by FDA in April 2019 to clarify that
there remains a concern about consuming alcohol close in time to
taking flibanserin, but that alcohol does not have to be avoided
completely. Specifically, the Boxed Warning reflects women should
discontinue drinking alcohol at least two hours before taking
flibanserin at bedtime, or to skip the flibanserin dose that
evening. We are aware of several other drugs at various stages of
development, most of which are taken on a chronic, typically
once-daily, basis. There are other companies reported to be
developing new drugs for FSD indications, some of which may be in
clinical trials in the United States or elsewhere. We are not aware
of any other company actively developing a melanocortin receptor
agonist drug for HSDD.
PL9643 for Anti-Inflammatory Ocular Indications. PL9643 is
under development for dry eye diseases and may also have utility
for other inflammatory ocular indications. Currently mild to
moderate dry eye disease and other ocular inflammatory diseases may
be treated with artificial tear eye drops, lubricating tear
ointments, hot compresses or punctual plugs, and more severe
disease may be treated with topical immunosuppressants such as
cyclosporine ophthalmic emulsions, including Restasis®
marketed in the United States by Allergan, Inc., or with drugs
inhibiting inflammatory cell binding, such as lifitegrast,
including Xiidra® marketed in the United States by Novartis.
In addition, there are a number of drugs in clinical development
for treatment of dry eye disease, with over 20 agents reported to
be in or have completed Phase 2 development. Products under
development include tumor necrosis factor agonists, alpha-2
adrenergic receptor agonist, calcineurin inhibitors, and nicotinic
receptor agonists, among others. There are no reported MC1r agonist
drugs in clinical trials by third parties for dry eye disease. If
one or more of these competing product candidates is approved and
either treats the signs and symptoms of dry eye disease or reduces
the frequency of flares of dry eye in patients, it could reduce the
market for PL9643 for dry eye disease.
Oral PL8177 for Inflammatory Bowel Diseases/Ulcerative
Colitis. FDA-approved drugs used in treatment of ulcerative
colitis include aminosalicylates such as mesalazine and related
drugs, immunosuppressive drugs such as cyclosporine and
azathioprine, corticosteroids such as prednisone and other
steroids, and various biologic drugs, including tumor necrosis
factor inhibitors such as infliximab and adalimumab. There are a
number of drugs in development for ulcerative colitis, including
Janus kinase inhibitors, monoclonal antibodies specific for one or
more immune system cytokine signaling molecules, and additional
classes of immunomodulatory drugs. There are no reported MC1r
agonist drugs in clinical trials for inflammatory bowel diseases,
including ulcerative colitis. If one or more of the competing
products under development are approved and can effectively treat
ulcerative colitis with an acceptable side effect profile, such
products could reduce the market for oral PL8177 for inflammatory
bowel diseases, including ulcerative colitis.
Diabetic Retinopathy. FDA-approved drugs used in treatment
of diabetic retinopathy include steroids and anti-vascular
endothelial growth factor compounds. At least two different
antibody fragment products are marketed in the United States in
which either aflibercept or ranibizumab is the active
pharmaceutical ingredient. Additional vascular endothelial growth
factor inhibitors are in clinical trials or in preclinical
development. There are no reported MC1r agonist drugs in clinical
trials for diabetic retinopathy. If one or more of the competing
product candidates under development is approved and can treat
diabetic retinopathy with an acceptable side effect profile, it
could reduce the market for MC1r peptide products for this
indication.
Melanocortin Receptor 1 Agonist Drug Products for Inflammatory and
Autoimmune Diseases. Many inflammatory disease-related
indications are treated using systemic steroids or
immunosuppressant drugs, all of which have side effects that can be
dose limiting. There are a number of approved biological drugs and
other biological drugs under development for treatment of
inflammatory disease-related indications, which typically affect
only one pathway in the inflammatory response. Many of these drugs
address symptoms, but do not resolve the underlying inflammatory or
autoimmune disease process.
PL5028 for Cardiovascular and Fibrotic Indications. We are
evaluating potential clinical indications for PL5028 and have not
determined a specific indication for initial studies. There are
many approved drugs and drugs in clinical studies for
cardiovascular diseases, including drugs that directly modulate the
NPR system, such as nesiritide (sold under the trade name
Natrecor®), a recombinant NPR-B peptide drug, and a
combination drug comprised of sacubitril and valsartan (sold under
the trade name Entresto®), which inhibits both the angiotensin
II receptor and neprilysin, which is an enzyme that inactivates
endogenous active natriuretic peptides. This combination drug
results in increases of endogenous active natriuretic peptide
levels. In addition, there are a number of approved drugs and drugs
in development for treatment of cardiovascular and fibrotic
diseases through mechanisms or pathways other than agonism of
NPR-A.
Patents and Proprietary Information
Patent Protection. Our success will depend in substantial
part on our ability to obtain, defend and enforce patents, maintain
trade secrets and operate without infringing upon the proprietary
rights of others, both in the United States and abroad. We own a
number of issued United States patents and have pending United
States patent applications, many with issued or pending counterpart
patents in selected foreign countries. We seek patent protection
for our technologies and products in the United States and those
foreign countries where we believe patent protection is
commercially important.
We own
three issued United States patents and a pending patent application
in the United States for methods of treating FSD with Vyleesi, with
related patents issued or pending in selected countries in Europe
and Asia and in Australia and New Zealand. We do not know the full
scope of patent coverage we will obtain, or whether any patents
will issue other than the patents already issued. Issued patents
and pending applications in the United States and elsewhere in the
world have a presumptive term, if a patent is issued, until
2033.
We own
two issued United States patents claiming the Vyleesi drug
substance. One patent has expired, and the other patent, which
would have otherwise expired in 2020, has been granted a five-year
extension, the maximum period as compensation for patent term lost
during drug development and the FDA regulatory review process,
pursuant to the Drug Price Competition and Patent Term Restoration
Act of 1984, or the Hatch-Waxman Amendments. This patent now
expires on June 28, 2025. In addition, the claims of the
outstanding patent covering Vyleesi may not provide meaningful
protection. Further, third parties may challenge the validity or
scope of any issued patent, and under the Hatch-Waxman Amendments,
potentially receive approval of a competing generic version of our
product or products even before a court rules on the validity or
infringement of our patents.
We own
patents on an alternative class of melanocortin receptor-specific
peptides for treatment of sexual dysfunction and other indications,
including obesity, consisting of two issued patents in the United
States. The presumptive term of the issued patents is until 2029.
We also have patents and pending patent applications for a second
class of alternative melanocortin receptor-specific peptides for
treatment of sexual dysfunction and other indications, including
obesity, consisting of three issued patents in the United States
and issued patents in Australia, Canada, China, France, Germany,
Ireland, Japan, Israel, Korea, New Zealand, Russia, South Africa,
Switzerland and the United Kingdom and pending patent applications
on the same class in Brazil, China, India, and Mexico. The
presumptive term of the issued patents and pending patent
applications is until 2030. Until one or more product candidates
covered by a claim of one of these patents and patent applications
are developed for commercialization, which may never occur, we
cannot evaluate the duration of any potential patent term extension
under the Hatch-Waxman Amendments.
We own
five issued patents in the United States, and issued patents in
Australia, Belgium, Canada, China, France, Germany, Ireland,
Israel, Japan, Korea, Mexico, New Zealand, Russia, South Africa,
Sweden, Switzerland and the United Kingdom claiming highly
selective MC1r agonist peptides, including for treatment of
inflammation-related diseases and disorders and related
indications, and pending patent applications in Australia, Brazil,
and India. The presumptive term of the issued patents and pending
patent applications is until 2030. Until one or more product
candidates covered by a claim of one of these patent applications
are developed for commercialization, which may never occur, we
cannot evaluate the duration of any potential patent term extension
under the Hatch-Waxman Amendments.
We own
two issued United States patents claiming the PL3994 substance and
other natriuretic peptide receptor agonist compounds that we have
developed and an issued United States patent claiming a precursor
molecule to the PL3994 substance, both of which expire in 2027.
Corresponding patents on the PL3994 substance and other natriuretic
peptide receptor agonist compounds were issued in a number of
countries throughout the world, but we will cease maintaining
patents outside the United States. We also own an issued United
States patent claiming use of the PL3994 substance for treatment of
acute asthma and chronic obstructive pulmonary disease, which
expires in 2031.
We have
additional issued United States patents on melanocortin receptor
specific peptides and small molecules, and on natriuretic peptide
receptor agonist compounds, but we are not actively developing any
product candidate covered by a claim of any of these
patents.
We have
filed patent applications under the Patent Cooperation Treaty
claiming PL9643 and other peptides in development for ocular and
inflammatory disease indications. If a patent is granted, the
patents will have a presumptive term until 2041. Until one or more
product candidates covered by a claim of one of these patent
applications are developed for commercialization, which may never
occur, we cannot evaluate the duration of any potential patent term
extension under the Hatch-Waxman Amendments.
In the
event that a third party has also filed a patent application
relating to an invention we claimed in a patent application, we may
be required to participate in an interference proceeding
adjudicated by the United States Patent and Trademark Office
(“USPTO”) to determine priority of invention. The
possibility of an interference proceeding could result in
substantial uncertainties and cost, even if the eventual outcome is
favorable to us. An adverse outcome could result in the loss of
patent protection for the subject of the interference, subjecting
us to significant liabilities to third parties, the need to obtain
licenses from third parties at undetermined cost, or requiring us
to cease using the technology. Additionally, the claims of our
issued patents may be narrowed or invalidated by administrative
proceedings, such as interference or derivation, inter partes review, post grant review
or reexamination proceedings before the USPTO.
Future Patent Infringement. We do not know for certain that
our commercial activities will not infringe upon patents or patent
applications of third parties, some of which may not even have been
issued. Although we are not aware of any valid United States
patents which are infringed by Vyleesi or our other product
candidates, we cannot exclude the possibility that such patents
might exist or arise in the future. We may be unable to avoid
infringement of any such patents and may have to seek a license,
defend an infringement action, or challenge the validity of such
patents in court. Patent litigation is costly and time consuming.
If such patents are valid and we do not obtain a license under any
such patents, or we are found liable for infringement, we may be
liable for significant monetary damages, may encounter significant
delays in bringing products to market, or may be precluded from
participating in the manufacture, use or sale of products or
methods of treatment covered by such patents.
Proprietary Information. We rely on proprietary information,
such as trade secrets and know-how, which is not patented. We have
taken steps to protect our unpatented trade secrets and know-how,
in part with confidentiality and intellectual property agreements
with our employees, consultants and certain contractors. If our
employees, scientific consultants, collaborators or licensees
develop inventions or processes independently that may be
applicable to our product candidates, disputes may arise about the
ownership of proprietary rights to those inventions and processes.
Such inventions and processes will not necessarily become our
property but may remain the property of those persons or their
employers. Protracted and costly litigation could be necessary to
enforce and determine the scope of our proprietary
rights.
If
trade secrets are breached, our recourse will be solely against the
person who caused the secrecy breach. This might not be an adequate
remedy to us because third parties other than the person who causes
the breach will be free to use the information without
accountability to us. This is an inherent limitation of the law of
trade secret protection.
U.S. Governmental Regulation of Pharmaceutical
Products
General
Regulation
by governmental authorities in the United States and other
countries will continue to significantly impact our research,
product development, manufacturing and marketing of any
pharmaceutical products. The nature and the extent to which
regulations apply to us will vary depending on the nature of any
such products. Our potential pharmaceutical products will require
regulatory approval by governmental agencies prior to
commercialization. The products we are developing are subject to
federal regulation in the United States, principally by the FDA
under the Federal Food, Drug, and Cosmetic Act
(“FFDCA”), and by state and local governments, as well
as ministries of health and other authorities in foreign
governments. Such regulations govern or influence, among other
things, the research, development, testing, manufacture, safety and
efficacy requirements, labeling, storage, recordkeeping, licensing,
advertising, promotion, distribution and export of products,
manufacturing, and the manufacturing process. In many foreign
countries, such regulations also govern the prices charged for
products under their respective national social security systems
and availability to consumers.
All
drugs intended for human use are subject to rigorous regulation by
the FDA in the United States and similar regulatory bodies in other
countries. The steps ordinarily required by the FDA before an
innovative new drug product may be marketed in the United States
are similar to steps required in most other countries and include,
but are not limited to:
●
completion of
preclinical laboratory tests, preclinical animal testing and
formulation studies;
●
submission to the
FDA of an Investigational New Drug application (“IND”),
which must be in effect before clinical trials may
commence;
●
clinical studies to
evaluate safety and efficacy;
●
submission to the
FDA of an NDA that includes preclinical data, clinical trial data
and manufacturing information;
●
payment of
substantial user fees for filing the NDA and other recurring user
fees;
●
satisfactory
completion of an FDA pre-approval inspection of the manufacturing
facilities; and
●
FDA approval of the
NDA, including approval of all product labeling.
For new
drug products or for combination products deemed to have a
“drug” primary mode of action, primary review of the
product will be conducted by the appropriate division within the
FDA’s Center for Drug Evaluation and Research
(“CDER”). For combination products, CDER will consult
with the Center for Devices and Radiological Health to ensure that
the device components of the product meet all applicable device
requirements.
The
research, development and approval process requires substantial
time, effort and financial resources, and approvals may not be
granted on a timely or commercially viable basis, if at
all.
Preclinical
testing includes laboratory evaluations to characterize the
product’s composition, impurities, stability, and mechanism
of its pharmacologic effect, as well as animal studies to assess
the potential safety and efficacy of each product. Preclinical
safety tests must be conducted by laboratories that comply with FDA
regulations regarding Good Laboratory Practices and the U.S.
Department of Agriculture’s Animal Welfare Act. Violations of
these laws and regulations can, in some cases, lead to invalidation
of the tests, requiring such tests to be repeated and delaying
approval of the NDA. The results of the preclinical tests, together
with manufacturing information and analytical data, are submitted
to the FDA as part of an IND and are reviewed by the FDA before the
commencement of human clinical trials. Unless the FDA objects to an
IND by placing the study on clinical hold, the IND will go into
effect 30 days following its receipt by the FDA. The FDA may
authorize trials only on specified terms and may suspend ongoing
clinical trials at any time on various grounds, including a finding
that patients are being exposed to unacceptable health risks. If
the FDA places a study on clinical hold, the sponsor must resolve
all of the FDA’s concerns before the study may begin or
continue. The IND application process may become extremely costly
and substantially delay development of products. Similar
restrictive requirements also apply in other countries.
Additionally, positive results of preclinical tests will not
necessarily indicate positive results in clinical
trials.
Clinical
trials involve the administration of the investigational product to
humans under the supervision of qualified principal investigators.
Our clinical trials must be conducted in accordance with Good
Clinical Practice regulations under protocols submitted to the FDA
as part of an IND. In addition, each clinical trial is approved and
conducted under the auspices of an institutional review board
(“IRB”) and requires the patients’ informed
consent. An IRB considers, among other things, ethical factors, the
safety of human subjects, and the possibility of liability of the
institutions conducting the trial. The IRB at each institution at
which a clinical trial is being performed may suspend a clinical
trial at any time for a variety of reasons, including a belief that
the test subjects are being exposed to an unacceptable health risk.
As the sponsor, we can also suspend or terminate a clinical trial
at any time.
Clinical
development is typically conducted in three sequential phases,
Phases 1, 2, and 3, involving clinical trials with increasing
numbers of human subjects. These phases may sometimes overlap or be
combined. Phase 1 trials are performed in a small number of healthy
human subjects or subjects with the targeted condition, and involve
testing for safety, dosage tolerance, absorption, distribution,
metabolism and excretion. Phase 2 studies, which may involve up to
hundreds of subjects, seek to identify possible adverse effects and
safety risks, preliminary information related to the efficacy of
the product for specific targeted diseases, dosage tolerance, and
optimal dosage. Finally, Phase 3 trials may involve up to thousands
of individuals, often at geographically dispersed clinical trial
sites, and are intended to provide the data demonstrating the
effectiveness and safety required for approval. Prior to commencing
Phase 3 clinical trials many sponsors elect to meet with FDA
officials to discuss the conduct and design of the proposed trial
or trials.
In
addition, federal law requires the listing, on a publicly available
website, of detailed information on clinical trials for
investigational drugs. Some states have similar or supplemental
clinical trial reporting laws.
Success
in early-stage animal studies and clinical trials does not
necessarily assure success in later-stage clinical trials. Data
obtained from animal studies and clinical activities are not always
conclusive and may be subject to alternative interpretations that
could delay, limit or even prevent regulatory
approval.
All
data obtained from the preclinical studies and clinical trials, in
addition to detailed information on the manufacture and composition
of the product, would be submitted in an NDA to the FDA for review
and approval for the manufacture, marketing and commercial
shipments of any of our products. FDA approval of the NDA is
required before commercial marketing or non-investigational
interstate shipment may begin in the United States. The FDA may
also conduct an audit of the clinical trial data used to support
the NDA.
The FDA
may deny or delay approval of an NDA that does not meet applicable
regulatory criteria. For example, the FDA may determine that the
preclinical or clinical data or the manufacturing information does
not adequately establish the safety and efficacy of the drug. The
FDA has substantial discretion in the approval process and may
disagree with an applicant’s interpretation of the data
submitted in its NDA. The FDA can request additional information,
seek clarification regarding information already provided in the
submission or ask that new additional clinical trials be conducted,
all of which can delay approval. Similar types of regulatory
processes will be encountered as efforts are made to market any
drug internationally. We will be required to assure product
performance and manufacturing processes from one country to
another.
Even if
the FDA approves a product, it may limit the approved uses for the
product as described in the product labeling, require that
contraindications, warning statements or precautions be included in
the product labeling, require that additional studies be conducted
following approval as a condition of the approval, impose
restrictions and conditions on product distribution, prescribing or
dispensing in the form of a REMS, or otherwise limit the scope of
any approval or limit labeling. Once it approves an NDA, the FDA
may revoke or suspend the product approval if compliance with
postmarketing regulatory commitments is not maintained or if
problems occur after the product reaches the marketplace. In
addition, the FDA may require postmarketing studies to monitor the
effect of approved products and may limit further marketing of the
product based on the results of these postmarketing studies. The
FDA and other government agencies have broad postmarket regulatory
and enforcement powers, including the ability to levy civil and
criminal penalties, suspend or delay issuance of approvals, seize
or recall products and revoke approvals.
Pharmaceutical
manufacturers, distributors and their subcontractors are required
to register their facilities with the FDA and state agencies.
Manufacturers are required to list their marketed drugs with the
FDA, are subject to periodic inspection by the FDA’s current
GMP regulations, and the product specifications set forth in the
approved NDA. The GMP requirements for pharmaceutical products are
extensive and compliance with them requires considerable time,
resources and ongoing investment. The regulations require
manufacturers and suppliers of raw materials and components to
establish validated systems and to employ and train qualified
employees to ensure that products meet high standards of safety,
efficacy, stability, sterility (where applicable), purity, and
potency. The requirements apply to all stages of the manufacturing
process, including the synthesis, processing, sterilization,
packaging, labeling, storage and shipment of the drug product. For
all drug products, the regulations require investigation and
correction of any deviations from GMP requirements and impose
documentation requirements upon us and any third-party
manufacturers that we may decide to use. Manufacturing
establishments are subject to mandatory user fees, and to periodic
unannounced inspections by the FDA and state agencies for
compliance with all GMP requirements. The FDA is authorized to
inspect manufacturing facilities without a warrant at reasonable
times and in a reasonable manner.
We or
our present or future suppliers may not be able to comply with GMP
and other FDA regulatory requirements. Failure to comply with the
statutory and regulatory requirements subjects the manufacturer
and/or the NDA sponsor or distributor to possible legal or
regulatory action, such as a delay or refusal to approve an NDA,
suspension of manufacturing, seizure or recall of a product, or
civil or criminal prosecution of the company or individual officers
or employees.
Postmarketing Regulation
Vyleesi
and any other drug products manufactured or distributed by us
pursuant to FDA approvals, as well as the materials and components
used in our products, are subject to pervasive and continuing
regulation by the FDA, including:
●
recordkeeping
requirements;
●
periodic reporting
requirements;
●
GMP requirements
related to all stages of manufacturing, testing, storage,
packaging, labeling and distribution of finished dosage forms of
the product;
●
monitoring and
reporting of adverse experiences with the product; and
●
advertising and
promotional reporting requirements and restrictions.
Adverse
experiences with the product must be reported to the FDA and could
result in the imposition of market restriction through labeling
changes or product removal. Product approvals may be revoked if
compliance with regulatory requirements is not maintained or if
problems concerning safety or effectiveness of the product occur
following approval. The FDA is developing a national electronic
drug safety tracking system known as SENTINEL that may impose
additional safety monitoring burdens, and enhanced FDA enforcement
authority, beyond the extensive requirements already in effect. As
a condition of NDA approval, the FDA may require post-approval
testing and surveillance to monitor a product’s safety or
efficacy. The FDA also may impose other conditions, including
labeling restrictions which can materially impact the potential
market and profitability of a product.
With
respect to post-market product advertising and promotion, the FDA
and other government agencies including the Department of Health
and Human Services and the Department of Justice, and individual
States, impose a number of complex regulations on entities that
advertise and promote pharmaceuticals, including, among others,
standards and restrictions on direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational
activities and promotional activities involving the Internet. The
FDA has very broad enforcement authority under the FFDCA, and
failure to abide by these regulations can result in administrative
and judicial enforcement actions, including the issuance of a
Warning Letter directing correction of deviations from FDA
standards, a requirement that future advertising and promotional
materials be pre-cleared by the FDA, False Claims Act prosecution
based on alleged off-label marketing seeking monetary and other
penalties, including potential exclusion of the drug and/or the
company from participation in government health care programs, and
state and federal civil and criminal investigations and
prosecutions. Foreign regulatory bodies also strictly enforce these
and other regulatory requirements and drug marketing may be
prohibited in whole or in part in other countries.
We, our
collaborators, licensees or third-party contract manufacturers may
not be able to comply with the applicable regulations. After
regulatory approvals are obtained, the subsequent discovery of
previously unknown problems, or the failure to maintain compliance
with existing or new regulatory requirements, may result
in:
●
restrictions on the
marketing or manufacturing of a product;
●
Warning Letters or
Untitled Letters from the FDA asking us, our collaborators or
third-party contractors to take or refrain from taking certain
actions;
●
withdrawal of the
product from the market;
●
the FDA’s
refusal to approve pending applications or supplements to approved
applications;
●
voluntary or
mandatory product recall;
●
fines or
disgorgement of profits or revenue;
●
suspension or
withdrawal of regulatory approvals;
●
refusals to permit
the import or export of products;
●
injunctions or the
imposition of civil or criminal penalties.
We may
also be subject to healthcare laws, regulations and enforcement and
our failure to comply with any such laws, regulations or
enforcement could adversely affect our business, operations and
financial condition. Certain federal and state healthcare laws and
regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. We are subject
to regulation by both the federal government and the states in
which we or our partners conduct our business. The laws and
regulations that may affect our ability to operate
include:
●
the federal
Anti-Kickback Statute, which prohibits, among other things, any
person or entity from knowingly and willfully offering, soliciting,
receiving or providing any remuneration (including any kickback,
bribe or rebate), directly or indirectly, overtly or covertly, in
cash or in kind, to induce either the referral of an individual or
in return for the purchase, lease, or order of any good, facility
item or service, for which payment may be made, in whole or in
part, under federal healthcare programs such as the Medicare and
Medicaid programs;
●
federal civil and
criminal false claims laws and civil monetary penalty laws,
including, for example, the federal civil False Claims Act, which
impose criminal and civil penalties, including civil whistleblower
or qui tam actions, against individuals or entities for, among
other things, knowingly presenting, or causing to be presented, to
the federal government, including the Medicare and Medicaid
programs, claims for payment that are false or fraudulent or making
a false statement to avoid, decrease or conceal an obligation to
pay money to the federal government;
●
the federal Health
Insurance Portability and Accountability Act of 1996
(“HIPAA”), which created new federal criminal statutes
that prohibit knowingly and willfully executing, or attempting to
execute, a scheme to defraud any healthcare benefit program or
obtain, by means of false or fraudulent pretenses, representations
or promises, any of the money or property owned by, or under the
custody or control of, any healthcare benefit program, regardless
of the payer (e.g., public or private), knowingly and willfully
embezzling or stealing from a health care benefit program,
willfully obstructing a criminal investigation of a health care
offense and knowingly and willfully falsifying, concealing or
covering up by any trick or device a material fact or making any
materially false statements in connection with the delivery of, or
payment for, healthcare benefits, items or services relating to
healthcare matters;
●
HIPAA, as amended
by the Health Information Technology for Economic and Clinical
Health Act, and their implementing regulations, which impose
obligations on covered entities, including healthcare providers,
health plans, and healthcare clearinghouses, as well as their
respective business associates that create, receive, maintain or
transmit individually identifiable health information for or on
behalf of a covered entity, with respect to safeguarding the
privacy, security and transmission of individually identifiable
health information;
●
the federal
physician sunshine requirements under the Patient Protection and
Affordable Care Act (“Affordable Care Act”), which
require manufacturers of drugs, devices, biologics and medical
supplies to report annually to the Centers for Medicare &
Medicaid Services information related to payments and other
transfers of value provided to physicians and teaching hospitals,
and ownership and investment interests held by physicians and their
immediate family members; and
●
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 payer, including commercial
insurers; state laws that require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary
compliance guidelines and the applicable compliance guidance
promulgated by the federal government, or otherwise restrict
payments that may be provided to healthcare providers and other
potential referral sources; state laws that require drug
manufacturers to report information related to payments and other
transfers of value to healthcare providers or marketing
expenditures; 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 may not have the same
effect, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory
exceptions and safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or
more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the
Affordable Care Act, among other things, amended the intent
requirement of the federal Anti-Kickback Statute and certain
criminal healthcare fraud statutes. A person or entity no longer
needs to have actual knowledge of the statute or specific intent to
violate it. In addition, the Affordable Care Act provided that 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
civil False Claims Act.
Achieving
and sustaining compliance with these laws may prove costly. In
addition, any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur
significant legal expenses and divert our management’s
attention from the operation of our business. If our operations are
found to be in violation of any of the laws described above or any
other governmental laws or regulations that apply to us, we may be
subject to penalties, including administrative, civil and criminal
penalties, damages, fines, disgorgement, the exclusion from
participation in federal and state healthcare programs, individual
imprisonment or the curtailment or restructuring of our operations,
any of which could adversely affect our ability to operate our
business and our financial results.
Generic Competition
Orange Book Listing. In seeking approval for a drug through
an NDA, applicants are required to list with the FDA each patent
whose claims cover the applicant’s product. Upon approval of
a drug, the applicant identifies all patents that claim the
approved product’s active ingredient(s), the drug
product’s approved formulation, or an approved method of use
of the drug. Each of the identified patents are then published in
the FDA’s Approved Drug Products with Therapeutic Equivalence
Evaluations, commonly known as the Orange Book. Drugs listed in the
Orange Book can, in turn, be cited by potential generic competitors
in support of approval of an abbreviated new drug application
(“ANDA”). An ANDA provides for marketing of a drug
product that has the same active ingredients in the same strengths
and dosage form as the listed drug and has been shown through
bioequivalence testing, unless such testing is waived by the FDA,
as is the case with some injectable drug products, to be
therapeutically equivalent to the listed drug. Other than
bioequivalence testing, ANDA applicants are not required to
conduct, or submit results of, preclinical or clinical tests to
prove the safety or effectiveness of their drug product. Drugs
approved in this way are commonly referred to as “generic
equivalents” to the listed drug, and can usually be
substituted by pharmacists under prescriptions written for the
original listed drug.
The
ANDA applicant is required to certify to the FDA concerning any
patents listed for the approved product in the FDA’s Orange
Book. Specifically, the applicant must certify either that: (1) the
required patent information has not been filed (a Paragraph I
Certification); (2) the listed patent has expired (a Paragraph II
Certification); (3) the listed patent has not expired, but will
expire on a particular date and the generic approval is being
sought only after patent expiration (a Paragraph III
Certification); or (4) the listed patent is invalid, unenforceable,
or will not be infringed by the proposed generic product (a
Paragraph IV Certification). In certain circumstances, the ANDA
applicant may also elect to submit a “section (viii)”
statement instead of a Paragraph IV Certification, certifying that
its proposed ANDA label does not contain (or carves out) any
language regarding the patented method-of-use rather than certify
to a listed method-of-use patent. If the application contains only
Paragraph I or Paragraph II Certifications, the ANDA may be
approved as soon as FDA completes its review and concludes that all
approval requirements have been met. If the ANDA contains one or
more Paragraph III Certifications, the ANDA cannot not be approved
until each listed patent for which a Paragraph III Certification
was filed have expired.
If the
ANDA 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 once the ANDA has
been accepted for filing by the FDA. The patent owner or NDA holder
may then commence a patent infringement lawsuit in response to the
notice of the Paragraph IV certification. The filing of a patent
infringement lawsuit within 45 days of the receipt of a Paragraph
IV certification automatically prevents the FDA from approving the
ANDA until the earlier of 30 months (the “30-month
stay”), expiration of the patent, settlement of the lawsuit
in which the patent owner admits that the patent is invalid or not
infringed by the ANDA product, or a decision in the infringement
case that holds the patent to be invalid or not infringed, or an
order by the court shortening the 30-month stay due to actions by
the patent holder to delay the litigation. In most circumstances,
the NDA holder is only eligible for one 30-month stay against an
ANDA.
If a
patent infringement action is filed against an ANDA applicant, any
settlement of the litigation must be submitted to the Federal Trade
Commission (“FTC”). If the FTC believes the terms or
effects of the settlement are anticompetitive, the FTC may bring an
antitrust enforcement action against the parties. Private parties
may also bring antitrust lawsuits against drug companies based on
such patent litigation settlements.
The
ANDA also will not be approved until any applicable non-patent
regulatory exclusivity listed in the Orange Book for the referenced
product has expired.
Regulatory Exclusivity. Upon NDA approval of a new chemical
entity (“NCE”), which is a drug that contains no active
moiety that has been approved by the FDA in any other NDA, that
drug receives five years of marketing exclusivity during which the
FDA cannot receive for review any ANDA seeking approval of a
generic version of that drug. An ANDA containing a Paragraph IV
Certification may be received by the FDA 4 years after the NCE
drug’s approval, but any 30-month stay that ensues would be
extended so that it expires seven and one half years after the NCE
approval date, subject to early termination by reason of a court
decision or settlement as described above.
Certain
changes to an NDA drug, such as the addition of a new indication to
the package insert, for which new clinical trials, conducted or
sponsored by the applicant are deemed by the FDA to be essential to
the approval of the change, can be eligible for a three-year period
of exclusivity during which the FDA cannot approve an ANDA for a
generic drug that includes the change. An ANDA that contains a
section (viii) statement to a method of use patent may be approved
with labeling that omits the patented use before the use patent
expires. Generic drugs approved with such a labeling carve out may
be substituted by pharmacists for the original branded drug before
the method of use patent expires.
Section 505(b)(2) NDAs. Most drug products obtain FDA
marketing approval pursuant to an NDA or an ANDA. A third
alternative is a special type of NDA, commonly referred to as a
505(b)(2) NDA, which enables the applicant to rely, in part, on the
FDA’s previous approval of a similar product, or published
literature, in support of its application.
505(b)(2)
NDAs often provide an alternate path to FDA approval for new or
improved formulations or new uses of previously approved products.
A 505(b)(2) NDA may be used 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. If the 505(b)(2) applicant can establish that
reliance on the FDA’s previous approval is scientifically
appropriate, it may eliminate the need to conduct certain
preclinical or clinical studies of the new product. The FDA may
also require companies to perform additional studies or
measurements to support the change from the approved product. The
FDA may then approve the new product candidate for all, or some, of
the label indications for which the referenced product has been
approved, as well as for any new indication or conditions of use
sought by the Section 505(b)(2) applicant.
To the
extent that the Section 505(b)(2) applicant is relying on studies
conducted for an already approved product, the applicant is
required to certify to the FDA concerning any patents listed for
the approved product in the Orange Book to the same extent that an
ANDA applicant would. As a result, approval of a 505(b)(2) NDA can
be stalled until all the listed patents claiming the referenced
product have expired, until any non-patent exclusivity, such as
exclusivity for obtaining approval of a new chemical entity, listed
in the Orange Book for the referenced product has expired, and, in
the case of a Paragraph IV certification and subsequent patent
infringement suit, until the expiration of any 30-month stay,
subject to early termination of the stay as described
above.
Changing Legal and Regulatory Landscape
Periodically,
legislation is introduced in the U.S. Congress that could change
the statutory and regulatory provisions governing the approval,
manufacturing and marketing of our drugs. In addition, the FFDCA,
FDA regulations and guidance are often revised or reinterpreted by
the FDA or the courts in ways that may significantly affect our
business and products. We cannot predict whether or when
legislation or court decisions impacting our business will be
enacted or issued, what FDA regulations, guidance or
interpretations may change, or what the impact of such changes, if
any, may be in the future.
Third-Party Reimbursements
Successful
sales of our proposed products in the United States and other
countries depend, in large part, on the availability of adequate
reimbursement from third-party payers such as governmental
entities, managed care organizations, health maintenance
organizations (“HMOs”), and private insurance plans.
Reimbursement by a third-party payer depends on a number of
factors, including the payer’s determination that the product
has been approved by the FDA for the indication for which the claim
is being made, that it is neither experimental nor investigational,
and that the use of the product is safe and efficacious, medically
necessary, appropriate for the specific patient and cost
effective.
Since
reimbursement by one payer does not guarantee reimbursement by
another, we or our licensees may be required to seek approval from
each payer individually. Seeking such approvals is a time-consuming
and costly process. Third-party payers routinely limit the products
that they will cover and the amount of money that they will pay
and, in many instances, are exerting significant pressure on
medical suppliers to lower their prices.
Payers
frequently employ a tiered system in reimbursing end users for
pharmaceutical products, with tier designation affecting copay or
deductible amounts. Vyleesi is classified as a Tier 3 drug by
insurers covering Vyleesi. Thus, reimbursement is limited for
Vyleesi for treatment of premenopausal women with HSDD.
Flibanserin, sold under the trade name Addyi, is similarly
classified as a Tier 3 drug. Less than full reimbursement by
third-party payers may adversely affect the market acceptance of
Vyleesi. Further, healthcare reimbursement systems vary from
country to country, and third-party reimbursement might not be made
available for Vyleesi for HSDD under other reimbursement
systems.
Manufacturing and Marketing
To be
successful, our proposed products will need to be manufactured in
commercial quantities under GMP prescribed by the FDA and at
acceptable costs. We do not have the facilities to manufacture any
of our proposed products under GMP. We intend to rely on
collaborators, licensees, or contract manufacturers for the
commercial manufacture of our proposed products.
Vyleesi
is manufactured using contract manufacturing companies. Pursuant to
the termination of the license agreement with AMAG, we have assumed
contracts relating to manufacturing, and intend to manufacture
Vyleesi for sales in the United States and to our licensees
throughout the world.
Our
PL3994 product candidate is a peptide mimetic molecule,
incorporating a proprietary amino acid mimetic structure and amino
acids. We have had a contract manufacturer make the active
pharmaceutical ingredient in quantities sufficient for Phase 1 and
Phase 2.
Our
MC1r and MCr agonist product candidates are synthetic peptides. We
have had a contract manufacturer make both the PL8177 and PL9643
peptides in suitable scale for toxicity studies and under GMP for
clinical trial use. The PL8177 drug product for uveitis has been
manufactured for clinical trial use, and manufacturing process
development is ongoing for an oral formulation of PL8177
preparatory to manufacturing oral PL8177 drug product for clinical
trial use. While the production process for making peptide active
pharmaceutical ingredient involves well-established technology,
there are a limited number of manufacturers capable of scaling up
to commercial quantities under GMP at acceptable costs.
Additionally, scaling up to commercial quantities may involve
production, purification, formulation and other problems not
present in the scale of manufacturing done to date. Manufacturing
drug product, such as the oral formulation of PL8177, similarly may
involve production, formulation and other problems not present in
manufacturing at laboratory scale.
The
failure of any manufacturer or supplier to comply with FDA
regulations, including GMP or medical device quality systems
regulations (“QSR”), or to supply the device component
or drug substance and services as agreed, would force us or our
licensees to seek alternative sources of supply and could interfere
with our and our licensees’ ability to deliver product on a
timely and cost-effective basis or at all. Establishing
relationships with new manufacturers or suppliers, any of whom must
be FDA-approved, is a time-consuming and costly
process.
Product Liability and Insurance
Our
business may be affected by potential product liability risks that
are inherent in the testing, manufacturing, marketing and use of
our proposed products. We have liability insurance providing $10
million coverage in the aggregate as to certain product liability
and commercialization risks and certain clinical trial
risks.
Employees
As of
September 24, 2021 we employed 26 people full time, of whom 17 are
engaged in research and development activities and nine are engaged
in administration and management, and did not have any part-time
employees. While we have been successful in attracting skilled and
experienced scientific personnel, competition for personnel in our
industry is intense. None of our employees are covered by a
collective bargaining agreement. All of our employees have executed
confidentiality and intellectual property agreements. We consider
relations with our employees to be good.
We rely
on contractors and scientific consultants to work on specific
research and development programs. We rely on consultants and
contractors to provide services for marketing and distribution of
Vyleesi. We also rely on independent organizations, advisors, and
consultants to provide services, including aspects of
manufacturing, testing, preclinical evaluation, clinical
management, regulatory strategy, and market research. Our
independent advisors, contractors and consultants sign agreements
that provide for confidentiality of our proprietary information and
that we have the rights to any intellectual property developed
while working for us.
Corporate Information
We were
incorporated under the laws of the State of Delaware on November
21, 1986 and commenced operations in the biopharmaceutical area in
1996. Our corporate offices are located at 4B Cedar Brook Drive,
Cranbury, New Jersey 08512 and our telephone number is (609)
495-2200. We maintain an Internet site at www.palatin.com, where among other
things, we make available free of charge on and through this
website our Forms 3, 4 and 5, annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) and Section 16 of the Exchange Act as soon as
reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Our website and the information
contained in it or connected to it are not incorporated into this
Annual Report. The reference to our website is an inactive textual
reference only.
The SEC
maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC (www.sec.gov).
Risks Related to Our Financial Results and Need for
Financing
We have a history of substantial net losses, including a net loss
of $33.6 million for the year ended June 30, 2021, and expect to
incur substantial net losses over the next few years, and we may
never achieve or maintain profitability.
As of
June 30, 2021, we had an accumulated deficit of $351.8 million. We
had $33.6 million in net loss for the year ended June 30, 2021,
compared to $22.4 million in net loss for the year ended June 30,
2020. We may not sustain profitability in future years, depending
on numerous factors, including profitability of Vyleesi, whether
and when development and sales milestones are met, whether and when
we enter into license agreements for any of our products under
development, regulatory actions by the FDA and other regulatory
bodies, the performance of our licensees, and market acceptance of
our products.
We
expect to incur significant expenses as we continue our development
of MC1r, MCr and natriuretic peptide receptor products. These
expenses, among other things, have had and will continue to have an
adverse effect on our stockholders’ equity, total assets and
working capital.
Until
we commenced selling Vyleesi in July 2020 upon termination of our
license agreement with AMAG, since 2005 we have not had any
products available for commercial sale and have not received any
revenues from the sale of our product candidates. Because our
marketing program for Vyleesi is relatively new, and because of the
impact of COVID-19 on marketing outreach, we cannot accurately
forecast sales of Vyleesi. However, we had negative sales after
product allowances for the year ended June 30, 2021, and may have
sales and marketing expenditures in excess of product sales in
future years. For the foreseeable future, we will have to fund our
operations and capital expenditures from license, royalty and
contract revenue under license agreements, existing cash balances
and outside sources of financing, which may not be available on
acceptable terms, if at all. We will not have product revenue from
our products in development unless and until we receive approval
from the FDA or other equivalent regulatory authorities outside the
United States, and to date the only approved product is Vyleesi in
the United States. We have devoted substantially all of our efforts
to research and development, including preclinical and clinical
trials. Because of the numerous risks associated with developing
drugs, we are unable to predict the extent of future losses,
whether or when any of our product candidates will become
commercially available, or when we will become profitable, if at
all.
We will need additional funding, including funding to complete
clinical trials for our product candidates other than Vyleesi,
which may not be available on acceptable terms, if at
all.
We
intend to focus future efforts on our MC1r product candidates,
primarily for ocular indications, and secondarily on our
natriuretic peptide product candidates. As of June 30, 2021, we had
cash and cash equivalents of $60.1 million, with current
liabilities of $10.5 million. We believe we have sufficient
existing capital resources to fund our planned operations through
at least September 2022. We will need additional funding to
complete development activities and required clinical trials for
our MC1r product candidates and, if those clinical trials are
successful (which we cannot predict), to complete submission of
required regulatory applications to the FDA.
We
cannot predict product sales for Vyleesi for HSDD in the United
States, so we may not have significant recurring revenue and may
need to depend on financing or partnering to sustain our
operations. We may raise additional funds through public or private
equity or debt financings, collaborative arrangements on our
product candidates, or other sources. However, such financing
arrangements may not be available on acceptable terms, or at all.
To obtain additional funding, we may need to enter into
arrangements that require us to develop only certain of our product
candidates or relinquish rights to certain technologies, product
candidates and/or potential markets.
If we
are unable to raise sufficient additional funds when needed, we may
be required to curtail operations significantly, cease clinical
trials and decrease staffing levels. We may seek to license, sell
or otherwise dispose of our product candidates, technologies and
contractual rights on the best possible terms available. Even if we
are able to license, sell or otherwise dispose of our product
candidates, technologies and contractual rights, it is likely to be
on unfavorable terms and for less value than if we had the
financial resources to develop or otherwise advance our product
candidates, technologies and contractual rights
ourselves.
Our
future capital requirements depend on many factors,
including:
●
our ability to
develop and maintain manufacturing, marketing and distribution
capability for sales of Vyleesi in the United States, including our
ability to enter into agreements with one or more third parties to
conduct activities relating to the commercialization of
Vyleesi;
●
our ability to
enter into one or more licensing or similar agreements for Vyleesi
outside of Korea and China;
●
the timing of
obtaining regulatory approvals for Vyleesi for HSDD in markets
outside the United States;
●
the expense and
timing of obtaining regulatory approvals for our other product
candidates;
●
the number and
characteristics of any additional product candidates we develop or
acquire;
●
the scope,
progress, results and costs of researching and developing our
future product candidates, and conducting preclinical and clinical
trials;
●
the cost of
commercialization activities if any future product candidates are
approved for sale, including marketing, sales and distribution
costs;
●
the cost of
manufacturing any future product candidates and any products we
successfully commercialize;
●
our ability to
establish and maintain strategic collaborations, licensing or other
arrangements and the terms and timing of such
arrangements;
●
the degree and rate
of market acceptance of any future approved products;
●
the emergence,
approval, availability, perceived advantages, relative cost,
relative safety and relative efficacy of alternative and competing
products or treatments;
●
any product
liability or other lawsuits related to our products;
●
the expenses needed
to attract and retain skilled personnel;
●
the costs involved
in preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, including litigation costs and the outcome
of such litigation; and
●
the timing, receipt
and amount of sales of, or royalties on, future approved products,
if any.
We have a limited operating history upon which to base an
investment decision.
Our
operations are primarily focused on acquiring, developing and
securing our proprietary technology, conducting preclinical and
clinical studies and formulating and manufacturing, through
contract manufacturers, our principal product candidates on a
small-scale basis. These operations provide a limited basis for
stockholders to assess our ability to commercialize our product
candidates.
While
we completed Phase 3 clinical trials on Vyleesi for HSDD in
premenopausal women, together with AMAG filed an NDA on Vyleesi for
HSDD with the FDA, and received approval on Vyleesi from the FDA,
we have not yet demonstrated our ability to perform the functions
necessary for the successful commercialization of any of our
current product candidates. The successful commercialization of our
product candidates will require us to perform a variety of
functions, including:
●
continuing to
conduct preclinical development and clinical trials;
●
participating in
regulatory approval processes;
●
formulating and
manufacturing products, or having third parties formulate and
manufacture products;
●
post-approval
monitoring and surveillance of our products;
●
conducting sales
and marketing activities, either alone or with a partner;
and
●
obtaining
additional capital.
If we
are unable to obtain regulatory approval of any of our product
candidates, to successfully commercialize any products for which we
receive regulatory approval or to obtain additional capital, we may
not be able to recover our investment in our development
efforts.
The
clinical and commercial success of our product candidates will
depend on a number of factors, including the
following:
●
the ability to
raise additional capital on acceptable terms, or at
all;
●
timely completion
of our clinical trials, which may be significantly slower or cost
more than we currently anticipate and will depend substantially
upon the performance of third-party contractors;
●
whether we are
required by the FDA or similar foreign regulatory agencies to
conduct additional clinical trials beyond those planned to support
the approval and commercialization of our product candidates or any
future product candidates;
●
acceptance of our
proposed indications and primary endpoint assessments relating to
the proposed indications of our product candidates by the FDA and
similar foreign regulatory authorities;
●
our ability to
demonstrate to the satisfaction of the FDA and similar foreign
regulatory authorities, the safety and efficacy of our product
candidates or any future product candidates;
●
the prevalence,
duration and severity of potential side effects experienced with
our product candidates or future approved products, if
any;
●
the timely receipt
of necessary marketing approvals from the FDA and similar foreign
regulatory authorities;
●
achieving and
maintaining, and, where applicable, ensuring that our third-party
contractors achieve and maintain, compliance with our contractual
obligations and with all regulatory requirements applicable to our
product candidates or any future product candidates or approved
products, if any;
●
the ability of
third parties with whom we contract to manufacture clinical trial
and commercial supplies of our product candidates or any future
product candidates, remain in good standing with regulatory
agencies and develop, validate and maintain commercially viable
manufacturing processes that are compliant with the FDA’s
current GMP regulations;
●
a continued
acceptable safety profile and efficacy during clinical development
and following approval of our product candidates or any future
product candidates;
●
our ability to
successfully commercialize our product candidates or any future
product candidates in the United States and internationally, if
approved for marketing, sale and distribution in such countries and
territories, whether alone or in collaboration with
others;
●
acceptance by
physicians and patients of the benefits, safety and efficacy of our
product candidates or any future product candidates, if approved,
including relative to alternative and competing
treatments;
●
our and our
partners’ ability to establish and enforce intellectual
property rights in and to our product candidates or any future
product candidates;
●
our and our
partners’ ability to avoid third-party patent interference or
intellectual property infringement claims; and
●
our ability to
develop, in-license or acquire additional product candidates or
commercial-stage products that we believe can be successfully
developed and commercialized.
If we
do not achieve one or more of these factors, many of which are
beyond our control, in a timely manner or at all, we could
experience significant delays or an inability to obtain regulatory
approvals or commercialize our product candidates. Even if
regulatory approvals are obtained, we may never be able to
successfully commercialize any of our product candidates.
Accordingly, we cannot assure you that we will be able to generate
sufficient revenue through the sale of our product candidates or
any future product candidates to continue our
business.
We have limited authorized shares available to raise additional
capital through public or private equity offerings, which limits
our ability to raise additional capital.
We are
currently authorized to issue up to 300,000,000 shares of common
stock, and approximately 90% of our authorized common stock is now
issued, reserved for issuance on conversion of Series A preferred
stock, or reserved for issuance under existing warrants, options,
restricted stock units and stock incentive plans. The amount of
common stock that is not issued or reserved for issuance is
insufficient for future financings that will be required to
continue product development and is insufficient for certain
actions designed to increase value to stockholders, including,
without limitation, strategic acquisitions or granting equity
incentives to key employees or contractors. We may be required to
raise required additional fund through alternative means which may
ultimately be detrimental to existing stockholders, which may
include:
●
issuance of
preferred stock which would have rights and preferences superior to
common stock, which may be more dilutive than issuing common
stock;
●
entering into
license or similar agreements relating to one or more of our
products, which may require us to relinquish valuable rights to our
technologies or product candidates, or grant licenses on terms that
are not favorable to us, and ultimately raise less money than
through the issuance of common stock; and
●
entering into debt
facilities and/or product-specific financing agreements with
financial or investment institutions, which may significantly
reduce prospective upfront license or similar payments and revenues
or royalties on the sale of our products.
Raising additional capital may cause dilution to existing
shareholders, restrict our operations, or require us to relinquish
rights.
We may
seek the additional capital necessary to fund our operations
through public or private equity offerings, collaboration
agreements, debt financings or licensing arrangements. To the
extent that we raise additional capital through the sale of equity
or convertible debt securities, existing shareholders’
ownership interests will be diluted, and the terms may include
liquidation or other preferences that adversely affect their rights
as a shareholder. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our
ability to take specific actions such as incurring additional debt,
making capital expenditures, or declaring dividends. If we raise
additional funds through collaborations and licensing arrangements
with third parties, we may have to relinquish valuable rights to
our technologies or product candidates or grant licenses on terms
that are not favorable to us.
Risks Related to Our Business, Strategy, and Industry
The commercial success of Vyleesi for HSDD is a component of our
corporate strategy, but we and our licensees may never successfully
commercialize Vyleesi for HSDD or obtain approvals in countries
other than the United States.
We
invested most of our efforts and financial resources in the
research and development of Vyleesi for HSDD until it was approved
by the FDA in June 2019. Since July 24, 2020, the effective date of
the termination of our license agreement with AMAG for Vyleesi, we
have been responsible for manufacturing, marketing, and
distribution of Vyleesi in the United States. We licensed all
rights to commercialize Vyleesi in China to Fosun and in Korea to
Kwangdong. We have not yet received regulatory approval to
commercialize Vyleesi in China or Korea, and regulatory approval in
these countries cannot be assured.
Our
near-term prospects, including our ability to finance our company
and generate revenue, will be impacted by the successful
commercialization of Vyleesi for HSDD, as well as preclinical and
clinical results with our future product candidates. The clinical
and commercial success of Vyleesi and our product candidates will
depend on a number of factors, including the
following:
●
timely completion
of, or need to conduct additional clinical trials and studies, for
our product candidates, which may be significantly slower or cost
more than we currently anticipate and will depend substantially
upon the accurate and satisfactory performance of third-party
contractors;
●
the ability to
demonstrate to the satisfaction of the FDA the safety and efficacy
of future product candidates through clinical trials;
●
whether we or our
licensees are required by the FDA or other similar foreign
regulatory agencies to conduct additional clinical trials to
support the approval of Vyleesi and future product
candidates;
●
our ability to
successfully manufacture Vyleesi for worldwide
markets;
●
our success and the
success of our licensees in educating physicians and patients about
the benefits, administration and use of Vyleesi for
HSDD;
●
the prevalence and
severity of adverse events experienced with Vyleesi for HSDD or any
future product candidates or approved products;
●
the adequacy and
regulatory compliance of the autoinjector device, supplied by an
unaffiliated third party, used as part of the Vyleesi combination
product;
●
the timely receipt
of necessary marketing approvals from the FDA and similar foreign
regulatory authorities;
●
whether our
stockholders agree, in a future meeting, to increase our authorized
shares of common stock to permit us to implement future financings
to ensure the advancement of our development programs and for
possible acquisitions of other product assets or
companies;
●
our ability to
raise additional capital on acceptable terms to achieve our
goals;
●
achieving and
maintaining compliance with all regulatory requirements applicable
to Vyleesi for HSDD or any future product candidates or approved
products;
●
the availability,
perceived advantages, relative cost, relative safety and relative
efficacy of alternative and competing treatments;
●
the effectiveness
of our own or our future potential strategic collaborators’
marketing, sales and distribution strategy and
operations;
●
the ability to
manufacture clinical trial supplies of any future product
candidates and to develop, validate and maintain a commercially
viable manufacturing process that is compliant with current
GMP;
●
our ability to
successfully commercialize Vyleesi for HSDD in the United
States;
●
our ability to
successfully commercialize any future product candidates, if
approved for marketing and sale, whether alone or in collaboration
with others;
●
our ability to
enforce our intellectual property rights in and to Vyleesi for HSDD
or any future product candidates;
●
our ability to
avoid third-party patent interference or intellectual property
infringement claims;
●
acceptance of
Vyleesi for HSDD or any future product candidates, if approved, as
safe and effective by patients and the medical community;
and
●
a continued
acceptable safety profile and efficacy of Vyleesi for HSDD or any
future product candidates following approval.
If we
fail to satisfy any one of these prerequisites to our commercial
success, many of which are beyond our control, in a timely manner
or at all, we could experience significant delays or an inability
to successfully commercialize our product candidates. Accordingly,
we cannot assure you that we will be able to generate sufficient
revenue through direct sales of Vyleesi for HSDD in the United
States and the license agreements with Fosun and Kwangdong, or
through the sale of any future product candidate, to continue our
business. In addition to preventing us from executing our current
business plan, any delays in our clinical trials, or inability to
successfully commercialize our products could impair our reputation
in the industry and the investment community and could hinder our
ability to fulfill our existing contractual commitments. As a
result, our share price would likely decline significantly, and we
would have difficulty raising necessary capital for future
projects.
Production and supply of Vyleesi depend on contract manufacturers
over whom we do not have any control, and there may not be adequate
supplies of Vyleesi.
We do
not have the facilities to manufacture the Vyleesi active drug
ingredient or the autoinjector pen component of the Vyleesi
combination product, or to fill, assemble and package the Vyleesi
combination product. We have contracts with third parties to make
the Vyleesi combination product. The contract manufacturers must
perform these manufacturing activities in a manner that complies
with FDA regulations. Our ability to control third-party compliance
with FDA requirements is limited to contractual remedies and rights
of inspection. The manufacturers of approved products and their
manufacturing facilities will be subject to ongoing review and
periodic inspections by the FDA and other authorities where
applicable, and must comply with regulatory requirements, including
FDA regulations concerning GMP. Failure of third-party
manufacturers to comply with GMP, medical device quality system
regulations, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay or negatively impact
our ability to market Vyleesi. Establishing relationships with new
suppliers, who must be FDA-approved, is a time-consuming and costly
process. If we are not able to obtain adequate supplies of Vyleesi,
it will be difficult for us to market and commercialize Vyleesi and
compete effectively.
The effect of COVID-19 and other possible pandemics and
outbreaks could result in material adverse effects on our clinical
trials, business, financial condition. and results of
operations.
We have
active and planned clinical trial sites in the United States and
planned clinical trial sites in Europe, and our licensees have
planned clinical trial sites in Asia-Pacific countries. As the
COVID-19 pandemic continues around the globe, we will likely
experience disruptions that could severely impact our planned
clinical trials, including Phase 3 clinical trials with PL9643 in
the United States for dry eye disease, a Phase 2 clinical trial
with PL8177 for ulcerative colitis, a Phase 2 clinical trial with
PL3994, an NPR-A agonist, in heart failure patients in
collaboration with two major academic medical centers, and clinical
trials planned to be conducted in the People’s Republic of
China and the Republic of Korea by our licensees for Vyleesi, Fosun
and Kwangdong.
It is
possible that the COVID-19 pandemic may delay enrollment in our
clinical trials due to prioritization of medical and hospital
resources toward the outbreak, and some patients may be unwilling
to enroll in our trials or be unable to comply with clinical trial
protocols if quarantines impede patient movement or interrupt
healthcare services, which would delay our ability to conduct
clinical trials or release clinical trial results.
The
COVID-19 pandemic may also result in the inability of our suppliers
to deliver clinical drug supplies on a timely basis or at all. In
addition, medical centers and hospitals may reduce staffing and
reduce or postpone certain treatments in response to the spread of
an infectious disease. Such events may result in a period of
business disruption, and in reduced operations, or doctors and
medical providers may be unwilling to participate in our clinical
trials.
The
COVID-19 pandemic and measures to prevent the spread of COVID-19
subject us to various risks and uncertainties that could materially
adversely affect our clinical trials, business, financial
condition, and results of operation, including the
following:
●
our ability to
recruit subjects for clinical trials and studies for our product
candidates and to timely complete clinical trials and other
studies;
●
our ability to
successfully market Vyleesi, given significant limitations in
person-to-person marketing and contacts, including limitations in
educating physicians and other health care professionals about the
benefits, administration and use of Vyleesi for HSDD;
●
adverse impacts on
our ability to manufacture and distribute Vyleesi, including due to
the negative impact of COVID-19 on air travel, as well as temporary
disruptions, restrictions or closures of facilities of our
suppliers and contract manufacturers in the Vyleesi manufacturing
chain;
●
adverse impacts of
COVID-19 on our ability to successful manufacture product
candidates for clinical trials and to successfully manufacture
Vyleesi for the United States market and clinical trials elsewhere
in the world;
●
adverse impacts on
our operations resulting from remote working
arrangements;
●
limitations in
employee resources that would otherwise be focused on the conduct
of our clinical trials, including because of sickness of employees
or their families, delays or difficulties in conducting site visits
and other required travel, and the desire of employees to avoid
contact with large groups of people;
●
the inability of
global suppliers of raw materials or components used in the
manufacture of our products, or contract manufacturers of our
products, to supply and/or transport those raw materials,
components and products to us in a timely and cost effective manner
due to shutdowns, interruptions or delays, limiting and precluding
the production of our finished products, impacting our ability to
supply customers, reducing our sales, increasing our costs of goods
sold, and reducing our absorption of overhead;
●
the illiquidity or
insolvency of our suppliers, vendors and customers, or their
inability to pay our invoices in full or in a timely manner, due to
the reduction in their revenues caused by the cancellation or delay
of procedures and other factors, which could potentially reduce our
cash flow and our liquidity;
●
delays in our
ability, and the ability of our development partners, to conduct,
enroll and complete clinical development programs;
●
the instability to
worldwide economies, financial markets, social institutions, labor
markets and the healthcare systems as a result of the COVID-19
pandemic, which could result in an economic downturn that could
adversely impact our business, results of operations and financial
condition, as well as that of our investors, suppliers, customers
or other business partners;
●
changes in customer
behavior and preferences for Vyleesi, as customers may experience
financial difficulties or may delay or reduce their spending in
light of COVID-19; and
●
the continuation or
exacerbation of the COVID-19 pandemic after social distancing and
other similar measures have been relaxed.
Most of
our employees have transitioned to remote working arrangements, and
we have not determined how long these arrangements will last. While
remote working has not had a significant adverse impact on our
financial results or our operations to date, there can be no
assurance that these arrangements will not ultimately result in
lower work efficiency and productivity, which in turn may adversely
affect our business. Certain employees, such as laboratory
personnel, cannot work remotely, and COVID-19 may adversely affect
our ability to conduct research and preclinical studies, and
undertake other activities related to development of potential
products.
The
extent to which the global COVID-19 pandemic impacts our business
will depend on future developments, which are highly uncertain and
cannot be predicted, including new information that may emerge
concerning the severity of COVID-19 and the actions to contain or
treat its impact, among others. The COVID-19 pandemic has adversely
affected economies and financial markets worldwide, resulting in an
economic downturn that could impact our business, financial
condition, and results of operations, including our ability to
obtain additional funding, if needed.
Our product candidates other than Vyleesi, including PL9643 for dry
eye disease and PL8177 for the treatment of ulcerative colitis, are
still in the early stages of development and remain subject to
clinical testing and regulatory approval. If we are unable to
successfully develop and test our product candidates, we will not
be successful.
Our
product candidates, including PL9643 for dry eye disease and PL8177
for the treatment of ulcerative colitis, are at various stages of
research and development, will require regulatory approval, and may
never be successfully developed or commercialized. Our product
candidates will require significant further research, development
and testing before we can seek regulatory approval to market and
sell them. We must demonstrate that our product candidates are safe
and effective for use in patients in order to receive regulatory
approval for commercial sale. Preclinical studies in animals, using
various doses and formulations, must be performed before we can
begin human clinical trials. Even if we obtain favorable results in
the preclinical studies, the results in humans may be different.
Numerous small-scale human clinical trials may be necessary to
obtain initial data on a product candidate’s safety and
efficacy in humans before advancing to large scale human clinical
trials. We face the risk that the results of our trials in later
phases of clinical trials may be inconsistent with those obtained
in earlier phases. Adverse or inconclusive results could delay the
progress of our development programs and may prevent us from filing
for regulatory approval of our product candidates. Additional
factors that could inhibit the successful development of our
product candidates include:
●
lack of
effectiveness of any product candidate during clinical trials or
the failure of our product candidates to meet specified
endpoints;
●
failure to design
appropriate clinical trial protocols;
●
uncertainty
regarding proper dosing;
●
for injectable
products, inability to develop or obtain a supplier for a suitable
autoinjector device that meets the FDA’s medical device
requirements;
●
insufficient data
to support regulatory approval;
●
inability or
unwillingness of medical investigators to follow our clinical
protocols;
●
inability to add a
sufficient number of clinical trial sites; or
●
the availability of
sufficient capital to sustain operations and clinical
trials.
You
should evaluate us in light of these uncertainties, difficulties
and expenses commonly experienced by early stage biopharmaceutical
companies, as well as unanticipated problems and additional costs
relating to:
●
product approval or
clearance;
●
good manufacturing
practices;
●
intellectual
property rights;
●
product
introduction; and
●
marketing and
competition.
If clinical trials for our product candidates are prolonged or
delayed, we may be unable to commercialize our product candidates
on a timely basis, which would require us to incur additional costs
and delay our receipt of any revenue from potential product
sales.
We may
be unable to commercialize our product candidates on a timely basis
due to unexpected delays in our human clinical trials. Potential
delaying events include:
●
discovery of
serious or unexpected toxicities or side effects experienced by
study participants or other safety issues;
●
slower than
expected rates of subject recruitment and enrollment rates in
clinical trials resulting from numerous factors, including the
prevalence of other companies’ clinical trials for their
product candidates for the same indication, or clinical trials for
indications for which patients do not as commonly seek
treatment;
●
difficulty in
retaining subjects who have initiated a clinical trial but may
withdraw at any time due to adverse side effects from the therapy,
insufficient efficacy, fatigue with the clinical trial process or
for any other reason;
●
difficulty in
obtaining IRB approval for studies to be conducted at each
site;
●
delays in
manufacturing or obtaining, or inability to manufacture or obtain,
sufficient quantities of materials for use in clinical
trials;
●
inadequacy of or
changes in our manufacturing process or the product formulation or
method of delivery;
●
changes in
applicable laws, regulations and regulatory policies;
●
delays or failure
in reaching agreement on acceptable terms in clinical trial
contracts or protocols with prospective contract research
organizations (“CROs”), clinical trial sites and other
third-party contractors;
●
failure of our CROs
or other third-party contractors to comply with contractual and
regulatory requirements or to perform their services in a timely or
acceptable manner;
●
failure by us, our
employees, our CROs or their employees or any partner with which we
may collaborate or their employees to comply with applicable FDA or
other regulatory requirements relating to the conduct of clinical
trials or the handling, storage, security and recordkeeping for
drug, medical device and biologic products;
●
delays in the
scheduling and performance by the FDA of required inspections of
us, our CROs, our suppliers, or our clinical trial sites, and
violations of law or regulations discovered in the course of FDA
inspections;
●
scheduling
conflicts with participating clinicians and clinical institutions;
or
●
difficulty in
maintaining contact with subjects during or after treatment, which
may result in incomplete data.
Any of
these events or other delaying events, individually or in the
aggregate, could delay the commercialization of our product
candidates and have a material adverse effect on our business,
results of operations and financial condition.
We may not be able to secure and maintain relationships with
research institutions and other organizations to conduct our
clinical trials.
We rely
on research institutions and other organizations to conduct our
clinical trials, and we therefore have limited control over the
timing and cost of clinical trials and our ability to recruit
subjects. If we are unable to reach agreements with suitable
research institutions or organizations on acceptable terms, or if
any such agreement is terminated, we may be unable to quickly
replace the research institution or organization with another
qualified institution or organization on acceptable terms. We may
not be able to secure and maintain suitable research institutions
or organizations to conduct our clinical trials.
Even if our product candidates receive regulatory approval, they
may never achieve market acceptance, in which case our business,
financial condition and results of operation will be materially
adversely affected.
Regulatory
approval for the marketing and sale of any of our product
candidates does not assure the product’s commercial success.
Any approved product will compete with other products manufactured
and marketed by major pharmaceutical and other biotechnology
companies. If any of our product candidates are approved by the FDA
and do not achieve adequate market acceptance, our business,
financial condition, and results of operations will be materially
adversely affected. The degree of market acceptance of any such
product will depend on a number of factors, including:
●
perceptions by
members of the healthcare community, including physicians, about
the safety and effectiveness of any such product;
●
cost-effectiveness
relative to competing products and technologies;
●
availability of
reimbursement for our products from third-party payers such as
health insurers, HMOs and government programs such as Medicare and
Medicaid; and
●
advantages over
alternative treatment methods.
There
is one other FDA approved product for treatment of HSDD,
flibanserin, which is sold under the trade name Addyi, and started
marketing in October 2015. While we believe that an on-demand drug
for HSDD has competitive advantages compared to chronic or daily
use drugs, we may not be able to realize this perceived advantage
in the market. Vyleesi is administered by subcutaneous injection.
While the single-use, disposable autoinjector pen format is
designed to maximize market acceptability, Vyleesi as a
subcutaneous injectable drug for HSDD may never achieve significant
market acceptance. In addition, we believe reimbursement of Vyleesi
from third-party payers such as health insurers, HMOs or other
third-party payers of healthcare costs will be similar to
reimbursement for flibanserin and erectile dysfunction
(“ED”) drugs, and that the ultimate user may pay a
substantial part of the cost of Vyleesi for HSDD. If the market
opportunity for Vyleesi is smaller than we anticipate, it may also
be difficult for us to find marketing partners and, as a result, we
may be unable to generate revenue and business from Vyleesi. If
Vyleesi for HSDD does not achieve adequate market acceptance at an
acceptable price point, our business, financial condition, and
results of operations will be materially adversely
affected.
Even if our product candidates receive regulatory approval in the
United States, we may never receive approval or commercialize our
products outside of the United States.
In
order to market any products outside of the United States, we must
establish and comply with numerous and varying regulatory
requirements of other countries regarding safety and efficacy.
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 in other countries or any delay or setbacks in obtaining
such approval would impair our ability to develop foreign markets
for our product candidates and may have a material adverse effect
on our results of operations and financial condition.
If side effects emerge that can be linked to Vyleesi or any of our
product candidates (either while they are in development or after
they are approved and on the market), we may be required to perform
lengthy additional clinical trials, change the labeling of any such
products, or withdraw such products from the market, any of which
would hinder or preclude our ability to generate
revenues.
If we
identify side effects or other problems occur in future clinical
trials, we may be required to terminate or delay clinical
development of the product candidate. Furthermore, even if any of
our product candidates receive marketing approval, as greater
numbers of patients use a drug following its approval, if the
incidence of side effects increases or if other problems are
observed after approval that were not seen or anticipated during
pre-approval clinical trials, or if the incidence of side effects
increase or other problems are observed with Vyleesi, a number of
potentially significant negative consequences could result,
including:
●
regulatory
authorities may withdraw their approval of the
product;
●
we may be required
to reformulate such products or change the way the product is
manufactured;
●
we may become the
target of lawsuits, including class action suits; and
●
our reputation in
the marketplace may suffer resulting in a significant drop in the
sales of such products.
Any of
these events could substantially increase the costs and expenses of
developing, commercializing, and marketing any such product
candidates or could harm or prevent sales of any approved
products.
We may not be able to keep up with the rapid technological change
in the biotechnology and pharmaceutical industries, which could
make any future approved products obsolete and reduce our
revenue.
Biotechnology
and related pharmaceutical technologies have undergone and continue
to be subject to rapid and significant change. Our future will
depend in large part on our ability to maintain a competitive
position with respect to these technologies. Our competitors may
render our technologies obsolete by advances in existing
technological approaches or the development of new or different
approaches, potentially eliminating the advantages in our drug
discovery process that we believe we derive from our research
approach and proprietary technologies. In addition, any future
products that we develop, including our clinical product
candidates, may become obsolete before we recover expenses incurred
in developing those products, which may require that we raise
additional funds to continue our operations.
Competing products and technologies may make our proposed products
noncompetitive.
Flibanserin,
a daily-use oral drug sold under the trade name Addyi, has been
approved by the FDA for HSDD in premenopausal women. There are
other products reported as being developed for HSDD and other FSD
indications, including oral combination drugs, some of which
incorporate testosterone, antidepressants, or PDE-5 inhibitors.
There is competition to develop drugs for treatment of HSDD and FSD
in both premenopausal and postmenopausal patients. Our Vyleesi drug
product is administered by subcutaneous injection, and an on-demand
drug product for the same indication which utilizes another route
of administration, such as a conventional oral drug product, may
make subcutaneous Vyleesi noncompetitive.
There
are a number of products approved for use in treating inflammatory
diseases and indications, and other products are being developed,
including products in clinical trials. The dry eye disease and
ocular inflammatory disease markets are highly competitive, with a
number of marketed products and products reported to be in
late-stage clinical trials. Similarly, the inflammatory bowel
disease and ulcerative colitis markets are highly competitive, with
a number of marketed products and products reported to be in
late-stage clinical trials.
In
general, the biopharmaceutical industry is highly competitive. We
are likely to encounter significant competition with respect to
Vyleesi, MC1r product candidates, MCr product candidates and NPR
product candidates. Most of our competitors have substantially
greater financial and technological resources than we do. Many of
them also have significantly greater experience in research and
development, marketing, distribution, and sales than we do.
Accordingly, our competitors may succeed in developing, marketing,
distributing, and selling products and underlying technologies more
rapidly than we can. These competitive products or technologies may
be more effective and useful or less costly than Vyleesi or our
MC1r product candidates, MCr product candidates and NPR product
candidates. In addition, academic institutions, hospitals,
governmental agencies, and other public and private research
organizations are also conducting research and may develop
competing products or technologies on their own or through
strategic alliances or collaborative arrangements.
We rely on third parties over whom we have no control to conduct
preclinical studies, clinical trials and other research for our
product candidates and their failure to timely perform their
obligations could significantly harm our product
development.
We have
limited research and development staff. We rely on third parties
and independent contractors, such as researchers at CROs and
universities, in certain areas that are particularly relevant to
our research and product development plans. We engage such
researchers to conduct our preclinical studies, clinical trials and
associated tests. These outside contractors are not our employees
and may terminate their engagements with us at any time. In
addition, we have limited control over the resources that these
contractors devote to our programs, and they may not assign as
great a priority to our programs or pursue them as diligently as we
would if we were undertaking such programs ourselves. There is also
competition for these relationships, and we may not be able to
maintain our relationships with our contractors on acceptable
terms. If our third-party contractors do not carry out their duties
under their agreements with us, fail to meet expected deadlines or
fail to comply with appropriate standards for preclinical or
clinical research, our ability to develop our product candidates
and obtain regulatory approval on a timely basis, if at all, may be
materially adversely affected.
Production and supply of our product candidates depend on contract
manufacturers over whom we have no control, with the risk that we
may not have adequate supplies of our product candidates or
products.
We do
not have the facilities to manufacture our early-stage potential
products such as PL8177, PL9643, PL3994 and other natriuretic
peptide and melanocortin receptor agonist compounds for use in
preclinical studies and clinical trials. Contract manufacturers
must perform these manufacturing activities in a manner that
complies with FDA regulations. Our ability to control third-party
compliance with FDA requirements is limited to contractual remedies
and rights of inspection. The manufacturers of our potential
products and their manufacturing facilities will be subject to
continual review and periodic inspections by the FDA and other
authorities where applicable, and must comply with ongoing
regulatory requirements, including FDA regulations concerning GMP.
Failure of third-party manufacturers to comply with GMP, medical
device QSR, or other FDA requirements may result in enforcement
action by the FDA. Failure to conduct their activities in
compliance with FDA regulations could delay our development
programs or negatively impact our ability to receive FDA approval
of our potential products. Establishing relationships with new
suppliers, who must be FDA-approved, is a time-consuming and costly
process.
If we are unable to establish sales and marketing capabilities
within our organization or enter into and maintain agreements with
third parties to market and sell Vyleesi and our product
candidates, we may be unable to generate product
revenue.
We do
not currently have any experience in sales, marketing, and
distribution of pharmaceutical products. We are currently working
to establish sales and marketing capabilities for Vyleesi in the
United States, including through establishing agreements with third
parties to market and sell Vyleesi. We may not be able to enter
into suitable agreements on acceptable terms, if at all, with third
parties to market and sell Vyleesi. Engaging a third party to
perform these services could impede sales of Vyleesi. If we are
unable to establish adequate sales, marketing, and distribution
capabilities for Vyleesi, whether independently or with third
parties, we may not be able to generate sufficient product revenue
to support Vyleesi-associated costs and expenses, and our business
would suffer. In addition, if we enter into arrangements with third
parties to perform sales, marketing and distribution services, we
will be dependent on the performance of third parties over whom we
have limited control.
If any
of our products candidates are approved by the FDA or other
regulatory authorities, we must enter into agreements with third
parties to market these product candidates or develop marketing,
distribution and selling capacity and expertise, which will be
costly and time consuming, or enter into agreements with other
companies to provide these capabilities. We may not be able to
enter into suitable agreements on acceptable terms, if at all.
Engaging a third party to perform these services could delay the
commercialization of any of our product candidates, if approved for
commercial sale. If we are unable to establish adequate sales,
marketing, and distribution capabilities, whether independently or
with third parties, we may not be able to generate product revenue
and our business would suffer. In addition, if we enter into
arrangements with third parties to perform sales, marketing and
distribution services, our product revenues are likely to be lower
than if we could market and sell any products that we develop
ourselves.
We need to hire additional employees in order to commercialize
Vyleesi and our product candidates in the future. Any inability to
manage future growth could harm our ability to commercialize
Vyleesi and ultimately our product candidates, increase our costs
and adversely impact our ability to compete
effectively.
To
commercialize Vyleesi and ultimately our product candidates, we
will need to hire or contract with experienced sales and marketing
personnel to sell and market those product candidates we decide to
commercialize, and we will need to expand the number of our
managerial, operational, financial and other employees to support
commercialization. Competition exists for qualified personnel in
the biopharmaceutical field.
Future
growth will impose significant added responsibilities on members of
management, including the need to identify, recruit, maintain and
integrate additional employees. Our future financial performance
and our ability to commercialize our product candidates and to
compete effectively will depend, in part, on our ability to manage
any future growth effectively.
Our ability to achieve revenues from the sale of our products will
depend, in part, on our ability to obtain adequate reimbursement
from private insurers and other healthcare payers.
Our
ability to successfully commercialize our products, including
Vyleesi and our products in development, will depend, in
significant part, on the extent to which we or our marketing
partners can obtain reimbursement for our products and also
reimbursement at appropriate levels for the cost of our products.
Obtaining reimbursement from governmental payers, insurance
companies, HMOs and other third-party payers of healthcare costs is
a time-consuming and expensive process. Vyleesi for HSDD is
classified as a Tier 3 drug, so reimbursement for Vyleesi is
limited for treatment of premenopausal women with
HSDD.
Even if we receive regulatory approval for our products in Europe,
we may not be able to secure adequate pricing and reimbursement in
Europe for us or any strategic partner to achieve
profitability.
Even if
one or more of our products are approved in Europe, we may be
unable to obtain appropriate pricing and reimbursement for such
products. In most European markets, demand levels for healthcare in
general and for pharmaceuticals in particular are principally
regulated by national governments. Therefore, pricing and
reimbursement for our products will have to be negotiated on a
“Member State by Member State” basis according to
national rules, as there does not exist a centralized European
process. As each Member State has its own national rules governing
pricing control and reimbursement policy for pharmaceuticals, there
are likely to be uncertainties attaching to the review process, and
the level of reimbursement that national governments are prepared
to accept. In the current economic environment, governments and
private payers or insurers are increasingly looking to contain
healthcare costs, including costs on drug therapies. If we are
unable to obtain adequate pricing and reimbursement for our
products in Europe, we or a potential strategic partner or
collaborator may not be able to cover the costs necessary to
manufacture, market and sell the product, limiting or preventing
our ability to achieve profitability.
We may incur substantial liabilities and may be required to limit
commercialization of our products in response to product liability
lawsuits.
The
testing and marketing of medical products entails an inherent risk
of product liability. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of our
products or cease clinical trials. Our inability to obtain
sufficient product liability insurance at an acceptable cost to
protect against potential product liability claims could prevent or
inhibit the commercialization of pharmaceutical products we
develop, alone or with corporate collaborators. We currently carry
$10 million liability insurance in the aggregate as to certain
product liability and commercialization risks and certain clinical
trial risks. We, or any corporate collaborators, may not in the
future be able to obtain insurance at a reasonable cost or in
sufficient amounts, if at all. Even if our agreements with any
future corporate collaborators entitle us to indemnification
against losses, such indemnification may not be available or
adequate should any claim arise.
Our internal computer systems, or those of our third-party
contractors or consultants, may fail or suffer security breaches,
which could result in a material disruption of our product
development programs.
In the
ordinary course of our business, we collect, store and transmit
confidential information. Despite the implementation of security
measures, our internal computer systems and those of our
third-party contractors and consultants are vulnerable to damage
from computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. We
rely on industry accepted measures and technology to secure
confidential and proprietary information maintained on our computer
systems. However, these measures and technology may not adequately
prevent security breaches. While we do not believe that we have
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 loss of clinical trial data
for our product candidates that could result in delays in our
regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. Cyberattacks are increasing in their
frequency, sophistication, and intensity. Cyberattacks could
include the deployment of harmful malware, denial-of-service
attacks, social engineering, and other means to affect service
reliability and threaten the confidentiality, integrity and
availability of information. Significant disruptions of our
information technology systems or security breaches could adversely
affect our business operations and/or result in the loss,
misappropriation, and/or unauthorized access, use or disclosure of,
or the prevention of access to, confidential information (including
trade secrets or other intellectual property, proprietary business
information and personal information), and could result in
financial, legal, business, and reputational harm to us. To the
extent that any disruption or security breach results in a loss of
or damage to our data or applications or other data or applications
relating to our technology, intellectual property, research and
development or product candidates, or inappropriate disclosure of
confidential or proprietary information, we could incur liabilities
and the further development of our product candidates could be
delayed.
We may be subject to claims that our employees, consultants, or
independent contractors have wrongfully used or disclosed
confidential information of third parties or that our employees
have wrongfully used or disclosed alleged trade secrets of their
former employers.
We may
in the future employ individuals who were previously employed at
universities or other biotechnology or pharmaceutical companies,
including our competitors or potential competitors. Although we try
to ensure that our employees, consultants, and independent
contractors do not use the proprietary information or know-how of
others in their work for us, we may be subject to claims that we or
our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of any of
our employee’s former employer or other third parties.
Litigation may be necessary to defend against these claims. If we
fail in defending any such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or
personnel, which could adversely impact our business. Even if we
are successful in defending against such claims, litigation could
result in substantial costs and be a distraction to management and
other employees.
We may be subject, directly or indirectly, to federal and state
healthcare fraud and abuse laws, false claims laws, and health
information privacy and security laws. If we are unable to comply,
or have not fully complied, with such laws, we could face
substantial penalties.
If we
begin commercializing any of our products in the United States, our
operations may be directly, or indirectly through our customers,
subject to various federal and state fraud and abuse laws,
including, without limitation, the federal Anti-Kickback Statute,
the federal False Claims Act, and physician sunshine laws and
regulations. These laws may impact, among other things, our
proposed sales, marketing, and education programs. In addition, we
may be subject to patient privacy regulation by both the federal
government and the states in which we conduct our business. The
laws that may affect our ability to operate include:
●
the federal
Anti-Kickback Statute, which prohibits, among other things, persons
or entities from soliciting, receiving, offering or providing
remuneration, directly or indirectly, in return for or to induce
either the referral of an individual for, or the purchase order or
recommendation of, any item or services for which payment may be
made under a federal health care program such as the Medicare and
Medicaid programs;
●
federal civil and
criminal false claims laws and civil monetary penalty laws, which
prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other third-party payors that
are false or fraudulent;
●
HIPAA, which
created new federal criminal statutes that prohibit executing a
scheme to defraud any healthcare benefit program and making false
statements relating to healthcare matters;
●
HIPAA, as amended
by the Health Information Technology and Clinical Health Act, and
its implementing regulations, which imposes certain requirements
relating to the privacy, security, and transmission of individually
identifiable health information;
●
The federal
physician sunshine requirements under the Affordable Care Act,
which require manufacturers of drugs, devices, biologics, and
medical supplies to report annually to the U.S. Department of
Health and Human Services information related to payments and other
transfers of value to physicians, other healthcare providers, and
teaching hospitals, and ownership and investment interests held by
physicians and other healthcare providers and their immediate
family members and applicable group purchasing organizations;
and
●
state law
equivalents of each of the above federal laws, such as
anti-kickback and false claims laws that may apply to items or
services reimbursed by any third-party payor, including commercial
insurers, state laws that require pharmaceutical companies to
comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance
promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other
potential referral sources; state laws that require drug
manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or
marketing expenditures; and state laws governing the privacy and
security of health information in certain circumstances, many of
which differ from each other in significant ways and may not have
the same effect, thus complicating compliance efforts.
Because
of the breadth of these laws and the narrowness of the statutory
exceptions and safe harbors available, it is possible that some of
our business activities could be subject to challenge under one or
more of such laws. In addition, recent health care reform
legislation has strengthened these laws. For example, the
Affordable Care Act, among other things, amends the intent
requirement of the federal anti-kickback and criminal healthcare
fraud statutes. A person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it.
Moreover, the Affordable Care Act provides that 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 False Claims
Act.
If our
operations 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, exclusion from participation in
government health care programs, such as Medicare and Medicaid,
imprisonment, and the curtailment or restructuring of our
operations, any of which could adversely affect our ability to
operate our business and our results of operations.
We are highly dependent on our management team, senior staff
professionals and third-party contractors and consultants, and the
loss of their services could materially adversely affect our
business.
We rely
on our relatively small management team and staff as well as
various contractors and consultants to provide critical services.
Our ability to execute our clinical programs for Vyleesi, PL8177,
PL9643, PL3994 and our other preclinical programs for MC1r and MC4r
peptide or small molecule drug candidates and natriuretic peptide
drug candidates depends on our continued retention and motivation
of our management and senior staff professionals, including
executive officers and senior members of product development and
management, including commercialization, who possess significant
technical expertise and experience and oversee our development and
commercialization programs. If we lose the services of existing key
personnel, our development programs could be adversely affected if
suitable replacement personnel are not recruited quickly. Our
success also depends on our ability to develop and maintain
relationships with contractors, consultants, and scientific
advisors.
There
is competition for qualified personnel, contractors, and
consultants in the pharmaceutical industry, which makes it
difficult to attract and retain the qualified personnel,
contractors and consultants necessary for the development and
growth of our business. Our failure to attract and retain such
personnel, contractors and consultants could have a material
adverse effect on our business, results of operations and financial
condition.
Existing coverage for Vyleesi for the treatment of HSDD is
classified as a Tier 3 drug by third-party payers, so that demand
for Vyleesi is tied to discretionary spending levels of our
targeted patient population and particularly affected by
unfavorable economic conditions.
The
market for HSDD may be particularly vulnerable to unfavorable
economic conditions. Vyleesi for the treatment of HSDD has
significant copay or deductible requirements and is frequently only
partially reimbursed by third-party payers and, as a result, demand
for this product may be tied to discretionary spending levels of
our targeted patient population. A severe or prolonged economic
downturn could result in a variety of risks to our business,
including weakened demand for Vyleesi for HSDD.
Risks Related to Government Regulation
Both before and after marketing approval, our product candidates
are subject to ongoing regulatory requirements and, if we fail to
comply with these continuing requirements, we could be subject to a
variety of sanctions and the sale of any approved commercial
products could be suspended.
Both
before and after regulatory approval to market a particular product
candidate, the manufacturing, labeling, packaging, adverse event
reporting, storage, advertising and promotion and record keeping
related to the product candidates are subject to extensive
regulatory requirements. If we fail to comply with the regulatory
requirements of the FDA and other applicable U.S. and foreign
regulatory authorities, we could be subject to administrative or
judicially imposed sanctions, including:
●
restrictions on the
products or manufacturing process;
●
civil or criminal
penalties;
●
imposition of a
Corporate Integrity Agreement requiring heightened monitoring of
our compliance functions, overseen by outside monitors, and
enhanced reporting requirements to, and oversight by, the FDA and
other government agencies;
●
product seizures or
detentions and related publicity requirements;
●
suspension or
withdrawal of regulatory approvals;
●
regulators or IRBs
may not authorize us or any potential future collaborators to
commence a clinical trial or conduct a clinical trial at a
prospective trial site;
●
total or partial
suspension of production; and
●
refusal to approve
pending applications for marketing approval of new product
candidates.
Changes
in the regulatory approval policy during the development period,
changes in or the enactment of additional regulations or statutes,
or changes in the regulatory review for each submitted product
application may cause delays in the approval or rejection of an
application. Even if the FDA approves a product candidate, the
approval may impose significant restrictions on the indicated uses,
conditions for use, labeling, advertising, promotion, marketing
and/or production of such product, and may impose ongoing
requirements for post-approval studies, including additional
research and development and clinical trials. The approval may also
impose REMS on a product if the FDA believes there is a reason to
monitor the safety of the drug in the marketplace. REMS may include
requirements for additional training for health care professionals,
safety communication efforts and limits on channels of
distribution, among other things. The sponsor would be required to
evaluate and monitor the various REMS activities and adjust them if
need be. The FDA also may impose various civil or criminal
sanctions for failure to comply with regulatory requirements,
including withdrawal of product approval.
Furthermore,
the approval procedure and the time required to obtain approval
varies among countries and can involve additional testing beyond
that required by the FDA. Approval by one regulatory authority does
not ensure approval by regulatory authorities in other
jurisdictions. The FDA has substantial discretion in the approval
process and may refuse to accept any application or may decide that
our data are insufficient for approval and require additional
preclinical, clinical or other studies.
In
addition, varying interpretations of the data obtained for
preclinical and clinical testing could delay, limit or prevent
regulatory approval of a product candidate. Even if we submit an
application to the FDA for marketing approval of a product
candidate, it may not result in marketing approval from the
FDA.
We do
not expect to receive regulatory approval for the commercial sale
of any of our product candidates that are in development in the
near future, if at all. The inability to obtain FDA approval or
approval from comparable authorities in other countries for our
product candidates would prevent us or any potential future
collaborators from commercializing these product candidates in the
United States or other countries.
The regulatory approval process is lengthy, expensive and
uncertain, and may prevent us from obtaining the approvals that we
require.
Government
authorities in the United States and other countries extensively
regulate the advertising, labeling, storage, record-keeping,
safety, efficacy, research, development, testing, manufacture,
promotion, marketing, and distribution of drug products. Drugs are
subject to rigorous regulation in the United States by the FDA and
similar regulatory bodies in other countries. The steps ordinarily
required by the FDA before a new drug may be marketed in the United
States include:
●
completion of
non-clinical tests including preclinical laboratory and formulation
studies and animal testing and toxicology;
●
submission to the
FDA of an IND application, which must become effective before
clinical trials may begin, and which may be placed on
“clinical hold” by the FDA, meaning the trial may not
commence, or must be suspended or terminated prior to
completion;
●
performance of
adequate and well-controlled Phase 1, 2 and 3 human clinical trials
to establish the safety and efficacy of the drug for each proposed
indication, and potentially post-approval or Phase 4 studies to
further define the drug’s efficacy and safety, generally or
in specific patient populations;
●
submission to the
FDA of an NDA that must be accompanied by a substantial “user
fee” payment;
●
FDA review and
approval of the NDA before any commercial marketing or sale;
and
●
compliance with
post-approval commitments and requirements.
Satisfaction
of FDA pre-market approval requirements for new drugs typically
takes a number of years and the actual time required for approval
may vary substantially based upon the type, complexity and novelty
of the product or disease to be treated by the drug. The results of
product development, preclinical studies and clinical trials are
submitted to the FDA as part of an NDA. The NDA also must contain
extensive manufacturing information, demonstrating compliance with
applicable GMP requirements. Once the submission has been accepted
for filing, the FDA generally has twelve months to review the
application and respond to the applicant. Such response may be an
approval or may be a “complete response letter”
outlining additional data or steps that must be completed prior to
further FDA review of the NDA. The review process is often
significantly extended by FDA requests for additional information
or clarification. Success in early-stage clinical trials does not
assure success in later stage clinical trials. Data obtained from
clinical trials is not always conclusive and may be susceptible to
varying interpretations that could delay, limit or prevent
regulatory approval. The FDA may refer the NDA to an advisory
committee for review, evaluation and recommendation as to whether
the application should be approved, but the FDA is not bound by the
recommendation of the advisory committee. The FDA may deny or delay
approval of applications that do not meet applicable regulatory
criteria or if the FDA determines that the clinical data do not
adequately establish the safety and efficacy of the drug.
Therefore, our proposed products could take a significantly longer
time than we expect or may never gain approval. If regulatory
approval is delayed or never obtained, our business, financial
condition and results of operations would be materially adversely
affected.
Some of
our products or product candidates may be used in combination with
a drug delivery device, such as an injector or other delivery
system. Vyleesi is considered a drug-device combination product
because of its injection delivery device. Medical products
containing a combination of new drugs, biological products or
medical devices are regulated as “combination products”
in the United States. A combination product generally is defined as
a product comprised of components from two or more regulatory
categories (e.g., drug/device, device/biologic, drug/biologic).
Each component of a combination product is subject to the
requirements established by the FDA for that type of component,
whether a new drug, biologic or device. In order to facilitate
pre-market review of combination products, the FDA designates one
of its centers to have primary jurisdiction for the pre-market
review and regulation of the overall product based upon a
determination by the FDA of the primary mode of action of the
combination product. The determination whether a product is a
combination product or two separate products is made by the FDA on
a case-by-case basis. Our product candidates intended for use with
such devices, or expanded indications that we may seek for our
products used with such devices, may not be approved or may be
substantially delayed in receiving approval if the devices do not
gain and/or maintain their own regulatory approvals or clearances.
Where approval of the drug product and device is sought under a
single application, the increased complexity of the review process
may delay approval. In addition, because these drug delivery
devices are provided by single source unaffiliated third-party
companies, we are dependent on the sustained cooperation and effort
of those third-party companies both to supply the devices, maintain
their own regulatory compliance, and, in some cases, to conduct the
studies required for approval or other regulatory clearance of the
devices. We are also dependent on those third-party companies
continuing to maintain such approvals or clearances once they have
been received. Failure of third-party companies to supply the
devices, to successfully complete studies on the devices in a
timely manner, or to obtain or maintain required approvals or
clearances of the devices, and maintain compliance with all
regulatory requirements, could result in increased development
costs, delays in or failure to obtain regulatory approval and
delays in product candidates reaching the market or in gaining
approval or clearance for expanded labels for new
indications.
Upon
approval, a product candidate may be marketed only in those dosage
forms and for those indications approved by the FDA. Once approved,
the FDA may withdraw the product approval if compliance with
regulatory requirements is not maintained or if problems occur
after the product reaches the marketplace. In addition, the FDA may
require postmarketing studies, referred to as Phase 4 studies, to
monitor the approved products in a specific subset of patients or a
larger number of patients than were required for product approval
and may limit further marketing of the product based on the results
of these post-market studies. The FDA has broad post-market
regulatory and enforcement powers, including the ability to seek
injunctions, levy fines and civil penalties, criminal prosecution,
withdraw approvals and seize products or request
recalls.
If
regulatory approval of any of our product candidates is granted, it
will be limited to certain disease states or conditions, patient
populations, duration, or frequency of use, and will be subject to
other conditions as set forth in the FDA-approved labeling. Adverse
experiences with the product must be reported to the FDA and could
result in the imposition of market restriction through labeling
changes or in product removal. Product approvals may be withdrawn
if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur
following approval.
Outside
the United States, our ability to market our product candidates
will also depend on receiving marketing authorizations from the
appropriate regulatory authorities. The foreign regulatory approval
process generally includes all of the risks associated with FDA
approval described above. The requirements governing the conduct of
clinical trials and marketing authorization vary widely from
country to country. At present, foreign marketing authorizations
are applied for at a national level, although within the European
Community (“EC”), registration procedures are available
to companies wishing to market a product to more than one EC member
state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficiency has been presented, a
marketing authorization will be granted. If we do not obtain, or
experience difficulties in obtaining, such marketing
authorizations, our business, financial condition and results of
operations may be materially adversely affected.
The FDA has required that two postmarketing studies and a clinical
trial be conducted on Vyleesi.
In its
approval of Vyleesi, under the FFDCA the FDA imposed certain
postmarketing requirements, consisting of two studies, one a
prospective, registry-base, observational cohort study that
compares obstetrical, maternal, fetal/neonatal, and infant outcomes
in women exposed to Vyleesi during pregnancy to an internal,
unexposed cohort of pregnant women, and the other a retrospective
cohort study using electronic claims data that compares maternal,
fetal/neonatal, and infant outcomes in women exposed to Vyleesi
during pregnancy to an internal, unexposed cohort of pregnant
women, and one clinical trial in lactating women who have received
Vyleesi to assess potential adverse effects in the breastfed infant
and measure bremelanotide concentrations in breast milk using a
validated assay. We are evaluating requirements, timelines and
costs for these studies and the clinical trial. We do not know the
outcomes of the studies or the clinical trial, and do not know
whether the outcomes would adversely affect approvals of
Vyleesi.
Legislative or regulatory healthcare reforms in the United States
may make it more difficult and costly for us to obtain regulatory
clearance or approval of any future product candidates and to
produce, market and distribute our products after clearance or
approval is obtained.
From
time to time, legislation is drafted and introduced in Congress,
and court decisions are issued, that could significantly change the
statutory provisions governing the regulatory clearance or
approval, manufacture and marketing of regulated products or the
reimbursement thereof. In addition, FDA regulations and guidance
are often revised or reinterpreted by the FDA in ways that may
significantly affect our business and our products. Any new
regulations or revisions or reinterpretations of existing
regulations may impose additional costs or lengthen review times of
Vyleesi for HSDD or any future product candidates. We cannot
determine what effect changes in regulations, statutes, court
decisions, legal interpretation or policies, when and if
promulgated, enacted, issued or adopted may have on our business in
the future. Such changes could, among other things:
●
require changes to
manufacturing methods;
●
require recall,
replacement or discontinuance of one or more of our
products;
●
require additional
recordkeeping;
●
limit or restrict
our ability to engage in certain types of marketing or promotional
activities;
●
alter or eliminate
the scope or terms of any currently available regulatory
exclusivities; and
●
restrict or
eliminate our ability to settle any patent litigation we may bring
against potential generic competitors.
Each of
these would likely entail substantial time and cost and could
materially harm our business and our financial results. In
addition, delays in receipt of or failure to receive regulatory
clearances or approvals for any future products would harm our
business, financial condition, and results of
operations.
Changes in healthcare policy could adversely affect our
business.
Our
industry is highly regulated, and changes in law may adversely
impact our business, operations, or financial results. In the U.S.,
there have been and continue to be a number of legislative
initiatives to contain healthcare costs. For example, the Patient
Protection and Affordable Care Act of 2010, as amended by the
Health Care and Education Reconciliation Act of 2010 (the
“PPACA”) is a sweeping measure intended to, among other
things, expand healthcare coverage within the U.S., primarily
through the imposition of health insurance mandates on employers
and individuals and expansion of the Medicaid program. Several
provisions of the law have affected us and increased certain of our
costs. Since its enactment, there have been executive, judicial,
and congressional challenges to certain aspects of the PPACA. In
addition, other legislative changes have been adopted since the
PPACA was enacted. Some of these changes have resulted in
additional reductions in Medicare and other healthcare
funding.
We
anticipate that the PPACA, as well as other healthcare reform
measures that may be adopted in the future in the U.S. or abroad,
may result in more rigorous coverage criteria and an additional
downward pressure on the reimbursement our customers may receive
for our products. Recently there has been heightened governmental
scrutiny in countries worldwide over the manner in which
manufacturers set prices for their marketed products.
In the
U.S., there have been several recent congressional inquiries and
proposed and enacted federal and state legislation designed to,
among other things, bring more transparency to drug pricing, review
the relationship between pricing and manufacturer patient programs,
reduce the cost of drugs under Medicare, and reform government
program reimbursement methodologies for drug products. For example,
at the federal level, during the former Trump administration there
were multiple executive orders issued, initiatives implemented and
calls for legislation form Congress to reduce drug prices, increase
competition and reduce out of pocket costs of drugs for patients.
The likelihood of implementation of any of the former Trump
administration healthcare reform initiatives is uncertain,
particularly in light of the new Biden administration and its
implementation of a regulatory freeze. Any reduction in
reimbursement from Medicare and other government programs may
result in a similar reduction in payments from private payers. In
addition, individual states in the U.S. have also increasingly
passed legislation and implemented regulations designed to control
pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain
product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation
from other countries and bulk purchasing. Moreover, regional
healthcare authorities and individual hospitals are increasingly
using bidding procedures to determine what pharmaceutical products
and which suppliers will be included in their prescription drug and
other healthcare programs. Further, it is possible that additional
governmental action is taken in response to the COVID-19
pandemic.
Legally
mandated price controls on payment amounts by governmental and
private third-party payers or other restrictions could harm our
business, results of operations, financial condition, and
prospects. The implementation of cost containment measures or other
healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our
products.
For
more information regarding government healthcare reform, see
“U.S. Governmental Regulation of Pharmaceutical
Products” in Part I, Item 1 of this Annual Report on Form
10-K.
Risks Related to Our Intellectual Property
If we fail to adequately protect or enforce our intellectual
property rights or secure rights to patents of others, the value of
our intellectual property rights would diminish.
Our
success, competitive position and future revenues will depend in
part on our ability and the abilities of our licensors to obtain
and maintain patent protection for our products, methods,
processes, and other technologies, to preserve our trade secrets,
to prevent third parties from infringing on our proprietary rights
and to operate without infringing the proprietary rights of third
parties. We cannot predict:
●
the degree and
range of protection any patents will afford us against competitors,
including whether third parties will find ways to invalidate or
otherwise circumvent our patents;
●
if and when patents
will be issued;
●
whether or not
others will obtain patents claiming aspects similar to those
covered by our patents and patent applications; and
●
whether we will
need to initiate litigation or administrative proceedings, which
may be costly whether we win or lose.
If our
products, methods, processes, and other technologies infringe the
proprietary rights of other parties we could incur substantial
costs and we may have to:
●
obtain licenses,
which may not be available on commercially reasonable terms, if at
all;
●
redesign our
products or processes to avoid infringement;
●
stop using the
subject matter claimed in the patents held by others;
●
defend litigation
or administrative proceedings, which may be costly whether we win
or lose, and which could result in a substantial diversion of our
management resources.
We may become involved in lawsuits to protect or enforce our
patents or other intellectual property or the patents of our
licensors, which could be expensive and time
consuming.
Competitors
may infringe our intellectual property, including our patents or
the patents of our licensors. As a result, we may be required to
file infringement claims to stop third-party infringement or
unauthorized use. This can be expensive, particularly for a company
of our size, and time-consuming. In addition, in an infringement
proceeding, a court may decide that a patent of ours is not valid
or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patent claims
do not cover its technology or that the factors necessary to grant
an injunction against an infringer are not satisfied.
An
adverse determination of any litigation or other proceedings could
put one or more of our patents at risk of being invalidated or
interpreted narrowly and could put our patent applications at risk
of not issuing.
Interference,
derivation, or other proceedings brought at the USPTO may be
necessary to determine the priority or patentability of inventions
with respect to our patent applications or those of our licensors
or collaborators. Litigation or USPTO proceedings brought by us may
fail or may be invoked against us by third parties. Even if we are
successful, domestic, or foreign litigation or USPTO or foreign
patent office proceedings may result in substantial costs and
distraction to our management. We may not be able, alone or with
our licensors or collaborators, to prevent misappropriation of our
proprietary rights, particularly in countries where the laws may
not protect such rights as fully as in the United
States.
Furthermore,
because of the substantial amount of discovery required in
connection with intellectual property litigation or other
proceedings, there is a risk that some of our confidential
information could be compromised by disclosure during this type of
litigation or proceedings. In addition, during the course of this
kind of litigation or proceedings, there could be public
announcements of the results of hearings, motions or other interim
proceedings or developments or public access to related documents.
If investors perceive these results to be negative, the market
price for our common stock could be significantly
harmed.
If we infringe or are alleged to infringe intellectual property
rights of third parties, our business could be harmed.
Our
research, development and commercialization activities may infringe
or otherwise violate or be claimed to infringe or otherwise violate
patents owned or controlled by other parties. There may also be
patent applications that have been filed but not published that,
when issued as patents, could be asserted against us. These third
parties could bring claims against us that would cause us to incur
substantial expenses and, if successful against us, could cause us
to pay substantial damages. Further, if a patent infringement suit
were brought against us, we could be forced to stop or delay
research, development, manufacturing or sales of the product or
product candidate that is the subject of the suit.
As a
result of patent infringement claims, or to avoid potential claims,
we may choose or be required to seek licenses from third parties.
These licenses may not be available on acceptable terms, or at all.
Even if we are able to obtain a license, the license would likely
obligate us to pay license fees or royalties or both, and the
rights granted to us might be nonexclusive, which could result in
our competitors gaining access to the same intellectual
property.
Ultimately,
we could be prevented from commercializing a product, or be forced
to cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we are unable to
enter into licenses on acceptable terms, if at all.
There
has been substantial litigation and other proceedings regarding
patent and other intellectual property rights in the pharmaceutical
industry. In addition to infringement claims against us, we may
become a party to other patent litigation and other proceedings,
including interference, derivation or post-grant proceedings
declared or granted by the USPTO and similar proceedings in foreign
countries, regarding intellectual property rights with respect to
our current or future products. The cost to us of any patent
litigation or other proceeding, even if resolved in our favor,
could be substantial. Some of our competitors may be able to
sustain the costs of such litigation or proceedings more
effectively than we can because of their substantially greater
financial resources. Patent litigation and other proceedings may
also absorb significant management time. Uncertainties resulting
from the initiation and continuation of patent litigation or other
proceedings could impair our ability to compete in the marketplace.
The occurrence of any of the foregoing could have a material
adverse effect on our business, financial condition, or results of
operations.
Our patent applications and the enforcement or defense of our
issued patents may be impacted by the application of or changes in
U.S. and foreign standards.
The
standards that the USPTO and foreign patent offices use to grant
patents are not always applied predictably or uniformly and can
change. Consequently, our pending patent applications may not be
allowed and, if allowed, may not contain the type and extent of
patent claims that will be adequate to conduct our business as
planned. Additionally, any issued patents we currently own or
obtain in the future may have a shorter patent term than expected
or may not contain claims that will permit us to stop competitors
from using our technology or similar technology or from copying our
product candidates. Similarly, the standards that courts use to
interpret patents are not always applied predictably or uniformly
and may evolve, particularly as new technologies develop. In
addition, changes to patent laws in the United States or other
countries may be applied retroactively to affect the validation
enforceability, or term of our patent. For example, the U.S.
Supreme Court has recently modified some legal standards applied by
the USPTO in examination of U.S. patent applications, which may
decrease the likelihood that we will be able to obtain patents and
may increase the likelihood of challenges to patents we obtain or
license. In addition, changes to the U.S. patent system have come
into force under the Leahy-Smith America Invents Act, or the
Leahy-Smith Act, which was signed into law in September 2011. The
Leahy-Smith Act included significant changes to U.S. patent law.
These include provisions that affect the way patent applications
are prosecuted and also affect patent litigation. Under the
Leahy-Smith Act, the United States transitioned in March 2013 to a
“first to file” system in which the first inventor to
file a patent application will be entitled to the patent. Third
parties are allowed to submit prior art before the issuance of a
patent by the USPTO, and may become involved in opposition,
derivation, reexamination, inter
partes review or interference proceedings challenging our
patent rights or the patent rights of others. An adverse
determination in any such submission, proceeding or litigation
could reduce the scope of, or invalidate, our patent rights, which
could adversely affect our competitive position.
While
we cannot predict with certainty the impact the Leahy-Smith Act or
any potential future changes to the U.S. or foreign patent systems
will have on the operation of our business, the Leahy-Smith Act and
such future changes could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the
enforcement or defense of our issued patents, all of which could
have a material adverse effect on our business, results of
operations, financial condition and cash flows and future
prospects.
We may not be able to protect our intellectual property rights
throughout the world.
Filing,
prosecuting, and defending patents on product candidates in all
countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the
United States can be less extensive than those in the United
States. In addition, the laws of some foreign countries do not
protect intellectual property rights to the same extent as federal
and state laws in the United States and in some cases may even
force us to grant a compulsory license to competitors or other
third parties. Consequently, we may not be able to prevent third
parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our
inventions in and into the United States or other jurisdictions.
Competitors may use our technologies in jurisdictions where we have
not obtained patent protection to develop their own products and
further, may export otherwise infringing products to territories
where we have patent protection, but enforcement is not as strong
as that in the United States. These products may compete with our
products and our patents or other intellectual property rights may
not be effective or sufficient to prevent them from
competing.
Many
companies have encountered significant problems in protecting and
defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and
other intellectual property protection, particularly those relating
to biopharmaceuticals, which could make it difficult for us to stop
the infringement of our patents or marketing of competing products
in violation of our proprietary rights generally. Proceedings to
enforce our patent rights in foreign jurisdictions could result in
substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents at risk of being
invalidated or interpreted narrowly and our patent applications at
risk of not issuing and could provoke third parties to assert
claims against us. We may not prevail in any lawsuits that we
initiate, and the damages or other remedies awarded, if any, may
not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual
property that we develop or license.
In
addition, our ability to protect and enforce our intellectual
property rights may be adversely affected by unforeseen changes in
domestic and foreign intellectual property laws.
If we are unable to keep our trade secrets confidential, our
technologies and other proprietary information may be used by
others to compete against us.
In
addition to our reliance on patents, we attempt to protect our
proprietary technologies and processes by relying on trade secret
laws and agreements with our employees and other persons who have
access to our proprietary information. These agreements and
arrangements may not provide meaningful protection for our
proprietary technologies and processes in the event of unauthorized
use or disclosure of such information and may not provide an
adequate remedy in the event of unauthorized disclosure of
confidential information. In addition, our competitors may
independently develop substantially equivalent technologies and
processes or gain access to our trade secrets or technology, either
of which could materially or adversely affect our competitive
position.
Risks Related to the Ownership of Our Common Stock
Our stock price is volatile and may fluctuate in a way that is
disproportionate to our operating performance and we expect it to
remain volatile, which could limit investors’ ability to sell
stock at a profit.
The
volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit
at any given time or to plan purchases and sales in advance. A
variety of factors may affect the market price of our common stock.
These include, but are not limited to:
●
publicity regarding
actual or potential clinical results relating to products under
development by our competitors or us;
●
delay or failure in
initiating, completing or analyzing preclinical or clinical trials
or unsatisfactory designs or results of these trials;
●
interim decisions
by regulatory agencies, including the FDA, as to clinical trial
designs, acceptable safety profiles and the benefit/risk ratio of
products under development;
●
achievement or
rejection of regulatory approvals by our competitors or by
us;
●
announcements of
technological innovations or new commercial products by our
competitors or by us;
●
developments
concerning proprietary rights, including patents;
●
developments
concerning our collaborations;
●
regulatory
developments in the United States and foreign
countries;
●
economic or other
crises and other external factors;
●
period-to-period
fluctuations in our revenue and other results of
operations;
●
changes in the
structure of healthcare payment systems or other actions that
affect the effective reimbursement rates for treatment regimens
containing our products;
●
changes in
financial estimates and recommendations by securities analysts
following our business or our industry;
●
sales of our common
stock, or the perception that such sales could occur;
and
●
the other factors
described in this “Risk Factors” section.
We will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not
necessarily be indicative of our future performance. If our
revenues, if any, in any particular period do not meet
expectations, we may not be able to adjust our expenditures in that
period, which could cause our operating results to suffer further.
If our operating results in any future period fall below the
expectations of securities analysts or investors, our stock price
may fall by a significant amount.
For the
12-month period ended June 30, 2021, the price of our stock has
been volatile, ranging from a high of $1.30 per share to a low of
$0.38 per share. In addition, the stock market in general, and the
market for biotechnology companies in particular, has experienced
extreme price and volume fluctuations that may have been unrelated
or disproportionate to the operating performance of individual
companies. These broad market and industry factors may seriously
harm the market price of our common stock, regardless of our
operating performance.
As a public company in the United States, we are subject to the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). We can
provide no assurance that we will, at all times, in the future be
able to report that our internal controls over financial reporting
are effective.
Companies
that file reports with the SEC, including us, are subject to the
requirements of Section 404 of Sarbanes-Oxley. Section 404 requires
management to establish and maintain a system of internal control
over financial reporting. Ensuring that we have adequate internal
financial and accounting controls and procedures in place to
produce accurate financial statements on a timely basis is a costly
and time-consuming effort that needs to be re-evaluated frequently.
Failure on our part to have effective internal financial and
accounting controls would cause our financial reporting to be
unreliable, could have a material adverse effect on our business,
operating results, and financial condition, and could cause the
trading price of our common stock to fall
dramatically.
If securities or industry analysts do not publish research or
publish unfavorable research about our business, our stock price
and trading volume could decline.
As a
smaller company, it may be difficult for us to attract or retain
the interest of equity research analysts. A lack of research
coverage may adversely affect the liquidity of and market price of
our common stock. We do not have any control of the equity research
analysts or the content and opinions included in their reports. The
price of our stock could decline if one or more equity research
analysts downgrade our stock or issue other unfavorable commentary
or research. If one or more equity research analysts ceases
coverage of us, or fails to publish reports on us regularly, demand
for our stock could decrease, which in turn could cause our stock
price or trading volume to decline.
Holders of our preferred stock may have interests different from
our common stockholders.
We are
permitted under our certificate of incorporation to issue up to
10,000,000 shares of preferred stock. We can issue shares of our
preferred stock in one or more series and can set the terms of the
preferred stock without seeking any further approval from our
common stockholders. 4,030 shares of our Series A Preferred Stock
remain outstanding as of September 24, 2021. Each share of Series A
Preferred Stock is convertible at any time, at the option of the
holder, and such conversion could dilute the value of our common
stock to current stockholders and could adversely affect the market
price of our common stock. The conversion price decreases if we
sell common stock (or equivalents) for a price per share less than
the conversion price or less than the market price of the common
stock and is also subject to adjustment upon the occurrence of a
merger, reorganization, consolidation, reclassification, stock
dividend or stock split which results in an increase or decrease in
the number of shares of common stock outstanding. Upon (i)
liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) sale or other disposition of all or
substantially all of the assets of the Company, or (iii) any
consolidation, merger, combination, reorganization or other
transaction in which the Company is not the surviving entity or in
which the shares of common stock constituting in excess of 50% of
the voting power of the Company are exchanged for or changed into
other stock or securities, cash and/or any other property, after
payment or provision for payment of the debts and other liabilities
of the Company, the holders of Series A Preferred Stock will be
entitled to receive, pro rata and in preference to the holders of
any other capital stock, an amount per share equal to $100 plus
accrued but unpaid dividends, if any. Any preferred stock that we
issue may rank ahead of our common stock in terms of dividend
priority or liquidation premiums and may have greater voting rights
than our common stock.
Because we do not anticipate paying any cash dividends on our
common stock in the foreseeable future, capital appreciation, if
any, will be your sole source of gains.
We do
not anticipate paying any cash dividends in the foreseeable future
and intend to retain future earnings, if any, for the development
and expansion of our business. Our outstanding Series A Preferred
Stock, consisting of 4,030 shares on September 24, 2021, provides
that we may not pay a dividend or make any distribution to holders
of any class of stock unless we first pay a special dividend or
distribution of $100 per share to the holders of the Series A
Preferred Stock. In addition, the terms of existing or future
agreements may limit our ability to pay dividends. As a result,
capital appreciation, if any, of our common stock will be your sole
source of gain for the foreseeable future.
Anti-takeover provisions of Delaware law and our charter documents
may make potential acquisitions more difficult and could result in
the entrenchment of management.
We are
incorporated in Delaware. Anti-takeover provisions of Delaware law
and our charter documents may make a change in control or efforts
to remove management more difficult. Also, under Delaware law, our
board of directors may adopt additional anti-takeover measures.
Under Section 203 of the Delaware General Corporation Law, a
corporation may not engage in a business combination with an
“interested stockholder” for a period of three years
after the date of the transaction in which the person first becomes
an “interested stockholder,” unless the business
combination is approved in a prescribed manner.
We are
authorized to issue up to 300,000,000 shares of common stock. To
the extent that we sell or otherwise issue authorized but currently
unissued shares, this could have the effect of making it more
difficult for a third party to acquire a majority of our
outstanding voting stock.
Our
charter authorizes us to issue up to 10,000,000 shares of preferred
stock and to determine the terms of those shares of stock without
any further action by our stockholders. If we exercise this right,
it could be more difficult for a third party to acquire a majority
of our outstanding voting stock.
In
addition, our equity incentive plans generally permit us to
accelerate the vesting of options and other stock rights granted
under these plans in the event of a change of control. If we
accelerate the vesting of options or other stock rights, this
action could make an acquisition more costly.
The
application of these provisions could have the effect of delaying
or preventing a change of control, which could adversely affect the
market price of our common stock.
We are a smaller reporting company and the reduced disclosure
requirements applicable to smaller reporting companies may make our
common stock less attractive to investors.
We are
currently a “smaller reporting company” as defined in
the Exchange Act. Smaller reporting companies are able to provide
simplified executive compensation disclosures in their filings and
have certain other decreased disclosure obligations in their SEC
filings. We cannot predict whether investors will find our common
stock less attractive because of our reliance on the smaller
reporting company exemption. If some investors find our common
stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more
volatile.
As of September 24, 2021 there were 39,896,902 shares of common
stock underlying outstanding convertible preferred stock, options,
restricted stock units and warrants. Stockholders may experience
dilution from the conversion of preferred stock, exercise of
outstanding options and warrants and vesting and delivery of
restricted stock units.
As of
September 24, 2021 holders of our outstanding dilutive securities
had the right to acquire the following amounts of underlying common
stock:
●
66,059 shares
issuable on the conversion of our immediately convertible Series A
Convertible Preferred Stock, subject to adjustment, for no further
consideration;
●
21,918,500 shares
issuable upon the exercise of stock options at a weighted-average
exercise price of $0.72 per share;
●
6,495,979 shares
issuable under restricted stock units which vest on dates between
December 12, 2021 and June 22, 2025, subject to the fulfillment of
service or performance conditions;
●
6,776,750 shares of
common stock which have vested under restricted stock unit
agreements, but are subject to provisions to delay delivery;
and
●
4,639,614 shares
issuable upon the exercise of warrants at an exercise price of
$0.80 per share, all of which expire by December 6,
2021.
If the
holders convert, exercise, or receive these securities, or similar
dilutive securities we may issue in the future, stockholders may
experience dilution in the net book value of their common stock. In
addition, the sale or availability for sale of the underlying
shares in the marketplace could depress our stock price. We have
registered or agreed to register for resale substantially all of
the underlying shares listed above. Holders of registered
underlying shares could resell the shares immediately upon
issuance, which could result in significant downward pressure on
our stock price.
Our failure to meet the continued listing requirements of the NYSE
American could result in a de-listing of our common
stock.
Our
common shares are listed on the NYSE American, a national
securities exchange, under the symbol “PTN”. Although
we currently meet the NYSE American’s listing standards,
which generally mandate that we meet certain requirements relating
to stockholders’ equity, market capitalization, aggregate
market value of publicly held shares and distribution requirements,
we cannot assure you that we will be able to continue to meet the
NYSE American’s listing requirements. If we fail to satisfy
the continued listing requirements of the NYSE American, such as
the corporate governance requirements or the minimum closing bid
price requirement, the NYSE American may take steps to de-list our
common stock. If the NYSE American delists our securities for
trading on its exchange, we could face significant material adverse
consequences, including:
●
a limited
availability of market quotations for our securities;
●
reduced liquidity
with respect to our securities;
●
a determination
that our shares of common stock are “penny stock” which
will require brokers trading in our shares of common stock to
adhere to more stringent rules, possibly resulting in a reduced
level of trading activity in the secondary trading market for our
shares of common stock;
●
a limited amount of
news and analyst coverage for our company; and
●
a decreased ability
to issue additional securities or obtain additional financing in
the future.
Such a
de-listing would likely have a negative effect on the price of our
common stock and would impair your ability to sell or purchase our
common stock when you wish to do so. In the event of a de-listing,
we may take actions to restore our compliance with the NYSE
American’s listing requirements, but we can provide no
assurance that any such action taken by us would allow our common
stock to become listed again, stabilize the market price or improve
the liquidity of our common stock, prevent our common stock from
dropping below the NYSE American minimum bid price requirement or
prevent future non-compliance with the NYSE American’s
listing requirements.
The
National Securities Markets Improvement Act of 1996, which is a
federal statute, prevents or preempts the states from regulating
the sale of certain securities, which are referred to as
“covered securities.” Our common shares are considered
to be covered securities because they are listed on the NYSE
American. Although the states are preempted from regulating the
sale of our securities, the federal statute does allow the states
to investigate companies if there is a suspicion of fraud, and, if
there is a finding of fraudulent activity, then the states can
regulate or bar the sale of covered securities in a particular
case. Further, if we were no longer listed on the NYSE American,
our common stock would not be covered securities and we would be
subject to regulation in each state in which we offer our
securities.