RISK FACTORS
An investment in our common stock involves significant risks. Before making an investment in our common stock, you should carefully read all of
the information contained in this prospectus supplement, the accompanying prospectus and in the documents incorporated by reference herein and therein. For a discussion of risks that you should
carefully consider before deciding to purchase any of our common stock, please review the risk factors disclosed below, together with the other information in this prospectus supplement, the
accompanying prospectus, and the information and documents incorporated by reference herein and therein. Any of these risks, as well as additional risks not currently known to us or that we currently
deem immaterial, may adversely affect our business, financial condition, results of operations, and prospects, resulting in a decline in the trading price of our common stock and loss of all or part
of your investment.
Risks Related to this Offering
Our management will have broad discretion over the actual amount and timing of the expenditures of the
proceeds we receive in this offering and might not apply these proceeds in ways that enhance our financial condition or operating results or increase the value of your investment.
We intend to use the net proceeds we receive from this offering to continue to commercialize ARIKAYCE; conduct further trials of ARIKAYCE,
including our required confirmatory trial to assess and describe the clinical benefit of ARIKAYCE in patients with MAC lung disease; conduct further trials of brensocatib (formerly known as INS1007),
including our planned Phase 3 program in bronchiectasis; fund further clinical development of treprostinil palmitil (formerly known as INS1009); invest in third-party manufacturing capacity;
fund business expansion activities in Europe and Japan; and fund working capital, potential debt repayment, capital expenditures, general research and development, and for other general corporate
purposes, which may include the acquisition or in-license of additional compounds, product candidates, technology or businesses. This expected use of our net proceeds from this offering represents our
intentions based upon our current plans and business conditions. The amount and timing of our actual expenditures may vary significantly depending on numerous factors, the most significant of which
are expenses related to our commercialization efforts for ARIKAYCE, and to a lesser extent, expenses related to future brensocatib and ARIKAYCE clinical trials, as well as any strategic transactions
that we may enter into with third parties, and any unforeseen cash needs. Because of the number and variability of factors that will determine our use of the proceeds from this offering, their
ultimate use may vary substantially from their currently intended use. As a result, our management will retain broad discretion over the allocation of the net proceeds we receive from this offering
and could spend the proceeds in ways that do not necessarily improve our financial condition or operating results or enhance the value of our common stock and your investment therein. Additionally,
until the net proceeds we receive are used, they may be placed in investments that do not produce income or that lose value. See "Use of Proceeds" for additional information.
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the
book value of your shares.
The public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock as of
March 31, 2020. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share. After
giving effect to the sale of 9,700,000 shares of our common stock in this offering at the public offering price of $23.25 per share and based on our net
tangible book value as of March 31, 2020 of $1.72 per share, if you purchase shares of common stock in this offering, you will suffer substantial and immediate dilution of $19.55 per share.
Further dilution of your investment will result from, among other things, the future exercise of stock options, vesting of restricted stock units and conversion of some or all of our 1.75% convertible
senior notes due 2025 to the extent we deliver
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shares
upon conversion of the notes. See "Dilution" for a more detailed description of the dilution investors purchasing shares of our common stock in the offering will incur.
A significant portion of our total outstanding shares may be sold into the market at any time, which could
cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. Such sales, or the perception in the
market that the holders of a large number of such shares intend to sell, could reduce the market price of our common stock significantly. In connection with this offering, we and our executive
officers and directors have entered into lock-up agreements with SVB Leerink LLC, as representative of the underwriters, that prohibit us and our executive officers and directors, subject to
certain exceptions or receipt of the prior written consent of SVB Leerink LLC, from disposing or pledging, or hedging against, our common stock or securities convertible into or exchangeable
for shares of our common stock for periods of up to 60 days after the date of this prospectus supplement. However, all of the shares sold in this offering and the remaining shares of our common
stock outstanding immediately prior to this offering will not be subject to lock-up agreements with SVB Leerink LLC and, except to the extent such shares are held by our affiliates, will be
freely tradable without restriction. In addition, SVB Leerink LLC may, in its discretion, release the lock-up restrictions described above at any time without notice.
Risks Related to the Commercialization and Continued Approval of ARIKAYCE
Our prospects are highly dependent on the success of our only approved product, ARIKAYCE, which was approved
in the United States ("U.S.") under the Limited Population Pathway for Antibacterial and Antifungal Drugs ("LPAD") and accelerated approval pathways. If we are unable to successfully commercialize or
maintain approval for ARIKAYCE, our business, financial condition, results of operations and prospects and the value of our common stock will be materially adversely affected.
Our long-term viability and growth depend on the successful commercialization of ARIKAYCE, our only approved product, which has been approved in
the U.S. for the treatment of patients with refractory nontuberculous mycobacterial ("NTM") lung disease caused by MAC (which we refer to as MAC lung disease) as part of a combination antibacterial
drug regimen for adult patients with limited or no alternative treatment options. We have invested and continue to invest significant efforts and financial resources in the commercialization of
ARIKAYCE, and our ability to generate revenue from ARIKAYCE will depend heavily on successfully commercializing and obtaining full regulatory approval for ARIKAYCE by conducting an appropriate
confirmatory post-marketing study. ARIKAYCE was our first commercial launch, and its successful commercialization and our receipt of full regulatory approval for ARIKAYCE in the U.S. are subject to
many risks.
The commercial success of ARIKAYCE will depend on the degree of market acceptance by physicians, patients,
third-party payors and others in the healthcare community.
Despite receiving U.S. Food and Drug Administration ("FDA") approval of ARIKAYCE market acceptance may vary among physicians, patients,
third-party payors or others in the healthcare community. ARIKAYCE was the first product approved via the LPAD pathway, and there is limited information on how this approval may impact market
acceptance of the product. If ARIKAYCE does not achieve and maintain an adequate level of acceptance, it is not likely that we will continue to generate significant revenue or become profitable. The
degree of market acceptance of ARIKAYCE, which we launched in the U.S. early in the fourth quarter of 2018, is also dependent on a number of additional factors, including the
following:
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The willingness of the target patient population to use, and of physicians to prescribe, ARIKAYCE;
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The efficacy and potential advantages of ARIKAYCE over alternative treatments;
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The risk and safety profile of ARIKAYCE, including, among other things, physician and patient concern regarding the boxed warning and other
safety precautions resulting from its association with an increased risk of respiratory adverse reactions, and any adverse safety information that becomes available as a result of longer-term use of
ARIKAYCE;
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Relative convenience and ease of administration;
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The ability of the patient to tolerate ARIKAYCE;
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The pricing of ARIKAYCE;
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The ability and willingness of the patient to pay out of pocket costs for ARIKAYCE, for example, co-payments;
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Sufficient third-party insurance coverage and reimbursement;
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The strength of marketing and distribution support and timing of market introduction of competitive products and treatments; and
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Publicity concerning ARIKAYCE or any potential competitive products and treatments.
Our
efforts to educate physicians, patients, third-party payors and others in the healthcare community on the benefits of ARIKAYCE has required and will continue to require significant
resources, which may be greater than those required to commercialize more established technologies and these efforts may never be successful.
We obtained regulatory approval of ARIKAYCE in the U.S. through an accelerated approval process, and full
approval will be contingent on successful completion of a confirmatory post-marketing study. Failure to obtain full approval or otherwise meet our post-marketing requirements and commitments would
have a material adverse effect on our business.
The FDA approved ARIKAYCE under the LPAD and accelerated approval pathways, and full approval will be based on results from a
post-approval confirmatory clinical trial. Accelerated approval allows drugs that (i) are being developed to treat a serious or life-threatening disease or condition and (ii) provide a
meaningful therapeutic benefit over existing treatments to be approved substantially based on an intermediate endpoint or a surrogate endpoint that is reasonably likely to predict clinical benefit,
rather than a clinical endpoint such as survival or irreversible morbidity. Accelerated approval of ARIKAYCE was supported by preliminary data from the Phase 3 CONVERT study, which evaluated
the safety and efficacy of ARIKAYCE in adult patients with refractory MAC lung disease, using achievement of sputum culture conversion (defined as three consecutive negative monthly sputum cultures)
by Month 6 as the primary endpoint.
As
a condition of accelerated approval, we must conduct a post-approval confirmatory clinical trial. The required confirmatory trial, which is currently under discussion with the FDA, is
proposed to be a randomized, double-blind, placebo-controlled clinical trial to assess and describe the clinical benefit of ARIKAYCE in patients with MAC lung disease. The trial will evaluate the
effect of ARIKAYCE on a clinically meaningful endpoint, as compared to an appropriate control in patients with MAC lung disease. Pursuant to the timetable agreed upon with the FDA when the approval
letter of ARIKAYCE was received, confirmatory trial results are to be reported by 2024. We have initiated efforts to evaluate an appropriate patient reported outcome ("PRO") tool through a short-term
study to enable the assessment of ARIKAYCE for the treatment of MAC lung disease. In parallel, we plan to begin a confirmatory clinical study of ARIKAYCE in a front-line setting of patients with MAC
lung disease in the second half of 2020. We continue to collaborate with the FDA on this timetable as well as the design and validation of the PRO and the post-approval confirmatory clinical trial.
There is little
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precedent
for clinical development and regulatory expectations for agents to treat MAC lung disease. As a result, we may encounter challenges designing this trial, including developing and reaching
agreement with the FDA on the appropriate clinical endpoints, the design of the trial itself and the PRO, and if our PRO is not validated, we would need to develop a new clinical endpoint for the
trial. We may also encounter substantial delays in enrolling and conducting the trial, and we may not be able to enroll and conduct the trial in a manner satisfactory to the FDA or within the time
period required by the FDA. If the confirmatory trial is not successful, the FDA could, among other things, withdraw its approval of ARIKAYCE. Separate from the confirmatory trial, additional results
from ongoing and recently completed studies may affect the FDA's benefit-risk analysis for the product. Additionally, ARIKAYCE is subject to post-marketing commitments consisting of implementation of
a healthcare provider communication plan, conducting a drug utilization assessment, and conducting further studies to identify an optimal quality control in vitro drug release method. Failure to meet
post-marketing commitments may raise additional regulatory challenges.
We remain subject to substantial, ongoing regulatory requirements in the U.S. related to ARIKAYCE, and
failure to comply with these requirements could lead to enforcement action or otherwise materially harm our business.
ARIKAYCE is subject to a variety of manufacturing, packaging, storage, labeling, advertising, promotion, and record-keeping requirements,
including requirements to:
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Conduct sales, marketing and promotion, scientific exchange, speaker programs, charitable donations and educational grant programs in
compliance with federal and state laws;
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Disclose clinical trial information and payments to healthcare professionals and healthcare organizations on publicly available databases;
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Monitor and report complaints, adverse events and instances of failure to meet product specifications; and
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Comply with current good manufacturing practices ("cGMP") and certain quality systems requirements for device components.
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We
provide financial assistance with out-of-pocket costs to patients enrolled in commercial health insurance plans. In addition, independent foundations may assist with out-of-pocket
financial obligations. The ability of these organizations to provide assistance to patients is dependent on funding from external sources, and we cannot guarantee that such funding will be available
at adequate levels, if at all. Patient assistance programs, whether provided directly by manufacturers or charitable foundations, have come under recent government scrutiny. If we are deemed to fail
to comply with relevant laws, regulations or government guidance with respect to these programs, we could be subject to significant fines or penalties.
Any
of these events could reduce market acceptance of ARIKAYCE, substantially reduce our revenue, increase the costs of operating our business, and cause us significant reputational
damage, among other consequences. If we ultimately receive approval for ARIKAYCE in other jurisdictions, we expect to be subject to similar ongoing regulatory oversight by the relevant foreign
regulatory authorities.
If we are unable to obtain adequate reimbursement from government or third-party payors for ARIKAYCE or if we
are unable to obtain acceptable prices for ARIKAYCE, our prospects for generating revenue and achieving profitability will be materially adversely affected.
Our prospects for generating revenue and achieving profitability depend heavily upon the availability of adequate reimbursement for the use of
ARIKAYCE from governmental and other third-party payors, both in the U.S. and in other markets. We expect a substantial majority of ARIKAYCE revenue will come from Medicare reimbursement.
Reimbursement by a third-party payor
depends upon a number of factors, including the third-party payor's determination that use of a product is:
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A covered benefit under its health plan;
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Safe, effective and medically necessary;
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Appropriate for the specific patient;
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Cost-effective; and
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Neither experimental nor investigational.
ARIKAYCE's
potential addition to or exclusion from the guidelines of the American Thoracic Society and Infection Diseases Society of America may also be a factor in this determination.
Obtaining a determination of coverage and reimbursement for a product from each governmental or other third-party payor is a time-consuming and costly process that could require us to provide
supporting scientific, clinical and cost-effectiveness data for the use of our products to each payor. Since commercializing ARIKAYCE, payors have evaluated ARIKAYCE for inclusion on formularies.
Going forward, we may not be able to provide data sufficient to gain positive coverage and reimbursement determinations or we might need to conduct post-marketing studies in order to demonstrate the
cost-effectiveness of ARIKAYCE to such payors' satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources.
Even
when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or
non-US regulatory authorities and/or may set a reimbursement rate that is too low to support a profitable sales price for the product. Payors have restricted and may also continue to restrict coverage
of ARIKAYCE by using a variable co-payment structure that imposes higher costs on patients for drugs that are not
preferred by the payor and by imposing requirements for prior authorization or step edits. Subsequent approvals of competitive products could result in a detrimental change to the reimbursement of our
products. The occurrence of any of these events likely would adversely impact market acceptance and demand for ARIKAYCE, which, in turn, could affect our ability to successfully commercialize
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ARIKAYCE
and adversely impact our business, financial condition, results of operations and prospects and the value of our common stock.
There
is a significant focus in the U.S. healthcare industry and elsewhere on drug prices and value, and public and private payors are taking increasingly aggressive steps to control
their expenditures for pharmaceuticals by, inter alia, negotiating manufacturer discounts and placing restrictions on reimbursement, and patient access to, medications. These pressures could
negatively affect our business. We expect changes in the Medicare program and state Medicaid programs, as well as managed care organizations and other third-party payors, to continue to put pressure
on pharmaceutical product pricing. For instance, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA") expanded Medicare outpatient prescription drug coverage for the
elderly through Part D prescription drug plans sponsored by private entities and authorized such plans to use formularies where they can limit the number of drugs that will be covered in any
therapeutic class. The plans generally negotiate significant price concessions as a condition of formulary placement. The MMA also introduced a new reimbursement methodology based on average sales
prices for physician-administered drugs, which is generally believed to have resulted in lower Medicare reimbursement for physician-administered drugs. These cost reduction initiatives and other
provisions of this legislation provide additional pressure to contain and reduce drug prices and could decrease the coverage and price that we receive for any approved products and could seriously
harm our business. Although the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations when setting their own
reimbursement rates, and any reimbursement reduction resulting from the MMA may result in a similar reduction in payments from private payors. Additionally, the Patient Protection and Affordable Care
Act ("ACA") revised the definition of "average manufacturer price" for reporting purposes and increased the minimum percentage for Medicaid drug rebates to states, required drug manufacturers to
provide a significant discount (70% as of January 1, 2019) on prescriptions for branded drugs filled while the beneficiary is in the Medicare Part D coverage gap (also known as the donut
hole), and imposed a significant annual fee on companies that manufacture or import branded prescription drug products. We believe it is likely that the ACA, or any legislation enacted to amend or
replace it, will continue the pressure on pharmaceutical pricing, especially under the Medicare program, and also may increase our regulatory burdens and operating costs. Such changes may have a
significant impact on our ability to set a product price we believe is fair and may adversely affect our ability to generate revenue and achieve or maintain profitability. For instance, we have
observed an increase in the time to fill prescriptions, particularly for patients that are insured through Medicare, in the first quarter of the year as a result of the donut hole, and, while we do
not expect this situation to extend through the entire year, this situation may recur in the first quarter of subsequent years. We expect further federal and state proposals and healthcare reforms to
continue to be proposed by legislators and/or the U.S. President, which could limit the prices that can be charged for the products we develop or may otherwise limit our commercial opportunity. See
Reimbursement of Pharmaceutical Products in Item 1 of Part I of our
Annual Report on Form 10-K for the year ended December 31, 2019 for more information. In addition, in connection with various government programs, we are required to report certain
pricing information to the government, and the failure to do so may subject us to penalties.
In
markets outside the U.S., including countries in the European Union ("EU"), Japan and Canada, pricing of pharmaceutical products is subject to governmental control. Evaluation
criteria used by many government agencies in EU countries for the purposes of pricing and reimbursement typically focus on a product's degree of innovation and its ability to meet a clinical need
unfulfilled by currently available therapies. The ACA created a similar entity, the Patient-Centered Outcomes Research Institute, designed to review the effectiveness of treatments and medications in
federally-funded healthcare programs. An adverse result could lead to a treatment or product being removed from Medicare or Medicare coverage. The decisions of such governmental agencies could affect
our ability to sell our products profitably.
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We
have had discussions with third-party payors regarding our price for ARIKAYCE, but our pricing may meet resistance from them and the public generally. If we are unable to obtain
adequate reimbursement of ARIKAYCE, the adoption of ARIKAYCE by physicians and patients may be limited. This, in turn, could affect our ability to successfully commercialize ARIKAYCE and adversely
impact our business, financial condition, results of operations and prospects and the value of our common stock.
ARIKAYCE could develop unexpected safety or efficacy concerns, which would likely have a material adverse
effect on us.
ARIKAYCE was granted accelerated approval from the FDA based on Month 6 data from the CONVERT study. In the U.S., ARIKAYCE is now being used by
larger numbers of patients, potentially for longer periods of time, and we and others (including regulatory agencies and private payors) will collect extensive information on the efficacy and safety
of ARIKAYCE by monitoring its use in the marketplace. In addition, we will conduct a confirmatory trial to assess and describe the clinical benefit of ARIKAYCE in patients with MAC lung disease and
may conduct additional trials in connection with lifecycle management programs for ARIKAYCE in the U.S. New safety or efficacy data from both market surveillance and our clinical trials may result in
negative consequences including the following:
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Modification to product labeling or promotional statements, such as additional boxed or other warnings or contraindications, or the issuance of
additional "Dear Doctor Letters" or similar communications to healthcare professionals;
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Required changes in the administration of ARIKAYCE;
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Imposition of additional post-marketing surveillance, post-marketing clinical trial requirements, distribution restrictions or other risk
management measures, such as a risk evaluation and mitigation strategy ("REMS") or a REMS with elements to assure safe use;
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Suspension or withdrawal of regulatory approval;
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Suspension or termination of ongoing clinical trials or refusal by regulators to approve pending marketing applications or supplements to
approved applications;
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Suspension of, or imposition of restrictions on, our operations, including costly new manufacturing requirements with respect to ARIKAYCE; and
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Voluntary or mandatory product recalls or withdrawals from the market and costly product liability claims.
Any
of these circumstances could reduce ARIKAYCE's market acceptance and would be likely to materially adversely affect our business.
If estimates of the size of the potential markets for ARIKAYCE are overstated or data we have used to
identify physicians is inaccurate, our ability to earn revenue to support our business could be materially adversely affected.
We have relied on external sources, including market research funded by us and third parties, and internal analyses and calculations to estimate
the potential market opportunities for MAC lung disease in the U.S., where ARIKAYCE has obtained regulatory approval, as well as other jurisdictions in which we are seeking or plan to seek approval,
including the EU5 (comprised of France, Germany, Italy, Spain and the United Kingdom) and Japan. The externally sourced information used to develop these estimates has been obtained from sources we
believe to be reliable, but we have not verified the data from such sources, and their accuracy and completeness cannot be assured. Similarly, our internal analyses and calculations are based upon
management's understanding and assessment of numerous
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inputs
and market conditions, including, but not limited to, the projected increase in prevalence of MAC lung disease, Medicare patient population growth and ongoing population shifts to geographies
with increased rates of MAC lung disease. These understandings and assessments necessarily require assumptions subject to significant judgment and may prove to be inaccurate. As a result, our
estimates of the size of these potential markets for ARIKAYCE could prove to be overstated, perhaps materially.
In
addition, we are relying on third-party data to identify the physicians who treat the majority of MAC lung disease patients in the U.S. and to determine how to deploy our resources to
market to those physicians; however, we may not be marketing to the appropriate physicians and may therefore be limiting our market opportunity.
We
may develop estimates with respect to market opportunities for product candidates in the future, and such estimates would be subject to similar risks. In addition, a potential market
opportunity could be reduced if a regulator limits the proposed treatment population for one of our product candidates, similar to the limited population for which ARIKAYCE was approved. In either
circumstance, even if we obtain regulatory approval, we may be unable to commercialize the product on a scale sufficient to generate significant revenue from such product candidates, which could have
a material adverse effect
on our business, financial condition, results of operations and prospects and the value of our common stock.
We currently are building our global marketing and sales organization, and we have limited experience in
marketing drug products. If we are unable to successfully market and sell ARIKAYCE, our ability to generate revenue will be adversely affected.
In order to commercialize ARIKAYCE, we must develop marketing, market access, sales and distribution capabilities on our own or make
arrangements with third parties for its marketing, sale and distribution. We have commenced commercialization of ARIKAYCE in the U.S. using our sales force, but we may not continue to be successful in
these efforts. If ARIKAYCE receives marketing approval in Europe, we plan to expand our sales force to support those commercialization efforts. The establishment, development and maintenance of our
own sales force is and will continue to be expensive and time-consuming. As a result, we may seek one or more partners to handle some or all of the sales and marketing of ARIKAYCE in certain markets
outside the U.S. following approval by the relevant regulatory authority in those markets. However, we may not be able to enter into arrangements with third parties to sell ARIKAYCE on favorable terms
or at all. In the event that either our own marketing, market access, and sales force or third-party marketing, market access, and sales organizations are not effective, we would not be able to
successfully commercialize ARIKAYCE, which would adversely affect our ability to generate revenue and materially harm us.
ARIKAYCE was approved for treatment in a limited population of patients with refractory MAC lung disease, and
additional clinical studies and regulatory applications will be required to expand its indication. We may not be successful in these trials or in obtaining such regulatory approval, which may
materially adversely affect our prospects and the value of our common stock.
The FDA granted accelerated approval of ARIKAYCE for the treatment of refractory MAC lung disease as part of a combination antibacterial drug
regimen for adult patients with limited or no alternative treatment options. Our CONVERT study and 312 study focused on this refractory population, and we do not anticipate obtaining an indication for
a broader population of patients with MAC lung disease or any other illnesses or infections without additional clinical data. Additional clinical trials will require additional time and expense. We
expect to conduct our confirmatory clinical trial for full approval of ARIKAYCE in the broader population of patients with MAC lung disease, but this trial, along with any other clinical trials of
ARIKAYCE may not be successful. Additional results from ongoing and recently completed studies may affect the FDA's benefit-risk analysis for the product.
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If
we are unable to expand the indication for use of ARIKAYCE, our prospects and the value of our common stock may be materially adversely affected.
Risks Related to the Development and Regulatory Approval of Our Product Candidates Generally
The reported results of the WILLOW study are based on top-line data and may differ from complete study
results once additional data are evaluated.
The reported results of our WILLOW study consist of only top-line data from the study. Top-line data are based on a preliminary analysis of
currently available efficacy and safety data, and therefore these reported results are subject to change following a comprehensive review of the more extensive data we expect to receive for patients
in the study. Top-line data are based on important assumptions, estimations, calculations and information available to us, and we have not received all analytical outputs to evaluate all of the data
from the WILLOW study. As a result, the top-line data results may differ from the complete data, or different conclusions or considerations may qualify such top-line results, once the complete data
have been fully evaluated. If these top-line data differ from the results of the full data for the WILLOW study, our ability to continue development of, and ultimately seek regulatory approval for,
brensocatib (formerly known as INS1007) may be harmed, which could materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Pharmaceutical research and development is very costly and highly uncertain, and we may not succeed in
developing product candidates in the future.
Product development in the pharmaceutical industry is an expensive, high-risk, lengthy, complicated, resource intensive process. In order to
develop a product successfully, we must, among other things:
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Identify potential product candidates;
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Submit for and receive regulatory approval to perform clinical trials;
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Design and conduct appropriate preclinical and clinical trials, including confirmatory clinical trials, according to good laboratory practices
and good clinical practices and disease-specific expectations of the FDA and other regulatory bodies;
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Select and recruit clinical investigators and subjects for our clinical trials;
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Obtain and correctly interpret data establishing adequate safety of our product candidates and demonstrating with statistical significance that
our product candidates are effective for their proposed indications, as indicated by satisfaction of pre-established endpoints;
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Submit for and receive regulatory approvals for marketing; and
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Manufacture the product candidates and device components according to cGMP and other applicable standards and regulations.
There
is a high rate of failure inherent in this process, and potential products that appear promising at early stages of development may fail for a number of reasons. Importantly,
positive results from preclinical studies of a product candidate may not be predictive of similar results in human clinical trials, and promising results from earlier clinical trials of a product
candidate may not be replicated in later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after
achieving positive results in earlier stages of development and have abandoned development efforts or sought partnerships in order to continue development.
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In
addition, there are many other difficulties and uncertainties inherent in pharmaceutical research and development that could significantly delay or otherwise materially impair our
ability to develop future product candidates, including the following:
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Conditions imposed by regulators, ethics committees or institutional review boards for preclinical testing and clinical trials relating to the
scope or design of our clinical trials, including selection of endpoints and number of required patients or clinical sites;
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Challenges in designing our clinical trials to support potential claims of superiority over current standard of care or future competitive
therapies;
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Restrictions placed upon, or other difficulties with respect to, clinical trials and clinical trial sites, including with respect to potential
clinical holds or suspension or termination of clinical trials due to, among other things, potential safety or ethical concerns or noncompliance with regulatory requirements;
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Delayed or reduced enrollment in clinical trials, or high discontinuation rates;
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Failure by third-party contractors, contract research organizations ("CROs"), clinical investigators, clinical laboratories, or suppliers to
comply with regulatory requirements or meet their contractual obligations in a timely manner;
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Greater than anticipated cost of our clinical trials; and
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Insufficient product supply or inadequate product quality.
Failure
to successfully develop future product candidates for any of these reasons may materially adversely affect our business, financial condition, results of operations and prospects
and the value of our common stock.
We may not be able to obtain regulatory approvals for ARIKAYCE outside of the U.S. or for our product
candidates in the U.S., Europe, Japan or other markets. Any such failure to obtain regulatory approvals may materially adversely affect us.
We are required to obtain various regulatory approvals prior to studying our products in humans and then again before we market and distribute
our products, and the failure to obtain such approvals will prevent us from commercializing our products, which would materially adversely affect our business, financial condition, results of
operations and prospects and the value of our common stock. While we have obtained accelerated approval for ARIKAYCE in the U.S., seeking approval for ARIKAYCE in other jurisdictions as well as
approval for our product candidates in the U.S. and foreign markets presents significant obstacles. Approval processes in the U.S., Europe and Japan require the submission of extensive preclinical and
clinical data, manufacturing and quality information regarding the process and facility, scientific data characterizing our product and other supporting data in order to establish safety and
effectiveness. These processes are complex, lengthy, expensive, resource intensive and uncertain. Regulators will also conduct a rigorous review of any trade name we intend to use for our products.
Even after they approve a trade name, these regulators may request that we adopt an alternative name for the product if adverse event reports indicate a potential
for confusion with other trade names and medication error. If we are required to adopt an alternative name, potential commercialization of ARIKAYCE or our product candidates could be delayed or
interrupted. We have limited experience in submitting and pursuing applications necessary to obtain these regulatory approvals.
Data
submitted to regulators are subject to varying interpretations that could delay, limit or prevent regulatory agency approval. Even if we believe our clinical trial results are
promising, regulators may disagree with our interpretation of data, study design or execution and may refuse to accept our application for review or decline to grant approval. For example, in the
fourth quarter of
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2014,
we filed a marketing authorization application ("MAA") with the European Medicines Agency ("EMA") for ARIKAYCE as a treatment for, among other things, MAC lung disease in adult patients. The
filing was based in part on data from our Phase 2 study in patients with refractory MAC lung disease. We subsequently withdrew our MAA after the Committee for Medicinal Products for Human Use
concluded that the data submitted did not provide sufficient evidence to support an approval.
In
addition, the grant of a designation by the FDA or approval by the FDA does not ensure a similar decision by the regulatory authorities of other countries, and a decision by one
foreign regulatory authority does not ensure regulatory authorities in other foreign countries or the FDA will agree with the decision. For instance, although ARIKAYCE received orphan drug designation
in the US, ARIKAYCE did not qualify for orphan drug designation in Japan due to the estimated number of NTM patients in Japan exceeding 50,000. Similarly, clinical studies conducted in one country may
not be accepted by regulatory authorities in other countries. Approval procedures vary among countries and can involve additional product testing, including additional preclinical studies or clinical
trials, and administrative review periods. The time required to obtain approval in these other territories might differ from that required to obtain FDA approval. For example, in July 2019, we filed a
marketing authorization application ("MAA") with the European Medicines Agency ("EMA") for ARIKAYCE for the treatment of patients with persistent MAC lung infection (the "ARIKAYCE MAA"). In May 2020,
we received the 180-day list of outstanding issues from the CHMP with respect to the ARIKAYCE MAA. In addition, as part of its review of the ARIKAYCE MAA, the EMA's Committee for Medicinal Products
for Human Use ("CHMP") has referred certain questions regarding the clinical benefit and safety of ARIKAYCE in our target patient population to a Scientific Advisory Group for consideration. We plan
to submit our written responses to the CHMP in the second quarter of 2020, and we may subsequently request an oral explanation meeting with the CHMP to discuss the issues raised in the 180-day list of
outstanding issues. We will also have an opportunity to present to the Scientific Advisory Group in connection with its review of the questions referred to it by the CHMP. There can be no assurance
that these efforts will be sufficient or that our MAA will be approved by the CHMP. We may never obtain approval for ARIKAYCE outside of the US or for our product candidates in the US or other
jurisdictions, which could limit our market opportunities and materially adversely affect our business. Even if ARIKAYCE is approved outside of the US or if another product candidate is approved,
regulators may limit the indications for which the product may be marketed, require
extensive warnings on the product labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval.
We
routinely assess regulatory strategies which could expedite the development and regulatory review of our product candidates in the U.S. and other markets, but we may be unsuccessful
in pursuing such strategies. The FDA has denied our request for orphan drug designation for brensocatib in non-cystic fibrosis bronchiectasis ("NCFBE"). In addition, although we believe that
treprostinil palmitil (formerly known as INS1009) could be eligible for approval under Section 505(b)(2), and thus could rely at least in part on studies not conducted by or for us and for
which we do not have a right of reference, we may not obtain approval from the FDA to use this pathway.
We
may also encounter delays or rejections based on changes in regulatory agency policies during the period in which we develop a product and the period required for review of any
application for regulatory agency approval of a particular product. Resolving such delays could force us or third parties to incur significant costs, limit our allowed activities or the allowed
activities of third parties, diminish any competitive advantages that we or our third parties may attain or adversely affect our ability to receive royalties, any of which could materially adversely
affect our business, financial condition, results of operations and prospects and the value of our common stock.
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For ARIKAYCE to be commercialized in a given market, in addition to regulatory approvals required for
ARIKAYCE, the Lamira Nebulizer System must satisfy certain regulatory requirements and its use as a delivery system for ARIKAYCE must be approved or cleared by regulators.
ARIKAYCE is administered using the Lamira Nebulizer System, and the Lamira Nebulizer System must receive regulatory approval or clearance on its
own or in conjunction with ARIKAYCE as a combination product in order for us to develop and commercialize ARIKAYCE in a given market. The FDA granted accelerated approval of the Lamira Nebulizer
System with ARIKAYCE as part of the approval of the drug/device combination product, and the Lamira Nebulizer System is CE marked by PARI in the EU. However, outside the U.S. and EU, the Lamira
Nebulizer System is labeled as investigational for use in our clinical trials, including in Japan, Canada and Australia, and is not approved for commercial use in Japan, Canada or certain other
markets in which we may seek to commercialize ARIKAYCE in the future.
If
we seek regulatory approval in markets in which the Lamira Nebulizer System is not approved and we and PARI are not successful in obtaining approval for the Lamira Nebulizer System,
our ability to
commercialize ARIKAYCE in those markets would be materially impaired. In addition, failure to maintain regulatory approval or clearance of the Lamira Nebulizer System could result in increased
development costs, withdrawal of regulatory approval, and delays in ARIKAYCE reaching the market. Failure to obtain or maintain regulatory approval or clearance of the Lamira Nebulizer System could
result in potential loss of regulatory approval or otherwise materially harm our business.
We have limited experience conducting and managing the preclinical development activities and clinical trials
necessary to obtain regulatory approvals, and we may not succeed in doing so in the future.
ARIKAYCE is our first approved product candidate since our merger with Transave, Inc. ("Transave"), and we have limited experience in
conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory approvals, including approval by the FDA, EMA, Ministry of Health, Labour and Welfare
("MHLW"), and Pharmaceuticals and Medical Devices Agency ("PMDA"), which might prevent us from successfully designing, implementing, or completing the clinical trials required to support regulatory
approval of our product candidates. The application processes for the FDA, MHLW, PMDA, EMA and other regulatory agencies are complex and difficult and vary by regulatory agency, and we might not be
able to demonstrate that our product candidates meet the relevant standards for regulatory approval or commercialize our product candidates in the U.S. or elsewhere, or commercialize ARIKAYCE in
jurisdictions outside of the U.S., or we might be significantly delayed in doing so. In such circumstances, our business, financial condition, results of operations and prospects and the value of our
common stock may be materially adversely affected.
If our clinical studies do not produce positive results or our clinical trials are delayed, or if serious
side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates in the U.S., Europe, Japan or
other markets.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical tests to
demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. If we experience delays in our clinical
trials or other testing or the results of these trials or tests are not positive or are only modestly positive, including with respect to safety, we may:
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Experience increased product development costs;
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Be delayed in obtaining, or be unable to obtain, regulatory approval for one or more of our product candidates;
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Obtain approval for indications or patient populations that are not as broad as intended or entirely different than those indications for which
we sought approval or with labeling with boxed warnings or other warnings or contraindications;
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Need to change the way the product is administered;
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Be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
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Have regulatory authorities withdraw, or suspend, their approval of the product or impose risk mitigation strategies such as restrictions on
distribution or other REMS;
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Face a shortened patent protection period during which we may have the exclusive right to commercialize our products;
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Have competitors that are able to bring similar products to market before us;
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Be sued for alleged injuries caused to patients using our products; or
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Suffer reputational damage.
Such
circumstances would impair our ability to commercialize our products and harm our business and results of operations.
We may not be able to enroll enough patients to conduct and complete our clinical trials or retain a
sufficient number of patients in our clinical trials to generate the data necessary for regulatory approval of our product candidates.
The completion rate of our clinical trials is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function
of many factors, including:
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Investigator identification and recruitment;
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Regulatory approvals to initiate study sites;
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Patient population size;
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The nature of the protocol to be used in the trial;
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Patient proximity to clinical sites;
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Eligibility criteria for the trial;
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Patient willingness to participate in the trial;
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Discontinuation rates; and
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Competition from other companies' potential clinical trials for the same patient population.
Delays
in patient enrollment for our clinical trials, including in the confirmatory clinical trial for ARIKAYCE, like those we encountered in enrolling the CONVERT study, could increase
costs and delay commercialization and sales, if any, of our products. Once enrolled, patients may elect to discontinue participation in a clinical trial at any time. If patients elect to discontinue
participation in our clinical trials at a higher rate than expected, we may be unable to generate the data required by regulators for approval of our product candidates.
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Risks Related to Our Reliance on Third Parties
We rely on third parties including collaborators, CROs, clinical and analytical laboratories, contract
manufacturing organizations ("CMOs") and other providers for many services that are critical to our business. If we are unable to form and sustain these relationships, or if any third-party
arrangements that we may enter into are unsuccessful, including due to non-compliance by such third parties with our agreements or applicable law, our ability to develop and commercialize our products
may be materially adversely affected.
We currently rely, and expect to continue to rely, on third parties for significant research, analytical services, preclinical development,
clinical development and manufacturing of our product candidates and commercial scale manufacturing of ARIKAYCE and the Lamira Nebulizer System. For example, we do not own facilities for
clinical-scale or commercial manufacturing of our product candidates. We currently rely on Therapure Biopharma Inc. ("Therapure") and Ajinimoto Althea, Inc. ("Althea") to provide our
clinical and commercial supply of ARIKAYCE, and intend to rely on Patheon in the future. Additionally, almost all of our clinical trial work is done by CROs and clinical laboratories. Reliance on
these third parties poses a number of risks, including the following:
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The diversion of management time and cost of third-party advisers associated with the negotiation, documentation and implementation of
agreements with third parties in the pharmaceutical industry;
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The inability to control whether third parties devote sufficient resources to our programs or products, including with respect to meeting
contractual deadlines;
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The inability to control the regulatory and contractual compliance of third parties, including their quality systems, processes and procedures,
systems utilized to collect and analyze data, and equipment used to test drug product and/or clinical supplies;
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The inability to establish and implement collaborations or other alternative arrangements on favorable terms;
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Disputes with third parties, including CROs, leading to loss of intellectual property rights, delay or termination of research, development, or
commercialization of product candidates or litigation or arbitration;
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Contracts with our collaborators fail to provide sufficient protection of our intellectual property; and
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Difficulty enforcing our contractual rights if one of these third parties fails to perform.
We
also rely on third parties to select and enter into agreements with clinical investigators to conduct clinical trials to support approval of our product candidates, and the failure of
these third parties to appropriately carry out such evaluation and selection can adversely affect the quality of the data from these studies and, potentially, the approval of our products. In
particular, as part of future drug approval submissions to the FDA, we must disclose certain financial interests of investigators who participated in any of the clinical studies being submitted in
support of approval, or must certify to the absence of such financial interests. The FDA evaluates the information contained in such disclosures to determine whether disclosed interests may have an
impact on the reliability of a study. If the FDA determines that financial interests of any clinical investigator raise serious questions of data integrity, the FDA can institute a data audit, request
that we submit further data analyses, conduct additional independent studies to confirm the results of the questioned study, or refuse to use the data from the questioned study as a basis for
approval. A finding by the FDA that a financial relationship of an investigator raises serious questions of data integrity could delay or otherwise adversely affect approval of our products. These
risks could materially harm our business, financial condition, results of operations and prospects and the value of our common stock.
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We may not have, or may be unable to obtain, sufficient quantities of ARIKAYCE, the Lamira Nebulizer System
or our product candidates to meet our required supply for commercialization or clinical studies, which would materially harm our business.
We do not have any in-house manufacturing capability other than for small-scale pre-clinical development programs and depend completely on a
small number of third-party manufacturers and suppliers for the manufacture of our product candidates on a clinical or commercial scale. For instance, we are and expect to remain dependent upon
Therapure, Althea and eventually Patheon to supply ARIKAYCE both for our clinical trials and commercial sale. Althea manufactures ARIKAYCE at a relatively small scale; Therapure, operates at a larger
scale than Althea. We may not be able to maintain adequate quantities to meet future demand. As additional supporting data become available, we believe the current approved shelf life for product
manufactured at our CMOs will increase. If we encounter delays or difficulties in the manufacturing process that disrupt our ability to supply our distributors with ARIKAYCE, we may experience a
product stock-out, which would likely have a material adverse effect on our business and reputation. In addition, we have entered into certain agreements with Patheon related to increasing our
long-term production capacity for ARIKAYCE commercial inventory, although Patheon's supply obligations will commence only after certain technology transfer and construction services are completed. Any
delay in the commencement of Patheon's supply obligations, whether due to delays in technology transfer and construction or from adding Patheon to our NDA as a CMO, would increase the risks associated
with either Therapure or Althea being unable to provide us with an adequate supply of ARIKAYCE.
We
are also dependent upon PARI being able to provide an adequate supply of nebulizers both for commercial sale of ARIKAYCE and any ongoing clinical trials, as PARI is the sole
manufacturer of the Lamira Nebulizer System. We have no alternative supplier for the nebulizer, and because significant effort and time were expended in the optimization of the nebulizer for use with
ARIKAYCE, we do not intend to seek an alternative or secondary supplier. In the event PARI cannot provide us with sufficient quantities of the nebulizer, replication of the optimized device by another
party would likely require considerable time and additional regulatory approval. In the case of certain specified supply failures, we have the right under our commercialization agreement with PARI to
make the nebulizer and have it made by certain third parties, but not those deemed under the commercialization agreement to compete with PARI.
We
do not have long-term commercial agreements with all of our suppliers and if any of our suppliers are unable or unwilling to perform for any reason, we may not be able to locate
suppliers or enter into favorable agreements with them.
An
inadequate supply of ARIKAYCE or the Lamira Nebulizer System would likely harm our commercial efforts or delay or impair clinical trials of ARIKAYCE or our product candidates and
adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
The manufacturing facilities of our third-party manufacturers are subject to significant government
regulations and approvals, which are often costly and could result in adverse consequences to our business if we and our manufacturing partners fail to comply with the regulations or maintain the
approvals.
Manufacturers of ARIKAYCE, the Lamira Nebulizer System and our product candidates are subject to cGMP, Quality System Regulations and similar
standards. While we have policies and procedures in place to select third-party manufacturers for our product and product candidates that adhere, and monitor their adherence to, such standards, they
may nonetheless fail to do so. Similarly, while we have entered into a Commercialization Agreement with PARI for the manufacture of the Lamira Nebulizer System for use with ARIKAYCE, PARI may fail to
adhere to applicable standards. These manufacturers and their facilities will be subject to periodic review and inspections by the FDA
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and
other regulatory authorities following regulatory approval of our products, as with ARIKAYCE. For instance, to monitor compliance with applicable regulations, the FDA routinely conducts
inspections of facilities and may identify potential deficiencies. The FDA issues what are referred to as "Form 483s" that set forth observations and concerns identified during its inspections.
Failure to satisfactorily address the concerns or potential deficiencies identified in a Form 483 could result in the issuance of a warning letter, which is a notice of the issues that the FDA
believes to be significant regulatory violations requiring prompt corrective actions. Failure to respond adequately to a warning letter, or to otherwise fail to comply with applicable regulatory
requirements could result in enforcement, remedial and/or punitive actions by the FDA or other regulatory authorities.
If
one of these manufacturers fails to maintain compliance with regulatory requirements or experiences supply problems, including in the scale-up of commercial production, the production
of ARIKAYCE, the Lamira Nebulizer System and our product candidates could be interrupted, resulting in delays, additional costs or restrictions on the marketing or sale of our products. An alternative
manufacturer would need to be qualified, through regulatory filings, which could result in further delay. The regulatory authorities may also require additional testing if a new manufacturer is relied
upon for commercial production. In addition, with respect to our product candidates, our manufacturers and their facilities are subject to pre-approval cGMP inspection by the FDA and other regulatory
authorities, and the findings of the cGMP inspection could result in a failure to obtain, or a delay in obtaining, regulatory approval for future product candidates.
Risks Related to the Operation of our Business
The novel coronavirus (COVID-19) pandemic and efforts to reduce its spread have negatively impacted, and
could continue to negatively impact, our business and operations.
Our global operations expose us to risks associated with public health crises and pandemics, including COVID-19, particularly as the patients we
seek to treat suffer from serious and rare diseases that may make them especially vulnerable. The degree to which COVID-19 affects us will depend on developments that are highly uncertain and beyond
our knowledge or control, including, but not limited to, the duration and severity of the pandemic, the actions taken to reduce its transmission, and the speed with which and the extent to which
normal economic and operating conditions resume.
We
modified our business practices in March 2020 in an effort to allow infectious disease specialists and pulmonologists to focus on critical COVID-19 relief efforts and to aid in the
global containment effort, including through implementation of a remote working policy for all employees. The remote working policy includes all of our field-based therapeutic specialists and
employees who support ARIKAYCE prescribers. If our remote working policy continues and the focus of pulmonologists and infectious disease specialists remains on COVID-19, we expect that our business
and results of operations in future periods could be negatively impacted. We also may take further actions as required by government authorities or that we determine are in the best interests of our
employees, patients, partners, and suppliers in the future that harm our ability to promote ARIKAYCE or support patients beginning treatment with ARIKAYCE, which could negatively impact our business
and results of operations.
COVID-19
may also have an adverse impact on our operations and supply chain as a result of (i) our or our third-party manufacturers' employees or other key personnel becoming
infected, (ii) preventive and precautionary measures that governments and we and other businesses, including our third-party manufacturers, are taking, such as border closures, prolonged
quarantines and other travel restrictions, and (iii) shortages of supplies necessary for the manufacture of ARIKAYCE, including as a result of government orders providing for the requisition of
personal protective equipment and other medical supplies and equipment. Any of these circumstances could impact the ability of third parties on which we rely to manufacture ARIKAYCE or its components
and our ability
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to
perform critical functions, which could significantly hamper our ability to supply ARIKAYCE to patients. While we have experienced no disruption to date in our supply chain, if we encounter delays
or difficulties in the manufacturing process that disrupt our ability to supply ARIKAYCE, we may not be able to satisfy patient demand or we may experience a product stock-out, which would likely have
a material adverse effect on our business.
The
COVID-19 pandemic could also require us to delay the start of new clinical trials or otherwise impair our ability to complete those trials. For instance, our ability to enroll
patients and retain principal investigators and site staff could be impaired due to an outbreak in their geography or prioritization of hospital resources toward the outbreak, or as a result of
quarantines and other travel restrictions that interrupt healthcare services. Furthermore, patients, investigators, or site staff may be unwilling or unable to comply with clinical trial protocols due
to COVID-19 illness, concerns about the pandemic, or quarantines or other travel restrictions that impede their movement. Additionally, any interruption in the supply of the study drug might delay our
ability to start or complete clinical trials. Significant delays in the timing and completion of our clinical trials are costly and could adversely affect our ability to satisfy our post-marketing
requirements for ARIKAYCE and to obtain regulatory approval for and to commercialize our product candidates.
We are dependent upon retaining and attracting key personnel, the loss of whose services could materially
adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
We depend heavily on our management team and our principal clinical and commercial personnel, the loss of whose services might significantly
delay or prevent the achievement of our research, development or commercialization objectives. Our success depends, in large part, on our ability to attract and retain qualified management, clinical
and commercial personnel, and on our ability to develop and maintain important relationships with commercial partners, leading research institutions and key distributors.
Competition
for skilled personnel in our industry and market is intense because of the numerous pharmaceutical and biotechnology companies that seek similar personnel. These companies
may have greater financial and other resources, offer a greater opportunity for career advancement and have a longer history in the industry than we do. We also experience competition for the hiring
of our clinical and commercial personnel from universities, research institutions, and other third parties. We cannot assure that we will attract and retain such persons or maintain such
relationships. Our inability to retain and attract qualified employees would materially harm our business, financial condition, results of operations and prospects and the value of our common stock.
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may
encounter difficulties in managing our growth, which could disrupt our operations.
In connection with our commercialization of ARIKAYCE in the U.S. and international expansion efforts, we expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs, quality, commercial compliance, medical affairs, and sales and
marketing. For example, we plan to hire additional personnel to support our commercialization of ARIKAYCE and preparation for potential regulatory filings for ARIKAYCE in other markets. To manage our
anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified
personnel. Due to the limited experience of our management team in managing a company with this anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit
and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management
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and
business development resources. We may not be able to effectively manage the expansion of our operations, which could delay the execution of our business plans or disrupt our operations.
Any acquisitions we make, or collaborative relationships we enter into, may not be clinically or commercially
successful, and may require financing or a significant amount of our available cash, which could adversely affect our business.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and
personnel. Acquisitions involve a number of operational risks, including:
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Failure to achieve expected synergies;
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Difficulty and expense of assimilating the operations, technology and personnel of any acquired business;
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The inability to retain the management, key personnel and other employees of any acquired business;
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The inability to maintain any acquired company's relationship with key third parties, such as alliance partners;
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Exposure to legal claims or other liabilities for activities of any acquired business prior to acquisition;
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Diversion of our management's attention from our core business; and
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Potential impairment of intangible assets, adversely affecting our reported results of operations and financial condition.
We
also may enter into collaborative relationships that would involve our collaborators conducting proprietary development programs. Disagreements with collaborators may develop over the
rights to our intellectual property, and any conflict with our collaborators could limit our ability to obtain future collaboration agreements and negatively influence our relationship with existing
collaborators.
If
we make one or more significant acquisitions or enter into a significant collaboration in which the consideration includes cash, we may be required to use a substantial portion of our
available cash and/or need to raise additional capital, which could adversely affect our financial condition.
We may be subject to product liability claims, and we have only limited product liability insurance.
The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims, particularly as we now
commercialize ARIKAYCE in the U.S. Regardless of merit or eventual outcome, liability claims may result in:
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Decreased demand for ARIKAYCE and any other products that we may commercialize, and a corresponding loss of revenue;
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Substantial monetary awards to patients or trial participants;
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Significant time and costs to defend the related litigation;
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Withdrawal or reduced enrollment of clinical trial participants; and
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Reputational harm and significant negative media attention.
We
currently have only limited product liability insurance for our products. We do not know if we will be able to maintain existing, or obtain additional, product liability insurance on
acceptable terms or with adequate coverage against potential liabilities. This type of insurance is expensive and may not be
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available
on acceptable terms. If we are unable to obtain or maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims, we may be
unable to commercialize our products. A successful product liability claim brought against us in excess of our insurance coverage, if any, may require us to pay substantial amounts and may materially
adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Our business and operations, including our drug development programs, could be materially disrupted in the
event of system failures, security breaches, violations of data protection laws or data loss or damage by us or our CROs or other contractors or consultants.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business
information and that of our suppliers, as well as personally identifiable information of clinical trial participants and employees. Despite the implementation of security measures, our internal
computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and
telecommunication and electrical failures. Such an event could have a material adverse effect on our business operations, including a material disruption of our drug development and commercialization
programs. Unauthorized disclosure of sensitive or confidential patient or employee data, including personally identifiable information, whether through breach of computer systems, systems failure,
employee negligence, fraud or misappropriation, or otherwise, or unauthorized access to or through our information systems and networks, whether by our employees or third parties, could result in
negative publicity, legal liability and damage to our reputation. Unauthorized disclosure of personally identifiable information could also expose us to sanctions for violations of data privacy laws
and regulations around the world. In addition, the loss of clinical trial data for our product candidates could result in delays in our regulatory submission and approval efforts and significantly
increase our costs to recover or reproduce the data, if possible. To the extent that any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate
disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed. For example, the loss of or damage to clinical
trial data, such as from completed or ongoing clinical trials, for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data.
Although
we have general liability insurance coverage, including coverage for errors and omissions, our insurance may not cover all claims, continue to be available on reasonable terms
or be sufficient in amount to cover one or more large claims; additionally, the insurer may disclaim coverage as to any claim. The successful assertion of one or more large claims against us that
exceed or are not covered by our insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on
our business, financial condition, results of operations and prospects and the value of our common stock.
We have limited experience operating internationally, are subject to a number of risks associated with our
international activities and operations and may not be successful in our efforts to expand internationally.
We currently have limited operations outside of the U.S. As of December 31, 2019, we had 47 employees located in Europe and 15 employees
located in Japan, although we have clinical trial sites and suppliers located around the world. In order to meet our long-term goals, we expect to grow our international operations over the next
several years, including in Europe and Japan, and continue to source material used in the manufacture of our product candidates from abroad. Consequently, we are and will continue to be subject to
risks related to operating in foreign countries, including:
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Limited experience with international regulatory requirements;
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An inability to achieve optimal pricing and reimbursement for ARIKAYCE, if approved in another jurisdiction, or subsequent changes in
reimbursement, pricing and other regulatory requirements;
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Any implementation of, or changes to, tariffs, trade barriers and other import-export regulations in the U.S. or other countries in which we,
or our third-party partners, operate;
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Unexpected adverse events related to ARIKAYCE or our product candidates occurring in foreign markets that we have not experienced in the U.S.;
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Economic and political conditions, including geopolitical events, such as war and terrorism, foreign currency fluctuations and inflation, which
could result in reduced revenue, increased or unpredictable operating expenses and other obligations incident to doing business in, or with a company located in, another country;
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Changes resulting from the UK's exit from the EU, including: (i) the uncertainty and instability in economic and market conditions;
(ii) the uncertainty regarding the UK's access to the EU Single Market and the impact on the wider trading, legal, regulatory and labor environments; and (iii) the uncertainty in the
European regulatory framework, including the relocation of the EMA from the UK to the Netherlands, and the subsequent potential disruption and delay of EMA regulatory actions and, following the
transition period, UK regulatory actions; and
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Compliance with foreign or U.S. laws, rules and regulations, including data privacy requirements, labor relations laws, tax laws,
anti-competition regulations, import, export and trade restrictions, anti-bribery/anti-corruption laws, regulations or rules, which could lead to actions by us or our distributors, manufacturers,
other third parties who act on our behalf or with whom we do business in foreign countries or our employees who are working abroad that could subject us to investigation or prosecution under such
foreign or U.S. laws.
These
and other risks associated with our international operations may materially adversely affect our business, financial condition, results of operations and prospects and the value of
our common stock.
We operate in a highly competitive and changing environment, and if we are unable to adapt to our
environment, we may be unable to compete successfully.
Biotechnology and related pharmaceutical technology have undergone and are likely to continue to experience rapid and significant change. Our
future success will depend in large part on our ability to maintain a competitive position with respect to these technologies and to obtain
and maintain protection for our intellectual property. Compounds, products or processes that we develop may become obsolete before we recover any expenses incurred in connection with their
development. We face substantial competition from pharmaceutical, biotechnology and other companies, universities and research institutions with respect to NTM lung disease, bronchiectasis, and
pulmonary arterial hypertension ("PAH"). Relative to us, most of these entities have substantially greater capital resources, research and development staffs, facilities and experience in conducting
clinical studies, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. Many of our competitors may achieve product commercialization or obtain patent protection
earlier than us. Furthermore, we believe that our competitors have used, and may continue to use, litigation to gain a competitive advantage. Our competitors may also use different technologies or
approaches to develop products similar to ARIKAYCE and our product candidates.
We
expect that competing successfully will depend, among other things, on the relative speed with which we can develop products, complete the clinical testing and regulatory approval
processes and supply commercial quantities of the product to the market, as well as product efficacy, safety, reliability, availability, timing and scope of regulatory approval and price. We expect
competition to increase as
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technological
advances are made and commercial applications broaden. There are potential competitive products, both approved and in development, which include oral, systemic, or inhaled antibiotic
products to treat chronic respiratory infections. For instance, certain entities have expressed interest in studying their products for lung disease and are seeking to advance studies in lung disease,
including NTM lung disease caused by mycobacterial species other than MAC. We are not aware of any entities currently conducting clinical trials for the treatment of refractory MAC lung disease or of
any other approved inhaled therapies specifically indicated for NTM lung disease in North America, Europe or Japan. If any of our competitors develops a product that is more effective, safe, tolerable
or, convenient or less expensive than ARIKAYCE or our product candidates, it would likely materially adversely affect our ability to generate revenue. We also may face lower priced generic competitors
if third-party payors encourage use of generic or lower-priced versions of our product or if competing products are imported into the U.S. or other countries where we may sell ARIKAYCE. In addition,
in an effort to put downward pressure on drug pricing, Congress and the FDA are working to facilitate generic competition, which could result in our experiencing competition earlier than otherwise
would be the case.
There
are also other amikacin products that have been approved by the FDA, MHLW and other regulatory agencies for use in other indications, and physicians may elect to prescribe those
products rather than ARIKAYCE to treat the indications for which ARIKAYCE has received approval, which is commonly referred to as off-label use. Although regulations prohibit a drug company from
promoting off-label use of its product, the FDA and other regulatory agencies do not regulate the practice of medicine and cannot direct physicians as to what product to prescribe to their patients.
As a result, we would have limited ability to prevent any off-label use of a competitor's product to treat diseases for which we have received FDA or other regulatory agency approval, even if this use
violates our patents or any statutory exclusivities that the FDA may grant for the use of amikacin to treat such diseases. If
we are unable to compete successfully, it will materially adversely affect our business, financial condition, results of operations and prospects and the value of our common stock.
Risks Related to Our Intellectual Property
If we are unable to protect our intellectual property rights adequately, the value of ARIKAYCE and our
product candidates could be materially diminished.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal, technical,
scientific and factual questions, and our success depends in large part on our ability to protect our proprietary technology and to obtain and maintain patent protection for our products, prevent
third parties from infringing our patents, both domestically and internationally. We have sought to protect our proprietary position by filing patent applications in the U.S. and abroad related to our
novel technologies and products that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent
applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain
patent protection. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from using our technologies or from developing competing products and
technologies.
Even
if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection or otherwise provide us with any
competitive advantage. Any conclusions we may reach regarding non-infringement, inapplicability or invalidity of a third-party's intellectual property vis-à-vis our proprietary rights,
or those of a licensor, are based in significant part on a review of publicly available databases and other information. There may be information not available to us or otherwise not reviewed by us
that could render these conclusions
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inaccurate.
Our competitors may also be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.
Additionally,
patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or circumvented through litigation, which could limit our ability
to stop competitors from marketing similar products or reduce the term of patent protection for amikacin liposome inhalation suspension or our product candidates. US patents and patent applications
may also be subject to interference or derivation proceedings, and US patents may be subject to re-examination proceedings, reissue, post-grant review and/or inter
partes review in the USPTO. Our foreign patents have been and may be in the future subject to opposition or comparable proceedings in the corresponding foreign patent office,
which could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. See Intellectual Property-ARIKAYCE Patents
and Trade Secrets in Item 1 of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2019 for more information on our European patents that have been previously opposed.
Changes
in either patent laws or in interpretations of patent laws in the U.S. and other countries may also diminish the value of our intellectual property or narrow the scope of our
patent protection, including making it easier for competitors to challenge our patents. For example, the America Invents Act included a number of changes to established practices, including the
transition to a first-inventor-to-file system and new procedures for challenging patents and implementation of different methods for invalidating patents.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the
value of ARIKAYCE and our product candidates could be materially diminished.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, advisors, collaborators, and other third parties and
partners to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information or may not provide an adequate remedy in
the event of unauthorized disclosure of confidential information. In addition, third parties may independently develop or discover our trade secrets and proprietary information. Regulators also may
disclose information we consider to be proprietary to third parties under certain circumstances, including in response to third-party requests for such disclosure under the Freedom of Information Act
or comparable laws. Additionally, the FDA, as part of its Transparency Initiative, continues to consider whether to make additional information publicly available on a routine basis, including
information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time whether and how the FDA's disclosure policies may change in the future.
We may not be able to enforce our intellectual property rights throughout the world, which could harm our
business.
The legal systems of some foreign countries, particularly developing countries, do not favor the enforcement of patents and other intellectual
property protection, especially those relating to life sciences. Many companies have encountered significant problems in protecting and defending intellectual property rights in such foreign
jurisdictions. For example, certain foreign countries have compulsory licensing laws under which a patent owner may be required to grant licenses to third parties. In addition, many countries limit
the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. This legal environment
could make it difficult for us to stop the infringement of our patents or in-licensed patents or the misappropriation of our other intellectual property rights. Proceedings to
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enforce
our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, and our efforts to protect our
intellectual property rights in such countries may be inadequate.
The drug research and development industry has a history of intellectual property litigation, and we could
become involved in costly intellectual property disputes, which could delay or impair our product development efforts or prevent us from, or increase the cost of, commercializing ARIKAYCE or any other
approved product candidate.
Third parties may claim that we have infringed upon or misappropriated their proprietary rights. Any existing third-party patents, or patents
that may later issue to third parties, could negatively affect our commercialization of ARIKAYCE, brensocatib, treprostinil palmitil or any other product candidate that receives regulatory approval.
For instance, PAH is a competitive indication with established products, including other formulations of treprostinil. Our supply of the active pharmaceutical ingredient for treprostinil palmitil is
dependent upon a single supplier. The supplier owns patents on its manufacturing process, and we have filed patent applications for treprostinil palmitil; however, a competitor in the PAH indication
may claim that we or our supplier have infringed upon or misappropriated its proprietary rights. Moreover, in the event that we pursue approval of treprostinil palmitil, or any other product
candidate, via the 505(b)(2) regulatory pathway, we will be required to file a certification against any unexpired patents listed in the Orange Book for the third-party drug we rely upon as
part of our regulatory submission. This certification process may lead to litigation and could also delay launch of a product candidate, if approved by regulators.
In
the event of successful litigation or settlement of claims against us for infringement or misappropriation of a third-party's proprietary rights, as in 2007 with respect to IPLEX, we
may be required to take actions including but not limited to the following:
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Paying damages, including up to treble damages, royalties, and the other party's attorneys' fees, which may be substantial;
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Ceasing development, manufacture, marketing and sale of products or use of processes that infringe the proprietary rights of others;
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Expending significant resources to redesign our products or our processes so that they do not infringe the proprietary rights of others, which
may not be possible, or may result in significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and/or
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Acquiring one or more licenses from third parties, which may not be available to us on acceptable terms or at all.
We
may also have to undertake costly litigation or engage in other proceedings, such as interference or inter partes review, to enforce or
defend the validity of any patents issued or licensed to us, to confirm the scope and validity of our or a licensor's proprietary rights or to defend against allegations that we have infringed a
third-party's intellectual property rights.
Any
proceedings regarding our intellectual property rights are likely to be time consuming and may divert management attention from operation of our business, and could have a material
adverse effect on our business, financial condition, results of operations and prospects and the value of our common stock.
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Certain of the agreements to which we are, or may become, a party relating to ARIKAYCE and our product
candidates impose, or may in the future impose, restrictions on our business or other material obligations on us. If we fail to comply with these obligations, our business could be adversely affected,
including as a result of the loss of license rights that are important to our business.
We are a party to various agreements related to ARIKAYCE and our product candidates, including licensing agreements with PARI and AstraZeneca,
which we view as material to our business. For additional information regarding the terms of these agreements, see Business-License and Other Agreements
in Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019. These agreements impose a number of obligations on us and our business,
including restrictions on our ability to freely develop or commercialize our product candidates and requirements to make milestone and royalty payments to our counterparties upon certain events. Under
our license agreement with AstraZeneca, AstraZeneca retains a right of first negotiation pursuant to which it may exclusively negotiate with us before we can negotiate with a third-party regarding any
transaction to develop or commercialize brensocatib, subject to certain exceptions. While this right of first negotiation is not triggered by a change of control, it may impede or delay our ability to
consummate certain other transactions involving brensocatib.
If
we fail to comply with our obligations under these agreements, our counterparties may have the right to take action against us, up to and including termination of a relevant license.
For instance, under our licensing agreement with PARI, with respect to NTM lung disease and bronchiectasis, we have specific obligations to use commercially reasonable efforts to achieve certain
developmental and regulatory milestones by set deadlines. Additionally, for NTM lung disease, we are obligated to use commercially reasonable efforts to achieve certain commercial milestones in
Europe. The consequences of our failing to use commercially reasonable efforts to achieve certain commercial milestones are context-specific, but include ending PARI's non-compete obligation, making
the license non-exclusive and terminating the license, in each case with respect to the applicable indication. Similarly, under our license agreement with AstraZeneca, AstraZeneca may terminate our
license to brensocatib if we fail to use commercially reasonable efforts to develop and commercialize a product based on brensocatib, or we are subject to a bankruptcy or insolvency. Reduction or
elimination of our licensed rights may result in our having to negotiate new or reinstated licenses with less favorable terms and may materially harm our business.
Finally,
if we do not proceed with the development of our ARIKAYCE program in the NTM lung disease or cystic fibrosis indications, certain of our contract counterparties may elect to
proceed with the development of these indications.
Risks Related to Government Regulation
Government healthcare reform could materially increase our costs, which could materially adversely affect our
business, financial condition, results of operations and prospects and the value of our common stock.
Our industry is highly regulated and changes in or revisions to laws and regulations that make gaining regulatory approval, reimbursement and
pricing more difficult or subject to different criteria and standards may adversely impact our business, operations or financial results.
The
Administration and the majority party in the Senate have indicated their ongoing desire to repeal the ACA and, in December 2017, Congress repealed the ACA's individual mandate,
i.e., the penalty imposed on individuals who do not obtain healthcare coverage. It is unclear what the effect of this partial repeal will be and whether, when and how repeal of other sections
of the law may be effectuated and what the effect on the healthcare sector will be. In December 2018, a federal district court judge in Texas found the ACA to be unconstitutional, although the ruling
was stayed while the case is appealed. In December 2019, the U.S. Court of Appeals for the Fifth Circuit found the individual mandate to be unconstitutional and remanded the case to the district court
to determine
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whether
the individual mandate provision is severable from the rest of the law. The district court's ruling remains stayed pending appeal. It is unclear what the outcome of this litigation and other
pending challenges to the ACA's constitutionality, as well as the effect of these matters on the healthcare sector, will be. The U.S. President has indicated an interest in taking steps to lower drug
prices, such as having the federal government negotiate drug prices with pharmaceutical manufacturers and/or in indexing certain federally reimbursement payments to international drug prices. See Reimbursement of
Pharmaceutical Products in Item 1 of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2019 for more information. Changes to the ACA, to the Medicare or Medicaid programs, or to the ability of the federal government to negotiate or otherwise affect drug prices, or
other federal legislation regarding healthcare access, financing or legislation in individual states, could affect our business, financial condition, results of operations and prospects and the value
of our common stock. It remains unclear how any new legislation or regulation might affect the prices
we may obtain for ARIKAYCE or any of our product candidates for which regulatory approval is obtained.
If we are found in violation of federal or state "fraud and abuse" laws, we may be required to pay a penalty
or may be suspended from participation in federal or state healthcare programs, which may adversely affect our business, financial condition, results of operations and prospects and the value of our
common stock.
In the U.S., we are subject to various federal and state healthcare "fraud and abuse" laws, including anti-kickback laws, false claims laws and
other laws intended to reduce fraud and abuse in federal and state healthcare programs. Although we seek to structure our business arrangements in compliance with all applicable requirements, these
laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under
these laws. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines or exclusion or suspension from federal and state healthcare programs such as
Medicare and Medicaid and debarment from contracting with the U.S. government, and our business, financial condition, results of operations and prospects and the value of our common stock may be
adversely affected. Our reputation could also suffer. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under
the false claims laws of several states.
Under
the ACA, we are required to report information on payments or transfers of value to U.S. physicians and teaching hospitals, which is posted in searchable form on a public website.
Failure to submit required information may result in civil monetary penalties.
Several
states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. In addition to the federal government,
some states, as well as other countries, including France, require the disclosure of certain payments to healthcare professionals. The federal privacy regulations under the Health Insurance
Portability and Accountability Act, state, and foreign medical record privacy laws may limit access to information identifying those individuals who may be prospective users. There are ambiguities as
to what is required to comply with these requirements, and we could be subject to penalties if it is determined that we have failed to comply with an applicable legal requirement.
We are subject to anti-corruption laws and trade control laws, as well as other laws governing our
operations. If we fail to comply with these laws, we could be subject to negative publicity, civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our
business, financial condition, results of operations and prospects and the value of our common stock.
Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act ("FCPA"), the UK Bribery Act and other
anti-corruption laws that apply in countries where we do business. The FCPA, UK Bribery Act and these other laws generally prohibit us, our employees and
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our
intermediaries from making prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We conducted the 312 study and the
WILLOW study, our global Phase 2 study of brensocatib in NCFBE, at a broad range of trial sites around the world. Certain of these jurisdictions pose a risk of potential FCPA violations, and we
have relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect
of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
We
are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce's Bureau of Industry and
Security, the U.S. Department of Treasury's Office of Foreign Assets Control, and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries
and persons, customs requirements, currency exchange regulations and transfer pricing regulations (collectively, "Trade Control laws").
We
may not be effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not
in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal
expenses, which could have an adverse impact on our business, financial condition, results of operations and prospects and the value of our common stock. Likewise, even an investigation by US or
foreign authorities of potential violations of the FCPA other anti-corruption laws or Trade Control laws could have an adverse impact on our reputation, business, financial condition, results of
operations and prospects and the value of our common stock.
If another party obtains orphan drug exclusivity for a product that is essentially the same as a product we
are developing for a particular indication, we may be precluded or delayed from commercializing the product in that indication.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition. The company that
obtains the first regulatory approval from the FDA for a designated orphan drug for a rare disease generally receives marketing exclusivity for use of that drug for the designated condition for a
period of seven years. Similar laws exist in the EU with a term of 10 years. See Business-Government Regulation-Orphan Drug Designation in
Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information. If a competitor obtains approval of the same drug for
the same indication or disease before us, and the FDA grants such orphan drug exclusivity, we would be prohibited from obtaining approval for our product for seven or more years, unless our product
can be shown to be clinically superior. In addition, even if we obtain orphan exclusivity, the FDA may approve another product during our orphan exclusivity period for the same indication under
certain circumstances.
Our research, development and manufacturing activities used in the production of ARIKAYCE and our product
candidates involve the use of hazardous materials, which could expose us to damages, fines, penalties and sanctions and materially adversely affect our results of operations and financial condition.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research and development program and manufacturing activities for ARIKAYCE and our product candidates involve the
controlled use of hazardous materials and chemicals. We generally contract with third parties for the disposal of these materials and wastes. Although we strive to comply with all pertinent
regulations, the risk of environmental contamination, damage to facilities or injury to personnel from the accidental or improper use or control of these
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materials
remains. In addition to any liability we could have for any misuse by us of hazardous materials and chemicals, we could also potentially be liable for activities of our CMOs or other third
parties. Any such liability, or even allegations of such liability, could materially adversely affect our results of operations and financial condition. We also could incur significant costs as a
result of civil or criminal fines and penalties.
In
addition, we may incur substantial costs to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may
impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to Our Financial Condition and Need for Additional Capital
We have a history of operating losses, expect to incur operating losses for the foreseeable future and may
never achieve or maintain profitability.
We have incurred losses each previous year of our operation, except in 2009, when we sold our manufacturing facility and certain other assets to
Merck & Co, Inc. As of March 31, 2020, our accumulated deficit was $1.6 billion. For the three months ended March 31, 2020, our consolidated net loss was
$66.4 million. For the years ended December 31, 2019, 2018 and 2017, our consolidated net loss was $254.3 million, $324.3 million and $192.6 million, respectively.
Our ability to generate revenue will depend on the success of commercial sales of ARIKAYCE; however, we do not anticipate our revenue from the sale of ARIKAYCE will be sufficient for us to become
profitable without reductions in our operating expenses. Despite our commercialization of ARIKAYCE in the U.S., we expect to continue to incur substantial operating expenses, and resulting operating
losses, for the foreseeable future as we:
-
-
Initiate or continue clinical studies of our product candidates;
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-
Initiate a post-marketing clinical trial of ARIKAYCE, as required by the FDA;
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Seek to discover or in-license additional product candidates;
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Seek regulatory approvals for ARIKAYCE in foreign markets;
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Scale-up manufacturing capabilities for future ARIKAYCE production, including the increase of production capacity at Patheon and process
improvements in order to manufacture at a larger commercial scale; and
-
-
Enhance operational, compliance, financial, quality and information management systems and hire more personnel, including personnel to support
our commercialization efforts and development of our product candidates.
Even
if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
We may need to raise additional funds to continue our operations, but we face uncertainties with respect to
our ability to access capital.
Our operations have consumed substantial amounts of cash since our inception. We expect to expend substantial financial resources to
commercialize ARIKAYCE, including expenditures on product sales, marketing, manufacturing and distribution, fund the confirmatory post-marketing study for ARIKAYCE and continue research and
development of and, where applicable, seek regulatory approval for ARIKAYCE and our product candidates. We may need to raise additional capital to fund these activities, including due to changes in
our product development plans or misjudgment of expected costs, to fund corporate development, to maintain our intellectual property portfolio or for other purposes,
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including
to resolve litigation. As of March 31, 2020, we had $428.9 million of cash and cash equivalents on hand. We will continue to consume cash to fund our operations, including
continued commercialization of ARIKAYCE and future clinical trials related to ARIKAYCE, to design and conduct a Phase 3 program for brensocatib, to develop treprostinil palmitil, and to
develop, acquire, in-license or co-promote other products or product candidates, including those that address orphan or rare diseases. We do not know whether additional financing will be available
when needed, or, if available, whether the terms will be favorable. If adequate funds are not available to us when needed, we may be forced to delay, restrict or eliminate all or a portion of our
development programs or commercialization efforts.
We have outstanding indebtedness in the form of convertible senior notes, and may incur additional
indebtedness in the future, which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders.
In January 2018, we completed an underwritten public offering of 1.75% convertible senior notes due 2025 (the "Convertible Notes"). The
Convertible Notes may be convertible into common stock at an initial conversion rate of 25.5384 shares of common stock per $1,000 principal amount of Convertible Notes. We sold $450.0 million
aggregate principal amount of the Convertible Notes, including the exercise in full of the underwriters' option to purchase additional Convertible Notes, resulting in net proceeds of approximately
$435.8 million. Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding
October 15, 2024 only under certain circumstances. On or after October 15, 2024 until the close of business on the second scheduled trading day immediately preceding the maturity date,
holders may convert their Convertible Notes at any time. Upon conversion of the Convertible Notes, we may deliver cash, shares of our common stock or a combination of cash and shares of our common
stock, at our election.
The
degree to which we are leveraged could have negative consequences, such as the following:
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-
We may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing
economic conditions;
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Our ability to obtain financing in the future may be limited;
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-
A substantial portion of our cash flows from operations in the future may be required for the payment of the principal amount of the
Convertible Notes when they or any additional indebtedness become due; and
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-
We may elect to make cash payments upon conversion of the Convertible Notes, which would reduce our available cash.
Our
ability to pay principal or interest on or, if desired, to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to
economic, financial, competitive and other factors, some of which are beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy any obligations
under the Convertible Notes to make cash payments to noteholders or our obligations under any future indebtedness we may incur. If we are unable to generate such cash flow, we may be required to
delay, restrict or eliminate all or a portion of our development programs or commercialization efforts or refinance or obtain additional equity capital on terms that may be onerous or highly dilutive.
If we do not meet our debt obligations, it could materially adversely affect our results of operations, financial condition and the value of our common stock.
The
conversion of some or all of the Convertible Notes will dilute the ownership interests of our existing shareholders to the extent we deliver shares upon their conversion. Any sales
in the public market of the common stock issuable upon such conversion could adversely affect prevailing market
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prices
of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to
satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.
The accounting method for the Convertible Notes may have an adverse effect on our reported financial results.
Accounting guidance requires that we separately account for the liability and equity components of the Convertible Notes because they may be
settled entirely or partially in cash upon conversion in a manner that reflects our economic interest cost. As a result, the equity component of the Convertible Notes is required to be included in the
additional paid-in capital section of shareholders' equity on our consolidated balance sheet, and the value of the equity component is treated as original issue discount for purposes of accounting for
the debt component of the Convertible Notes. We may report greater net loss (or lower net income) in our financial results because this guidance requires interest to include both the current period's
amortization of the debt discount and the instrument's coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading
price of the Convertible Notes.
Holders
may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding October 15, 2024 only under
certain circumstances. For example, after the quarter ending March 31, 2018, holders may convert their Convertible Notes at their option during any quarter (and only during such quarter) if the
last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately
preceding quarter is greater than or equal to 130% of the conversion price on each applicable trading day. If the Convertible Notes become convertible prior to October 15, 2024, we may be
required to reclassify our Convertible Notes and the related debt issuance costs as current liabilities and certain portions of our equity outside of equity to mezzanine equity, which would have an
adverse impact on our reported financial results for such quarter, and could have an adverse impact on the market price of our common stock and the trading price of the Convertible Notes.
Intangible assets comprised approximately 8% of our total assets as of March 31, 2020. A reduction in
the value of our intangible assets could have a material adverse effect on our results of operations, financial condition and the value of our common stock.
As a result of the merger with Transave in 2010, we recorded an intangible in-process research and development ("IPRD") asset of
$77.9 million and goodwill of $6.3 million on our balance sheet. As a result of the clinical hold on ARIKAYCE announced in late 2011, we recorded a charge of $26.0 million in the
fourth quarter of 2011 that reduced the value of IPRD to $58.2 million and reduced goodwill to zero. In addition, in September 2018 we recorded an additional $1.7 million in intangible
assets related to a milestone to PARI as a result of FDA approval of ARIKAYCE. As of March 31, 2020, the balance of these intangibles, net of amortization was $50.9 million and
$1.5 million, respectively. Future activities or events could result in additional write-downs of these intangible assets, which could materially adversely affect our results of operations,
financial condition and the value of our common stock.
We may be unable to use certain of our net operating losses and other tax assets.
We have substantial tax loss carry forwards for U.S. federal income tax and state income tax purposes, and beginning in 2015, we had tax loss
carry forwards in Ireland as well. In general, our net operating losses and tax credits have been fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these
tax benefits. In particular, our ability to fully use certain US tax loss carry forwards and general business tax credit carry forwards recorded prior to December 2010 to
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offset
future income or tax liability is limited under section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). Changes in the ownership of our stock, including those
resulting from the issuance of shares of our common stock offerings or upon exercise of outstanding options, may limit or eliminate our ability to use certain net operating losses and tax credit carry
forwards in the future.
Risks Related to Ownership of Our Common Stock
The market price of our stock has been and may continue to be highly volatile, which could lead to
shareholder litigation against us.
Our common stock is listed on the Nasdaq Global Select Market under the ticker symbol "INSM". The market price of our stock has been and may
continue to be highly volatile and could be subject to wide fluctuations in price in response to various factors, including those discussed herein, many of which are beyond our control. In addition,
the stock market has from time to time experienced extreme price and volume fluctuations, which have particularly affected the market prices for emerging biotechnology and pharmaceutical companies
like us, and which have often been unrelated to their operating performance.
Historically,
when the market price of a stock has been volatile, shareholders are more likely to institute securities and derivative class action litigation against the issuer of such
stock. We previously faced a shareholder suit following a decline in our stock price. If any of our shareholders bring a lawsuit against us in the future, it could have a material adverse effect on
our business. We have insurance policies related to some of the risks associated with our business, including directors' and officers' liability insurance policies; however, our insurance coverage may
not be sufficient and our insurance carriers may not cover all claims in a given litigation. If we are not successful in our defense of claims asserted in shareholder litigation, those claims are not
covered by insurance or they exceed our insurance coverage, we may have to pay damage awards, indemnify our executive officers, directors and third parties from damage awards that may be entered
against them and pay our and their costs and expenses incurred in defense of, or in any settlement of, such claims. In addition, such shareholder suits could divert the time and attention of
management from our business.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and
arrangements between us and our employees could hamper a third-party's acquisition of, or discourage a third-party from attempting to acquire control of us.
Certain provisions of Virginia law, our articles of incorporation and amended and restated bylaws and arrangements with our employees could
hamper a third-party's acquisition of, or discourage a third-party from attempting to acquire control of, us or limit the price that investors might be willing to pay for shares of our common stock.
These provisions or arrangements include:
-
-
The ability to issue preferred stock with rights senior to those of our common stock without any further vote or action by the holders of our
common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock or could adversely affect the rights and
powers, including voting rights, of the holders of our common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock.
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-
The existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus
expanding the time required to change the composition of a majority of directors.
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-
The requirement that shareholders provide advance notice when nominating director candidates to serve on our board of directors.
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Table of Contents
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The inability of shareholders to convene a shareholders' meeting without the chairman of the board, the president or a majority of the board of
directors first calling the meeting.
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-
The prohibition against entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a
period of three years after the 10% or greater owner first reached that level of stock ownership, unless certain criteria are met.
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-
In addition to severance agreements with our officers and provisions in our incentive plans that permit acceleration of equity awards upon a
change in control, a severance plan for eligible full-time employees that provides such employees with severance equal to six months of their then-current base salaries in connection with a
termination of employment without cause upon, or within 18 months following, a change in control.
We
previously had a shareholder rights plan, or "poison pill," which expired in May 2011. Under Virginia law, our board of directors may implement a new shareholders' rights plan without
shareholder approval. Our board of directors intends to regularly consider this matter, even in the absence of specific circumstances or takeover proposals, to facilitate its future ability to quickly
and effectively protect shareholder value.
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Table of Contents
DESCRIPTION OF DEBT SECURITIES
We may issue, separately or together with, or upon conversion, exercise or exchange of other securities, debt securities, including debentures,
notes, bonds and other evidences of indebtedness as set forth in the applicable prospectus supplement. The debt securities will be our direct obligations, either secured or unsecured, and may include
convertible debt securities. The debt securities may be our senior, senior subordinated or subordinated obligations. The debt securities will be issued under an indenture between us and Wells Fargo
Bank, National Association, as trustee, which we may amend or supplement from time to time. This prospectus, together with the applicable prospectus supplement, will describe the terms of a particular
series of debt securities that we may offer from time to time. The indenture will be qualified under the Trust Indenture Act of 1939, as amended.
The
following summary of the material provisions of the indenture and the debt securities does not purport to be complete and is subject to, and is qualified in its entirety by reference
to, the provisions of the indenture and certificate evidencing the applicable debt securities. Therefore, you should carefully consider the form of indenture that is filed as an exhibit to the
registration statement that includes this prospectus. Other specific terms of the indenture and debt securities will be described in the applicable prospectus supplement. If any particular terms of
the indenture or debt securities described in a prospectus supplement differ from any of the terms described below, then the terms described below will be deemed to have been superseded by that
prospectus supplement. In this description of the debt securities, the words "we," "us" or "our" refer only to Insmed Incorporated and not to our subsidiaries, unless we otherwise expressly state or
the context otherwise requires.
General
Debt securities may be issued in one or more series without limitation as to aggregate principal amount. We may specify a maximum aggregate
principal amount for the debt securities of any series. We are not limited as to the amount of debt securities that we may issue under the indenture. The terms of each series of debt securities will
be established by or pursuant to a resolution of our board of directors and set forth or determined in the manner provided in a resolution of our board of directors, in an officer's certificate or by
a supplemental indenture. The prospectus supplement relating to a particular series of debt securities will set forth the material terms of the debt securities being offered,
including:
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-
the title of the debt securities;
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-
the offering price;
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-
the principal amount being offered, and if a series, the total amount authorized and the total amount outstanding;
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-
any limit on the aggregate principal amount that may be issued;
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-
the person to whom any interest on a debt security will be payable, if other than the person in whose name that debt security is registered at
the close of business on the record date for such interest;
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-
the date or dates on which the principal of any debt securities is payable;
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-
the interest rate or rates (which may be fixed or variable) at which the debt securities will bear interest, if any, the date or dates from
which any such interest will accrue, the interest payment dates on which any such interest will be payable and the record date for any such interest payable on any interest payment date (or the method
of determining the dates or rates);
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-
the place or places where the principal of and any premium and interest on the debt securities will be payable;
6
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-
the period or periods within which, the price or prices at which and the terms and conditions upon which the debt securities may be redeemed,
in whole or in part, at our option and, if other than by a resolution of the board of directors, the manner in which any election by us to redeem the debt securities will be evidenced;
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-
the obligation, if any, of ours to redeem or repurchase the debt securities pursuant to any sinking fund or analogous provisions or at the
option of a holder and the period or periods within which, the price or prices at which and the terms and conditions upon which the debt securities will be redeemed or repurchase, in whole or in part,
pursuant to such obligation;
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-
if other than in denominations of $1,000 or any integral multiple thereof, the denominations in which the debt securities will be issuable;
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-
if the amount of principal of or any premium or interest on the debt securities may be determined with reference to an index or pursuant to a
formula, the manner in which such amounts will be determined;
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-
if other than U.S. currency, the currency, currencies or currency units in which the principal of or any premium or interest on the debt
securities will be payable and the manner of determining the equivalent thereof in U.S. currency for any purpose, and whether we or a holder may elect payment to be made in a different currency;
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-
if the principal of or any premium or interest on the debt securities is to be payable, at our election or a holder, in one or more currencies
or currency units other than that or those in which such debt securities are stated to be payable, the currency, currencies or currency units that the principal of or any premium or interest on such
debt securities as to which such election is made will be payable, the periods within which and the terms and conditions upon which such election is to be made and the amount so payable (or the manner
in which such amount will be determined);
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-
if other than the entire principal amount thereof, the portion of the principal amount of the debt securities that will be payable upon
declaration of acceleration of maturity thereof;
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-
if the principal amount payable at stated maturity of the debt securities will not be determinable as of any one or more dates prior to stated
maturity, the amount which will be deemed to be the principal amount of such debt securities as of any such date for any purpose, including the principal amount thereof that will be due and payable
upon maturity other than the state maturity or that will be deemed to be outstanding as of any date prior to the stated maturity (or, in each case, the manner that such amount deemed to be the
principal amount will be determined);
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-
if applicable, whether the debt securities will be subject to the defeasance provisions described below under "Satisfaction and Discharge;
Defeasance" or such other defeasance provisions specified in the applicable prospectus supplement for the debt securities and, if other than by a resolution of the board of directors, the manner in
which any election by us to defease such debt securities will be evidenced;
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-
if applicable, the terms of any right or obligation to convert or exchange debt securities, including, if applicable, the conversion or
exchange rate or price, the conversion or exchange period, provisions as to whether conversion or exchange will be mandatory, at the option of a holder or at our option, the events requiring an
adjustment of the conversion price or exchange price and provisions affecting conversion or exchange if such debt securities are redeemed;
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whether or not the debt securities rank as senior debt, senior subordinated debt, subordinated debt or any combination thereof, and the terms
of any subordination;
7
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the forms of the debt securities and whether the debt securities will be issuable in whole or in part in the form of one or more global
securities, and if so, the respective depositaries for such global securities, the form of any legend or legends that will be borne by any such global securities in addition to or in lieu of that set
forth in the indenture and any circumstances in addition to or in lieu of those set forth in the indenture in which any such global security may be exchanged in whole or in part for debt securities
registered, and any transfer of such global security in whole or in part may be registered, in the name or names of the persons other than the depositary for such global security or a nominee thereof;
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-
any deletion of, addition to or change in the events of default which applies to the debt securities and any change in the right of the trustee
or the requisite holders of such debt securities to declare the principal amount thereof due and payable pursuant to the indenture;
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-
any deletion of, addition to or change in the covenants set forth in the indenture which apply to the debt securities;
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any authenticating agents, paying agents, security registrars or such other agents necessary in connection with the issuance of the debt
securities, including exchange rate agents and calculations agents;
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-
if applicable, any terms of any security provided for the debt securities, including any provisions regarding the circumstances under which
collateral may be released or substituted;
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-
if applicable, the terms of any guaranties for the debt securities and any circumstances under which there may be additional obligors on the
debt securities; and
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-
any other terms of such debt securities.
If
we denominate the purchase price of any of the debt securities in a foreign currency or currencies, or if the principal of or premium, if any, or interest on any series of debt
securities is payable in a foreign currency or currencies, we will include in the applicable prospectus supplement information on the restrictions, elections, material federal income tax
considerations, specific terms and other information with respect to that issue of debt securities and the foreign currency or currencies.
Unless
otherwise specified in the applicable prospectus supplement, the debt securities will be registered debt securities. Debt securities may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. The U.S. federal income tax considerations applicable to debt securities
sold at a discount will be described in the applicable prospectus supplement.
Exchange and Transfer
Debt securities may be transferred or exchanged at the office of the security registrar or at the office of any transfer agent designated by us
for this purpose.
We
will not impose a service charge for any transfer or exchange, but we may require holders to pay any tax or other governmental charges associated with any transfer or exchange.
In
the event of any partial redemption of debt securities of any series, we will not be required to:
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-
issue, register the transfer of or exchange any debt security of that series during a period beginning at the opening of business
15 days before the day of sending a notice of redemption and ending at the close of business on the day of sending such notice; or
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-
register the transfer of or exchange any debt security of that series selected for redemption, in whole or in part, except the unredeemed
portion being redeemed in part.
8
Initially,
we will appoint the trustee as the security registrar. Any transfer agent, in addition to the security registrar initially designated by us, will be named in the applicable
prospectus supplement. We may designate additional transfer agents or change transfer agents or change the office of the transfer agent. However, we will be required to maintain a transfer agent in
each place of payment for the debt securities of each series.
Global Securities
The debt securities of any series may be represented, in whole or in part, by one or more global securities. Each global security
will:
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-
be registered in the name of a depositary, or its nominee, that we will identify in a prospectus supplement;
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be delivered to the depositary or nominee or custodian;
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bear any required legends; and
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constitute a single debt security.
No
global security may be exchanged in whole or in part for debt securities registered in the name of any person other than the depositary or any nominee
unless:
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the depositary has notified us that it is unwilling or unable to continue as depositary or has ceased to be qualified to act as depositary;
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an event of default has occurred and is continuing with respect to the debt securities of the applicable series; or
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any other circumstance described in the applicable prospectus supplement has occurred permitting or requiring the issuance of any such
security.
Conversion or Exchange
If any debt securities being offered are convertible into or exchangeable for our common stock or other securities, the relevant prospectus
supplement will set forth the terms of conversion or exchange. Those terms will include, as applicable, the conversion or exchange price or rate, the conversion or exchange period, provisions as to
whether conversion or exchange is mandatory, at the option of the holder or at our option, the number of shares of common stock or other securities, or the method of determining the number of shares
of common stock or other securities, to be received by the holder upon conversion or exchange, the events requiring an adjustment of the conversion price or exchange price and provisions affecting
conversion or exchange if such series of debt securities are redeemed. These provisions may allow or require the number of shares of our common stock or other securities to be received by the holders
of such series of debt securities to be adjusted.
Payment and Paying Agents
Unless otherwise indicated in the prospectus supplement applicable to a series of debt securities, the provisions described in this paragraph
will apply to the debt securities. Payment of interest on a debt security on any interest payment date will be made to the person in whose name the debt security is registered at the close of business
on the regular record date. Payment on debt securities of a particular series will be payable at the office of a paying agent or paying agents designated by us. However, at our option, we may pay
interest by mailing a check or by wire transfer to the record holder. The trustee will be designated as our initial paying agent.
We
may also name any other paying agents in the prospectus supplement applicable to a series of debt securities. We may designate additional paying agents, change paying agents or change
the office
9
of
any paying agent. However, we will be required to maintain a paying agent in each place of payment for the debt securities of a particular series.
All
moneys paid by us to a paying agent for payment on any debt security that remain unclaimed for a period ending the earlier of:
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10 business days prior to the date the money would be turned over to the applicable state; and
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at the end of two years after such payment was due, will be repaid to us thereafter. The holder may look only to us for such payment.
No Protection in the Event of a Change of Control
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, the debt securities will not
contain any provisions that may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction, whether or not such
transaction results in a change in control.
Covenants
We will set forth in the prospectus supplement any financial or restrictive covenants applicable to any issue of a particular series of debt
securities.
Consolidation, Merger and Sale of Assets
Unless otherwise indicated in a prospectus supplement with respect to a particular series of debt securities, we may not consolidate with or
merge into any other person, in a transaction in which we are not the surviving corporation, or sell, convey, transfer or lease all or substantially all our properties and assets to, any entity,
unless:
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the successor entity, if any, is a corporation, limited liability company, partnership, trust or other business entity existing under the laws
of the United States, any State within the United States or the District of Columbia;
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the successor entity assumes our obligations under the debt securities and the applicable indenture;
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immediately after giving effect to the transaction, no default or event of default shall have occurred and be continuing; and
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certain other conditions specified in the indenture are met regarding our delivery of our officer's certificate and opinion of counsel to
trustee.
Notwithstanding
the above, any of our subsidiaries may consolidate with, merge into, sell or transfer all or part of its properties to us.
Events of Default
Unless we indicate otherwise in a prospectus supplement with respect to a particular series of debt securities, the following will be events of
default for any series of debt securities under the indenture:
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(1)
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we
fail to pay any interest on any debt security of that series when it becomes due and we subsequently fail to pay such interest for 30 days;
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(2)
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we
fail to pay principal of or any premium on any debt security of that series when due;
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(3)
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we
fail to perform, or breach, any other covenant or warranty in the applicable indenture and such failure continues for 90 days after we are given the notice
required in the indenture; and
10
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(4)
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certain
bankruptcy, insolvency or reorganization events with respect to us.
Additional
or different events of default applicable to a series of debt securities may be described in the prospectus supplement for that series. An event of default for one series of
debt securities is not necessarily an event of default for any other series of debt securities.
Within
90 days after the occurrence of any default under the indenture with respect to the debt securities of any series that is known to a responsible officer of the trustee, the
trustee will give the
holders of the debt securities of such series notice of such default as and to the extent provided by the Trust Indenture Act.
The
trustee may withhold notice to the holders of any default, except defaults in the payment of principal, premium, if any, interest, any sinking fund installment on, or with respect to
any conversion right of, the debt securities of such series. However, the trustee must consider it to be in the interests of the holders of the debt securities of such series to withhold this notice.
Unless
we indicate otherwise in a prospectus supplement, if an event of default, other than an event of default described in clause (4) above, shall occur and be continuing with
respect to any series of debt securities, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding securities of that series may declare the principal amount
and premium, if any, of the debt securities of that series, or if any debt securities of that series are original issue discount securities, such other amount as may be specified in the applicable
prospectus supplement, in each case together with accrued and unpaid interest, if any, thereon, to be due and payable immediately.
If
an event of default described in clause (4) above shall occur, the principal amount and premium, if any, of all the debt securities of that series, or if any debt securities of
that series are original issue discount securities, such other amount as may be specified in the applicable prospectus supplement, in each case together with accrued and unpaid interest, if any,
thereon, will automatically become immediately due and payable without any declaration or other action on the part of the trustee or any holder.
After
acceleration, the holders of a majority in aggregate principal amount of the outstanding securities of that series may, under certain circumstances, rescind and annul such
acceleration if all events of default, other than the non-payment of accelerated principal, or other specified amounts or interest, have been cured or waived.
Other
than the duty to act as a prudent person during an event of default, the trustee will not be obligated to exercise any of its rights or powers at the request of the holders unless
the holders shall have offered to the trustee indemnity reasonably satisfactory to it. Generally, the holders of a majority in aggregate principal amount of the outstanding debt securities of any
series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee.
A
holder of debt securities of any series will not have any right to institute any proceeding under the indenture, or for the appointment of a receiver or a trustee, or for any other
remedy under the indenture, unless:
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(1)
-
the
holder has previously given to the trustee written notice of a continuing event of default with respect to the debt securities of that series;
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(2)
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the
holders of at least a majority in aggregate principal amount of the outstanding debt securities of that series have made a written request to the trustee and
have offered to the trustee security or indemnity reasonably satisfactory to the trustee to institute the proceeding; and
11
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(3)
-
the
trustee has failed to institute the proceeding and has not received direction inconsistent with the original request from the holders of a majority in aggregate
principal amount of the outstanding debt securities of that series within 60 days after the original request.
Holders
may, however, sue to enforce the payment of principal, premium or interest on any debt security on or after the due date or to enforce the right, if any, to convert any debt
security (if the debt security is convertible) without following the procedures listed in clauses (1) through (3) immediately above.
To
the extent any debt securities are outstanding, we will furnish the trustee an annual statement as to whether or not we are in default in the performance of the conditions and
covenants under the indenture and, if so, specifying all known defaults.
Modification and Waiver
Unless we indicate otherwise in a prospectus supplement, we and the applicable trustee may make modifications and amendments to an indenture
with the consent of the holders of a majority in aggregate principal amount of the outstanding securities of each series affected by the modification or amendment.
We
may also make modifications and amendments to the indenture for the benefit of holders without their consent, for certain purposes including, but not limited
to:
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providing for our successor to assume the covenants under the indenture;
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adding covenants and/or events of default;
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making certain changes to facilitate the issuance of the debt securities;
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securing the debt securities, including provisions relating to the release or substitution of collateral;
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providing for guaranties of, or additional obligors on, the debt securities;
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providing for a successor trustee or additional trustees;
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curing any ambiguities, defects or inconsistencies;
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conforming the terms to the description of the terms of the securities in an offering memorandum, prospectus supplement or other offering
document;
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any other changes that do not adversely affect the rights or interest of any holder;
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complying with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture
Act; and
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complying with the applicable procedures of the applicable depositary.
However,
neither we nor the trustee may make any modification or amendment without the consent of the holder of each outstanding debt security affected by the modification or amendment
if such modification or amendment would:
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change the stated maturity of any debt security;
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reduce the principal, premium, if any, or interest on any debt security or any amount payable upon redemption or repurchase, whether at our
option or the option of any holder, or reduce the amount of any sinking fund payments;
12
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reduce the principal of an original issue discount security or any other debt security payable on acceleration of maturity;
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change the currency in which any debt security is payable;
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impair the right to enforce any payment after the stated maturity or redemption date of such debt security;
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reduce the percentage in principal amount of outstanding securities of any series required for the consent of holders for any supplemental
indenture or for any waiver provided for in the indenture;
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adversely affect the right to convert any debt security if the debt security is a convertible debt security; or
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change the provisions in the indenture that relate to modifying or amending the indenture, except to increase any such percentage or to provide
that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each outstanding debt security affected thereby.
Except
for certain specified provisions, the holders of at least a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all debt
securities of that series waive our compliance with provisions of the indenture. The holders of not less than a majority in principal amount of the outstanding debt securities of any series may on
behalf of the holders of all the debt securities of such series waive any past default under the indenture with respect to that series and its consequences,
except:
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a default in the payment of the principal of or any premium or interest on any debt security of that series as and when the same will become
due and payable by the terms thereof, otherwise than by acceleration; or
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in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the holder of each
outstanding security of such series affected by such default.
Satisfaction and Discharge; Defeasance
We may be discharged from our obligations under the debt securities of any series that have matured or will mature or be redeemed within one
year, subject to limited exceptions, if we deposit enough money with the trustee to pay all of the principal, interest and any premium due to the stated maturity date or redemption date of the debt
securities.
The
indenture contains a provision that permits us to elect either or both of the following:
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We may elect to be discharged from all of our obligations, subject to limited exceptions, with respect to any series of debt securities then
outstanding. If we make this election, the holders of the debt securities of the series will not be entitled to the benefits of the indenture, except for the rights of holders to receive payments on
debt securities or the registration of transfer and exchange of debt securities and replacement of lost, stolen or mutilated debt securities.
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We may elect to be released from our obligations under some or all of any financial or restrictive covenants applicable to the series of debt
securities to which the election relates and from the consequences of an event of default resulting from a breach of those covenants.
To
make either of the above elections, we must irrevocably deposit in trust with the trustee enough money to pay in full the principal, interest and premium on the debt securities and
satisfy certain other conditions described in the indenture. This amount may be deposited in cash and/or U.S. government
13
obligations
or, in the case of debt securities denominated in a currency other than U.S. dollars, cash in the currency in which such series of securities is denominated and/or foreign government
obligations. As one of the conditions to either of the above elections, for debt securities denominated in U.S. dollars, we must deliver to the trustee an opinion of counsel that the holders of the
debt securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the action.
"Foreign
government obligations" means, with respect to debt securities of any series that are denominated in a currency other than United States
dollars:
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-
direct obligations of the government that issued or caused to be issued the currency in which such securities are denominated and for the
payment of which obligations its full faith and credit is pledged, or, with respect to debt securities of any series which are denominated in euros, direct obligations of certain members of the
European Union for the payment of which obligations the full faith and credit of such members is pledged, which in each case are not callable or redeemable at the option of the issuer thereof;
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-
obligations of a person controlled or supervised by or acting as an agency or instrumentality of a government described in the bullet above,
the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by such government, which are not callable or redeemable at the option of the issuer thereof; or
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-
any depository receipt issued by a bank as custodian with respect to any obligation specified in the first two bullet points and held by such
bank for the account of the holder of such deposit any receipt, or with respect to any such obligation which is so specified and held.
"U.S.
government obligations" means:
-
(1)
-
any
security which is:
-
-
a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of
America is pledged, which is not callable or redeemable at the option of the issuer thereof or
-
-
an obligation of a person controlled or supervised by or acting as an agency or instrumentality of the United States of America
the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which is not callable or redeemable at the option of the issuer thereof; and
-
(2)
-
any
depository receipt issued by a bank as custodian with respect to any U.S. government obligation specified in the two bullet points above and held by such bank
for the account of the holder of such deposit any receipt, or with respect to any specific payment of principal of or interest on any U.S. government obligation which is so specified and held,
provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the U.S. government obligation or the specific payment of principal or interest evidenced by such depositary receipt.
Notices
Notices to holders will be delivered in person, mailed by first-class mail (registered or certified, return receipt requested), sent by
facsimile transmission, email or overnight air courier guaranteeing next day delivery. If any debt securities are in the form of global securities, notices will be sent in accordance with the
applicable rules and procedures of the depositary.
14
Governing Law; Wavier of Jury Trial; Jurisdiction
The indenture and the debt securities will be governed by, and construed under, the laws of the State of New York.
The
indenture will provide that we, the trustee and the holders of the debt securities (by their acceptance of the debt securities) irrevocably waive, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to the indenture, the debt securities or the transactions contemplated thereby.
The
indenture will provide that any legal suit, action or proceeding arising out of or based upon the indenture, the securities or the transactions contemplated thereby may be instituted
in the Federal courts of the United States of America located in the City of New York or the courts of the State of
New York in each case located in the City of New York, and we, the trustee and the holder of the debt securities irrevocably submit to the non-exclusive jurisdiction of such courts in any such suit,
action or proceeding. The indenture will further provide that service of any process, summons, notice or document by any method permitted under the indenture (to the extent allowed under any
applicable statute or rule of court) to such party's address set forth in the indenture will be effective service of process for any suit, action or other proceeding brought in any such court. The
indenture will further provide that we, the trustee and the holders of the debt securities (by their acceptance of the debt securities) irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the courts specified above and irrevocably and unconditionally waive and agree not to plead or claim any such suit, action or other
proceeding has been brought in an inconvenient forum.
No Personal Liability of Directors, Officers, Employees and Shareholders
No incorporator, shareholder, employee, agent, officer, director or subsidiary of ours will have any liability for any obligations of ours, or
because of the creation of any indebtedness, under the debt securities, the indenture, or in any board resolution, officer's certificate or supplemental indenture. The indenture provides that all such
liability is expressly waived and released as a condition of, and as a consideration for, the execution of such indenture and the issuance of the debt securities.
Regarding the Trustee
The accompanying prospectus supplement will specify the trustee for the particular series of debt securities to be issued under the indenture.
The
indenture will limit the right of the trustee, should it become our creditor, to obtain payment of claims or secure its claims.
The
trustee is permitted to engage in certain other transactions with us. However, if the trustee acquires any conflicting interest, and there is a default under the debt securities of
any series for which it is trustee, the trustee must eliminate the conflict or resign.