MACK Merrimack Pharmaceuticals Inc

Item 1. Business

Overview

We are a biopharmaceutical company discovering, developing and commercializing innovative medicines consisting of novel therapeutics paired with diagnostics for the treatment of cancer. We were founded by a team of scientists from The Massachusetts Institute of Technology and Harvard University who sought to develop a systems biology-based approach to biomedical research. The core of our approach to systems biology is to apply multidisciplinary and multitechnology capabilities to build functional and predictive computational models of biological systems, such as cell signaling networks, that allow us to engineer treatments that are directed at the mechanisms of disease. We view cancer as a complex engineering challenge. Through systems biology, which brings together the fields of biology, computing and engineering, we aim to decrease uncertainty in drug development and clinical validation, and move discovery efforts beyond trial and error. Our mission is to employ these insights to provide patients, physicians and the healthcare system with the medicines, tools and information to deliver integrated healthcare solutions that improve both the quality of outcomes and the efficiency of care.

We have one marketed therapeutic oncology product and multiple targeted therapeutic oncology candidates in clinical development. Our most advanced program is our therapeutic MM-398, which we market in the United States under the brand name ONIVYDE. On October 22, 2015, the U.S. Food and Drug Administration, or FDA, approved the use of ONIVYDE in combination with fluorouracil, or 5-FU, and leucovorin for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy. In addition, on October 18, 2016, the European Commission granted marketing authorization to our collaboration partner Baxalta for ONIVYDE in combination with 5-FU and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the pancreas who have progressed following gemcitabine-based therapy.

On January 7, 2017, we entered into an Asset Purchase and Sale Agreement, or asset sale agreement, with Ipsen pursuant to which Ipsen will acquire our right, title and interest in the non-cash assets, equipment, inventory, contracts and intellectual property primarily related to or used in our business operations and activities involving or relating to developing, manufacturing and commercializing ONIVYDE and our generic version of doxorubicin hydrochloride (HCl) liposome injection, or MM-436. The transaction described in the asset sale agreement is referred to as the asset sale. Ipsen will not acquire our rights to $33.0 million in net milestone payments that may become payable pursuant to our license and collaboration agreement with Baxalta, or the Baxalta agreement, among other excluded assets. Pursuant to the asset sale agreement, Ipsen will pay us $575.0 million in cash (subject to a working capital adjustment as provided in the asset sale agreement) and will assume certain related liabilities. Following the closing of the asset sale, we may be entitled to up to $450.0 million of additional payments based on achievement by or on behalf of Ipsen of certain milestone events related to FDA approval of ONIVYDE for certain indications as described in the asset sale agreement.

The consummation of the transaction with Ipsen is subject to customary closing conditions, including, among others: (i) the receipt of the approval of our stockholders; (ii) the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which waiting periods expired on February 22, 2017; (iii) the absence of a breach of our representations and warranties that would cause a material adverse effect on the commercial business; (iv) the absence of a business material adverse effect; and (v) the performance of certain covenants in all material respects. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview for more information regarding the asset sale.

In addition to ONIVYDE and our product candidates in clinical development, we have multiple product candidates in preclinical development. We have tailored ONIVYDE and our other product candidates to target specific disease mechanisms that our research suggests are common across many solid tumor types. We believe that ONIVYDE and our other product candidates have the potential to address major unmet medical needs.

We are also developing in vitro and in vivo diagnostics for use with each of our oncology therapeutic product candidates. Our in vitro diagnostic agents employ biophysical or biochemical markers of cancer, or biomarkers, which we have identified using our systems biology approach. Our in vivo diagnostics take the form of imaging agents that may help identify patients likely to benefit from our therapeutic products by measuring deposition of our products in the tumor. We believe that diagnostics will allow us to improve the efficiency and productivity of our clinical development and enhance the potential efficacy and pharmacoeconomic benefit of our therapeutics.

We have also entered into an agreement to utilize our manufacturing expertise to develop, manufacture and exclusively supply bulk drug product to a third party, who will in turn process the drug into finished product and commercialize it globally following regulatory approval. Upon consummation of the asset sale, this agreement would be transferred to Ipsen.

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Our Most Advanced Product Candidates

The table and descriptions below summarize key information about ONIVYDE (MM-398) and our other clinical stage product candidates, MM-121, MM-141, MM-310, MM-302 and MM-151. Each of the product candidates described below is a targeted therapy, designed to efficiently act on selected cancer cells. These targeted therapies are either designed to deliver cytotoxic therapies to the tumor tissue, such as ONIVYDE, MM-310 and MM-302, or are monoclonal antibodies or monoclonal antibody-derived molecules that are designed to block oncogenic signaling pathways, such as MM-121, MM-141 and MM-151. Other than ONIVYDE, none of our product candidates are approved for any indication by the FDA or any other regulatory agency.

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ONIVYDE® (MM-398)

ONIVYDE overview

ONIVYDE (irinotecan liposome injection), also known as MM-398, is a novel encapsulation of the marketed chemotherapy drug irinotecan in a liposomal formulation. ONIVYDE has been approved by the FDA, European Commission and certain other regulatory agencies in combination with 5-FU and leucovorin for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy. ONIVYDE is the first and only FDA-approved therapy in this setting. ONIVYDE is not indicated for use as a single agent. ONIVYDE in combination with 5-FU and leucovorin is designated as a category 1 treatment option in the 2016 National Comprehensive Cancer Network guidelines for pancreatic adenocarcinoma in the United States, as well as a category 2B status in the 2015 European Society for Medical Oncology clinical practice guidelines in the European Union.

We hold development and commercialization rights for ONIVYDE in the United States. In September 2014, we established a collaboration with Baxalta for the development and commercialization of ONIVYDE outside of the United States and Taiwan. PharmaEngine holds the development and commercialization rights to ONIVYDE in Taiwan. We believe that ONIVYDE may have potential uses in a number of other solid tumor indications beyond its currently approved indication, and additional clinical trials of ONIVYDE are ongoing or in the planning stages.

ONIVYDE has obtained orphan drug exclusivity in the United States from the FDA for the treatment of pancreatic cancer, and orphan medicinal product designation in the European Union from the European Medicines Agency, or EMA, for the treatment of pancreatic cancer. In addition, ONIVYDE is covered by multiple patents and trademarks worldwide.

On January 7, 2017, we entered into an asset sale agreement with Ipsen pursuant to which Ipsen will acquire our right, title and interest in the non-cash assets, equipment, inventory, contracts and intellectual property primarily related to or used in our business operations and activities involving or relating to developing, manufacturing and commercializing ONIVYDE, including U.S. commercialization rights and our licensing agreement with Baxalta.

ONIVYDE Phase 3 clinical trial for metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy

The basis of the recent FDA and European Commission approvals of ONIVYDE in combination with 5-FU and leucovorin for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy was our randomized, open label Phase 3 clinical trial of MM-398 in patients with metastatic adenocarcinoma of the pancreas who received prior gemcitabine-based therapy. We refer to this clinical trial as the NAPOLI-1 trial. Patients were enrolled at 76 sites in North America, South America, Europe, Asia and Oceania. The trial evaluated ONIVYDE in combination with 5-FU and leucovorin administered every two weeks and as a monotherapy administered every three weeks. Each ONIVYDE containing arm was compared to a control arm of 5-FU and leucovorin. A total of 417 patients were randomized across the three arms. The primary endpoint of the trial was overall survival. Overall survival is a measure of the time to death from treatment randomization. Primary survival analysis was based on 313 events and showed that ONIVYDE in combination with 5-FU and leucovorin significantly improved overall survival versus 5-FU and leucovorin alone: 6.1 months versus 4.2 months (p=0.012, unstratified hazard ratio=0.67, 95% CI: [0.49-0.92]). The monotherapy regimen in this trial did not show improvement over the 5-FU and leucovorin arm: 4.9 months versus 4.2 months (p=0.94, HR=0.99, 95% CI: [0.77-1.28]). A hazard ratio, or HR, is a measure of how often a particular event happens in one group compared to how often it happens in another group over time. In cancer research, hazard ratios are often used in clinical trials to measure survival at any point in time in a group of patients who have been given a specific treatment compared to a control group given another treatment or a placebo. A hazard ratio of one means that there is no difference in survival between the two groups, while a hazard ratio of greater than one or less than one means that survival was better in one of the groups. The confidence interval, or CI, given after the HR reflects the amount of certainty in the estimate of the HR. An HR value that is not contained within

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a 95% CI is unlikely to be the true HR. ONIVYDE in combination with 5-FU and leucovorin also achieved a longer progression-free survival compared with the 5-FU and leucovorin arm (3.1 months versus 1.5 months; unstratified HR=0.56). The most common non-hematologic grade 3 and higher adverse events in the ONIVYDE combination arm were fatigue (14%), diarrhea (13%) and vomiting (11.1%). Hematologic grade 3 and higher adverse events included neutropenia, which was observed in 20% of patients as determined by objective laboratory values, and febrile neutropenia, which was observed in 2% of patients.

In January 2016, we announced an updated overall survival analysis from our NAPOLI-1 clinical trial. The updated data analysis was based on 378 events and included data from all patients randomized across the three arms of the trial. Twelve-month survival estimates for ONIVYDE in combination with 5-FU and leucovorin were 26% (95% CI, 18-35%) compared to 16% (95% CI, 10-24%) for 5-FU and leucovorin alone. Six-month survival estimates were 53% (95% CI, 44-62%) for the ONIVYDE combination regimen versus 38% (95% CI, 29-47%) for 5-FU and leucovorin. No new safety or tolerability concerns were noted in the updated data analysis. The most common grade 3 and higher adverse events occurring at a 2% or greater incidence in the ONIVYDE containing arms were neutropenia (ONIVYDE monotherapy arm: 15%; ONIVYDE + 5-FU/LV arm: 28%), diarrhea (ONIVYDE monotherapy arm: 21%; ONIVYDE + 5-FU/LV arm: 13%), vomiting (ONIVYDE monotherapy arm: 14%; ONIVYDE + 5-FU/LV arm: 12%) and fatigue (ONIVYDE monotherapy arm: 6%; ONIVYDE + 5-FU/LV arm: 14%).

In October 2016, we updated our NAPOLI-1 analysis with the final results from our NAPOLI-1 clinical trial. The updated data analysis was based on 382 events at the final database lock in November 2015. The previously described overall survival advantage was maintained for ONIVYDE in combination with 5-FU and leucovorin versus 5-FU and leucovorin alone: 6.2 months versus 4.2 months (p=0.039, HR=0.75, 95% CI: [0.057-0.99]). Twelve-month survival estimates for ONIVYDE in combination with 5-FU and leucovorin were 26% (95% CI, 18-35%) compared to 16% (95% CI, 10-24%) for 5-FU and leucovorin alone. The overall response rate for the ONIVYDE plus 5-FU and leucovorin arm was 16% versus 1% for the 5-FU and leucovorin arm (p<0.0001). Disease control was achieved in twice as many patients treated with ONIVYDE in combination with 5-FU and leucovorin (52%) compared to 5-FU and leucovorin alone (24%). Final results suggest that patients treated with ONIVYDE in combination with 5-FU and leucovorin had no notable deterioration in quality of life at 12 weeks despite the addition of a second chemotherapeutic agent to 5-FU and leucovorin. No new safety concerns were noted and the overall safety profile was manageable with the most common grade 3 and higher adverse events of neutropenia, diarrhea, fatigue, vomiting and asthenia.

MM-398 Phase 2 clinical trial in front-line metastatic pancreatic cancer

In October 2015, we enrolled the first patient in a Phase 2 clinical trial of MM-398 in front-line metastatic pancreatic cancer. This trial is designed to assess the safety and efficacy of the combination of MM-398 plus 5-FU and leucovorin, with or without the addition of oxaliplatin, versus nab-paclitaxel and gemcitabine in patients with previously untreated, metastatic pancreatic adenocarcinoma. The trial will be conducted in two parts. In the first part of the trial, we expect to enroll approximately six to18 patients. The primary outcome for Part 1 of the trial is to evaluate the safety and tolerability of ONIVYDE in combination with 5-FU and leucovorin and oxaliplatin. In the second part of the trial, we expect an additional 150 patients (50 patients per arm) with previously untreated, metastatic pancreatic adenocarcinoma will be enrolled and randomized to receive ONIVYDE in combination with 5-FU, leucovorin and oxaliplatin, ONIVYDE in combination with 5-FU and leucovorin or nab-paclitaxel and gemcitabine. In Part 2 of the trial, efficacy of the ONIVYDE containing regimens will be compared to the nab-paclitaxel and gemcitabine regimen, evaluating progression free survival, or PFS, at 24 weeks, as well as overall survival, objective response rate, tumor marker CA19-9 response, safety and tolerability. PFS is the time from the initiation of treatment to tumor progression based on an increase of at least 20% in the sum of measured tumor diameters with no new tumors. The trial will be conducted at sites in the United States, Canada, Europe, Australia, New Zealand, Taiwan and South Korea.

MM-398 Phase 3 clinical trial in small cell lung cancer

We are initiating a Phase 3 clinical trial studying MM-398 as a monotherapy for the treatment of small cell lung cancer in patients that have progressed on a previous platinum-containing regimen.

MM-398 other clinical trials

We are also collaborating with several investigators to conduct additional trials of MM-398, including in a Phase 1 clinical trial utilizing a high concentration formulation of MM-398 in patients with glioma, a Phase 1 clinical trial in pediatric solid tumors and a Phase 1 clinical trial in combination with veliparib in solid tumors. In May 2016, we announced that we planned to initiate a Phase 1 clinical trial of ONIVYDE plus 5-FU and leucovorin in combination with MM-151 in patients with RAS wild-type metastatic colorectal cancer; however, based on the results of our strategic pipeline review that was completed in January 2017, we no longer plan to initiate this clinical trial.

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MM-398 diagnostic development

We believe that deposition of MM-398 in the tumor may be important to efficacy. We are exploring development of an imaging agent that may serve as a surrogate biomarker for estimating MM-398 deposition in patient tumors. Our Phase 1 translational study is designed to assess the feasibility of using an MRI-based approach with a marketed iron supplement used off-label as an imaging agent to act as a marker for MM-398 tumor response prediction. The expansion phase of this study will enroll patients who have metastatic breast cancer that is hormone receptor positive, triple negative or where active brain metastases are present. As part of our preclinical and clinical translational research, we are also investigating functional in vitro biomarkers that may be predictive of efficacy in poorly vascularized tumors.

MM-121 (seribantumab)

MM-121 overview

MM-121 is a fully human monoclonal antibody that targets ErbB3, a cell surface receptor that is activated by its ligand heregulin. Heregulin-driven ErbB3 signaling has been implicated as a mechanism of tumor growth and resistance to targeted, cytotoxic and anti-endocrine therapies. When used in combination with cytotoxic chemotherapeutics, MM-121 is designed to block heregulin-driven ErbB3 signaling and enhance the anti-tumor effect of combination therapy partners.

Heregulin is the cognate ligand of the ErbB3 receptor and a powerful driver of cell survival signaling. Based on the central role of heregulin and ErbB3 in cancer growth and survival, we believe that MM-121 may be applicable to a broad range of metastatic tumors, including lung, prostate, breast, ovarian, colon and pancreatic cancers. Our preclinical studies of several hundred tumor samples and the analysis of tumor samples from our Phase 2 clinical trials suggest that MM-121 may be able to target heregulin-dependent ErbB3 signaling that is relevant in approximately 35-50% or more of cancer patients with these types of tumors, defining a distinct, highly drug-tolerant cancer cell phenotype potentially contributing to poor prognosis and thus identifying a potentially high unmet medical need.

MM-121 Phase 2 clinical trial in advanced or metastatic non-small cell lung cancer

In February 2015, we initiated a global, open-label, biomarker-selected, randomized Phase 2 clinical trial of MM-121 in combination with docetaxel or pemetrexed versus docetaxel or pemetrexed alone in patients with heregulin positive, locally advanced or metastatic NSCLC. In December 2015, we announced an amendment to the trial, including a change in primary endpoint from PFS to overall survival. At the time of the December 2015 amendment, the trial was expected to enroll approximately 280 heregulin positive patients to be randomized (2:1) to receive MM-121 plus the investigator’s choice of docetaxel or pemetrexed, or the investigator’s choice of docetaxel or pemetrexed alone, at sites in the United States, Canada, Asia and Europe. Based on the results of our strategic pipeline review that was completed in January 2017, we plan to modify the design of this clinical trial into a proof-of-concept study to reduce enrollment and generate data in a more homogenous patient population.

MM-121 Phase 2 clinical trial in breast cancer

We intend to initiate an additional Phase 2 clinical trial of MM-121 in 2017 in patients with advanced HER2 negative, estrogen receptor positive (ER+), progesterone receptor positive (PR+) and heregulin positive breast cancer.

MM-121 previous clinical trials

We have evaluated MM-121 in multiple Phase 1 and Phase 2 clinical trials in combination with both chemotherapies and other targeted agents across a wide spectrum of solid tumor patient populations, including patients with ovarian, breast and lung cancers. The goal of our MM-121 clinical program is to explore the efficacy and safety of MM-121 in combination with other targeted ErbB agents and to establish and validate clinically meaningful biomarkers that were initially identified using our systems biology approach to identify patients most likely to benefit from MM-121.

Three such previous Phase 2 clinical trials of MM-121 in NSCLC, ovarian cancer and breast cancer enrolled a total of 464 patients and evaluated whether MM-121 in combination with a standard of care therapy was more effective than the standard of care therapy alone in prolonging PFS. In the NSCLC trial, two of the three cohorts (Groups A and C) did not meet their primary endpoints, and the third cohort (Group B) did not pass its planned interim analysis and ceased enrolling patients. Additionally, we did not meet the primary endpoints in the clinical trials of MM-121 in patients with ovarian cancer or in patients with breast cancer, although our biomarker analysis in each trial identified a potential subpopulation of patients benefiting from MM-121 in combination with either paclitaxel or exemestane, respectively. As ErbB3 signaling was expected to be active in only a subset of patients, pre-treatment biopsies were collected from patients in the lung and ovarian studies and archived tumor tissue in all three studies to assess heregulin,

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along with four other pre-specified biomarkers. Secondary analyses included evaluation of the pre-specified biomarkers, as well as overall survival and safety data. Across the trials, there was a consistent but modest and tolerable increase in adverse events when MM-121 was combined with erlotinib, paclitaxel and exemestane. Most adverse events were reported as mild to moderate in severity and included diarrhea, fatigue, vomiting, rash, hypokalemia and stomatitis.

MM-121 diagnostic development

We are developing a diagnostic that is focused on measuring certain mechanistically related biomarkers to determine whether a tumor is dependent on ErbB3 signaling and therefore amenable to treatment with MM-121. In 2014, we announced updated biomarker results from a meta-analysis of three randomized clinical trials of MM-121 in patients with ovarian, breast and lung cancers. This analysis included biomarker and efficacy results that had previously been disclosed, as well as additional biomarker data from the Phase 2 metastatic breast cancer trial that had not previously been reported. This meta-analysis highlighted heregulin as the principal biomarker for MM-121 efficacy. High levels of heregulin mRNA correlated with favorable hazard ratios in all three settings: in ovarian cancer, heregulin-high patients had a PFS HR of 0.37 (95% CI [0.18–0.76]) (57 of 151 evaluable patients; prevalence of 38%); in breast cancer, heregulin-high patients had a PFS HR of 0.26 (95% CI [0.11–0.63]) (34 of 76 evaluable patients; prevalence of 45%); and in lung cancer, heregulin-high patients had a PFS HR of 0.35 (95% CI [0.16–0.76]) (37 of 69 evaluable patients; prevalence of 54%). In ovarian cancer, the definition of biomarker positive also required that patients have low ErbB2 (HER2) levels. In breast cancer, where only ErbB2 (HER2) negative patients were enrolled in the clinical trial, this requirement was not needed. In lung cancer, where ErbB2 (HER2) levels are naturally low, this requirement was also not needed.

Heregulin mRNA was measured in two different ways in the Phase 2 clinical trials. For archived tissue samples obtained through surgical removal of tumor tissue, which was the source of tissue in the breast cancer clinical trial, heregulin mRNA was measured by reverse transcriptase polymerase chain reaction (RT-PCR). In tissue samples obtained through a biopsy procedure, which was the source of tissue in the ovarian and lung cancer studies, heregulin mRNA was measured by RNA in situ hybridization (RNA-ISH), which is an assay in which a section of tissue is stained for heregulin mRNA and scored by a certified pathologist. We have identified RNA ISH as the method to detect HRG expression on the cancer cell level with high sensitivity and specificity, and are using a qualified version of this assay in our Phase 2 NSCLC clinical trial.

MM-141

MM-141 overview

MM-141 is a fully human tetravalent bispecific antibody designed to block tumor survival signals by targeting receptor complexes containing the insulin-like growth factor 1 receptor, or IGF-1R, and ErbB3 (HER3) cell surface receptors. A tetravalent bispecific antibody is a single molecule that has four binding sites, two for each of two different target cell surface receptors. IGF-1R and ErbB3 complexes both activate a major signaling pathway, PI3K/AKT/mTOR, that allows tumor cells to grow and develop resistance to chemotherapy. We designed MM-141 to suppress the PI3K/AKT/mTOR signaling pathway by reducing the levels of IGF-1R and ErbB3 receptor complexes that trigger the pathway. In 2014, we obtained orphan drug designation in the United States for MM-141 for the treatment of pancreatic cancer.

MM-141 Phase 2 clinical trial in metastatic pancreatic cancer

In May 2015, we initiated a randomized, double-blinded, placebo-controlled Phase 2 clinical trial of MM-141 in combination with nab-paclitaxel and gemcitabine, versus nab-paclitaxel and gemcitabine alone in patients with newly diagnosed metastatic pancreatic cancer who have high serum levels of free IGF-1. As part of this trial, we expect that front-line metastatic pancreatic cancer patients with high serum levels of free IGF-1 will be randomized (1:1) to receive either MM-141 plus nab-paclitaxel/gemcitabine or nab-paclitaxel/gemcitabine alone. Based on the results of our strategic pipeline review that was completed in January 2017, we plan to modify the ongoing Phase 2 clinical trial of MM-141 from an original planned enrollment of approximately 140 patients down to a revised enrollment of approximately 80 patients. Eligible patients for the trial must have received no prior radiotherapy, surgery, chemotherapy or investigational therapy for the treatment of metastatic disease. The primary endpoint of the trial is PFS. Secondary endpoints include overall survival, objective response rate, safety and tolerability.

MM-141 Phase 1 clinical trial

The design of our Phase 2 clinical trial of MM-141 was informed by our multi-arm Phase 1 clinical trial evaluating the safety and tolerability of MM-141 as a monotherapy and in combination with everolimus or with nab-paclitaxel and gemcitabine in patients with advanced solid tumors. Patients in the Phase 1 trial were enrolled in one of three arms: MM-141 as a monotherapy, MM-141 in combination with everolimus and MM-141 in combination with nab-paclitaxel and gemcitabine. Trial data showed common co-expression of IGF-1R and ErbB3 in solid tumors, and that the presence of this co-expression in metastatic pancreatic cancer was

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associated with decreased patient survival. An analysis of pre- and post-treatment biopsies confirmed that levels of IGF-1R and ErbB3 were decreased following MM-141 administration. Hyperglycemia was rare and was reported as an adverse event of Grade 3 or higher in one out of 38 patients in the trial (2.6%). The most common adverse events in the trial, of any grade, were nausea (50%), headache (47.4%) and vomiting (44.7%). MM-141 monotherapy was well tolerated with no dose limiting toxicities. The observed safety profile of MM-141 in combination with nab-paclitaxel and gemcitabine was comparable to expected toxicities reported with the individual safety profiles of the chemotherapy agents.

MM-141 diagnostic development

We are conducting research and development on an in vitro diagnostic for MM-141 that may help to determine which patients will derive benefits from the drug alone or in combination with other therapies, while experiencing a satisfactory safety profile. This research is focused on identifying pathway-relevant biomarkers and assessing their correlation with the magnitude of patient response to MM-141. Our Phase 2 clinical trial of MM-141 uses a proprietary, validated test to prospectively select patients with high serum free IGF-1 levels for inclusion in the trial.

MM-310

MM-310 overview

MM-310 is an antibody directed nanotherapeutic that encapsulates a newly engineered form of the highly potent chemotherapy docetaxel as a prodrug in an ephrin receptor A2, or EphA2, targeted liposome. In preclinical studies, MM-310 demonstrated antitumor activity in multiple models compared to free docetaxel. In the preclinical studies, EphA2 targeted liposomes entered and delivered the cytotoxic to the tumor cell while minimizing exposure to healthy tissues. MM-310 is designed to result in prolonged exposure at the tumor site and in preclinical studies had a significantly longer half-life than free docetaxel. In a sampling of approximately 200 tumors, EphA2 was found to be expressed in tumor cells, myofibroblasts and/or tumor-associated blood vessels. EphA2 overall prevalence was found to range from 50% to 100% across multiple indications. In cell models, a high level of specificity was observed in the MM-310 EphA2 targeted liposome, with a more than 100-fold increase in liposome cell association when compared to non-targeted liposomes.

MM-310 Phase 1 clinical trial

We expect to initiate a Phase 1 clinical trial of MM-310 in 2017 as a monotherapy to evaluate its safety and preliminary efficacy in patients with solid tumors.

MM-310 diagnostic development

We are evaluating certain biomarkers for further investigation as diagnostics.

MM-302

MM-302 overview

MM-302 is an antibody directed nanotherapeutic that encapsulates doxorubicin in a HER2-targeted liposome. Doxorubicin is a marketed chemotherapy that is a member of the anthracycline class of chemotherapeutics. As a liposomal encapsulation of doxorubicin, MM-302 is designed to target and bind to cancer cells that overexpress ErbB2 (HER2) to allow for the selective uptake of drug into tumor cells while minimizing exposure to healthy tissues, such as those of the heart. Unlike other HER2 targeted agents, MM-302 is not designed to inhibit HER2 signaling pathways and relies on HER2 as a means to identify and gain access to the cancer cells.

MM-302 Phase 2 clinical trial in metastatic breast cancer

In August 2014, we initiated a global, open-label, randomized Phase 2 clinical trial of MM-302 in combination with trastuzumab (Herceptin®) in patients with ErbB2 (HER2) positive, locally advanced or metastatic breast cancer. Prior to initiating the Phase 2 clinical trial of MM-302, we conducted a Phase 1 clinical trial of MM-302 in patients with advanced ErbB2 (HER2) positive breast cancer, and reported final results from this trial in April 2015.

In December 2016, we determined that we would be stopping the ongoing Phase 2 clinical trial of MM-302. The decision to stop the trial was made following an independent DSMB opinion that continuing the clinical trial would be unlikely to demonstrate benefit over the comparator treatments. Subsequent to this recommendation, a futility assessment was performed that confirmed the

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DSMB’s opinion. Both the treatment and control arms were found to have shorter than expected median PFS. Patients currently enrolled in the clinical trial may choose to continue on their assigned treatment based upon discussion with their study physician.

Based on the results of our strategic pipeline review that was completed in January 2017, further investment in MM-302 is being deferred at this time.

MM-151

MM-151 overview

MM-151 is an oligoclonal therapeutic consisting of a mixture of three fully human monoclonal antibodies designed to bind to non-overlapping epitopes of EGFR (ErbB1). An oligoclonal therapeutic is a mixture of two or more distinct monoclonal antibodies. EGFR (ErbB1) has long been recognized as an important drug target in several malignancies, including lung, breast, colon, pancreatic and head and neck cancers. MM-151 is designed to block the signal amplification that our research suggests occurs in the EGFR (ErbB1) pathway. We have completed a Phase 1 clinical trial of MM-151 in patients with refractory solid tumors.

Based on the results of our strategic pipeline review that was completed in January 2017, further investment in MM-151 is being deferred at this time.

MM-151 Phase 1 clinical trial

We recently completed a Phase 1 clinical trial of MM-151 as a monotherapy and in combination with irinotecan in patients with solid tumors. The Phase 1 clinical trial was designed to assess the safety of MM-151 and determine the recommended Phase 2 dose. Four sites participated in this trial.

MM-151 diagnostic development

We are focusing our diagnostic efforts for MM-151 on the identification of key biomarkers that will indicate which patient populations are likely to benefit from MM-151 treatment.

Companion Therapeutics Program

We are evaluating combinations of our therapeutic oncology candidates, but further investment in the companion therapeutics program is being deferred at this time.

Preclinical Product Candidates

We are developing preclinical product candidates for a range of solid tumor indications.

Our Approach to Cancer Research

We view cancer as a complex engineering challenge. Through systems biology, which brings together the fields of biology, computing and engineering, we aim to decrease uncertainty in drug development and clinical validation, and move discovery efforts beyond trial and error. The goal of our systems biology approach is to understand how the complex molecular interactions that occur within cell signaling pathways, or networks, regulate cell decisions and how network dysfunction leads to disease. Our platform utilizes proprietary, dynamic biological data generated in a high-throughput method in which we test multiple biological or chemical parameters using engineering, analytical and modeling expertise, and from which we build computational models of cell biology to further our drug discovery, design and predictive development. We have developed an expertise in generating kinetic data, describing molecular changes or interactions over time, to illuminate the dynamic interactions that occur within biological systems, and apply our insights throughout the research and development process, including for target identification, lead compound design and optimization, diagnostic discovery and the design of clinical trial protocols.

Our models are constructed and validated using internally generated and proprietary data sets. Following the validation of a comprehensive model of a cell signaling network, we are able to use the model for drug discovery. Contrary to traditional methods, a significant portion of our discovery work takes place in silico , or using the model for simulation. We believe that this approach is more efficient and productive for drug discovery and development than traditional approaches.

As one example, we identified ErbB3, the target of MM-121, using our proprietary model of the ErbB signaling network after conducting a sensitivity analysis on its signaling process. Although the ErbB pathway has been extensively targeted by cancer

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therapeutics, we believe that understanding the relative importance of the different components of the ErbB network is central to identifying an attractive drug target and a therapeutic directed at this target. In this case, we built a computational model of the ErbB signaling network that includes the most potent ErbB receptor ligands, as well as known and novel ErbB inhibitors. We populated the model with proprietary dynamic data that we generated from our experiments. The model describes in mathematical equations 700 biochemical reactions representing the ErbB signal transduction network, and identified ErbB3 as the key node in response to both ErbB3- and EGFR (ErbB1)-binding ligands. We then used this insight to develop MM-121.

Ultimately, we believe that systems biology will result in better treatments for complex diseases by providing broader insight into disease and the potential therapeutic alternatives for physicians and patients. Using systems biology, we are incorporating the identification of biomarkers and the development of diagnostics into the drug development process. We believe that integrated medicines may enable physicians to deliver the right drug to the right set of patients at the right time. This may improve patient outcomes by providing improved therapeutics along with the diagnostic information to guide physician treatment decisions, reduce the overall costs of treating and caring for cancer patients, and provide a basis for seeking favorable reimbursement of approved drugs from payors because of the benefits to patients.

In addition to improving patient care, we believe that systems biology can increase the productivity of biomedical research, increase the probability of approval for new drugs and produce more precisely targeted therapeutics as compared to a conventional drug development approach since systems biology provides us with:

Although our initial focus is oncology, we believe that our systems biology approach is applicable to a broad range of therapeutic areas beyond cancer, including bone and joint conditions, infectious disease, inflammation, central nervous system disease and other areas of medicine with high unmet needs. While it is possible that we may pursue some of these disease areas directly ourselves, our plan is to pursue many or all of these other areas through collaborations, licenses and other arrangements with third parties. As an example, in 2010, we established Silver Creek Pharmaceuticals, Inc., or Silver Creek, to apply our systems biology approach to the research and development of regenerative medicines to repair the heart. As of December 31, 2016, Silver Creek was a majority owned subsidiary.

Therapeutic Design Capabilities

We believe that the best therapies for the oncology indications that we are pursuing are targeted therapies that, in contrast with conventional chemotherapies, are highly selective for the molecular mechanisms that we are seeking to affect and, as a result, offer the potential for significant efficacy and safety benefits. Two such therapeutic approaches are our nanotherapeutics platform and our human antibody platform.

Nanotherapeutics

Our nanotherapeutics platform enables us to create both passively targeted and actively targeted liposomes, each containing different chemotherapeutic agents. Our nanotherapeutics are lipidic particles constructed to encapsulate active drug payloads. Nanoscale objects typically, though not exclusively, have dimensions on the order of 100 nanometers or smaller. We believe that nanotherapeutics offer the following potentially favorable attributes:

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Human monoclonal antibodies

Human antibodies are a key component of many of our targeted therapies based on their range of favorable attributes, including their significant target specificity and avidity relative to small molecules and their well understood pharmacokinetic properties. Our human monoclonal antibody engineering platform provides us with the ability to create antibodies that are designed to inhibit specific nodes responsible for tumor growth and survival, or to address inherent drug resistance by simultaneously targeting redundant signaling pathways. We have designed antibodies for use as stand-alone therapeutics and have incorporated antibodies into other therapeutics, such as targeted nanotherapeutics, as targeting or docking agents. We work with several antibody formats, including the following:

Manufacturing

We manufacture bulk drug product for commercial use and for use in our clinical trials and research and development efforts using current good manufacturing practices, or cGMP, at our approximately 13,500 square foot multi-product facility located at our corporate headquarters in Cambridge, Massachusetts. We have the capabilities to manufacture nanotherapeutics, antibody-targeted nanotherapeutics and antibodies.

Our manufacturing capabilities encompass the full bulk manufacturing process through quality control and quality assurance and are integrated with our project teams from discovery through development. This structure enables us to efficiently transfer research stage lead molecules into manufacturing. We have designed our manufacturing facilities and processes to provide maximum flexibility and rapid changeover for the manufacture of different product candidates. We outsource fill finish, packaging, labeling and distribution, as well as bulk manufacturing for certain antibody product candidates. As of January 31, 2017, we employed approximately 91 employees in manufacturing activities. Our manufacturing site consists of two independent facilities, one for nanoliposome manufacture and one for biologics manufacture.

Our nanoliposome facility is comprised of multiple classified suites and has been designed to comply with current FDA and EMA cGMP for the manufacture of commercial and clinical bulk drug product. The facility and processes have been designed to meet the global commercial and clinical needs of ONIVYDE, MM-436 and the other nanoliposomal products in our pipeline. In 2015, the FDA inspected and approved our nanoliposome facility for the commercial supply of bulk drug product for ONIVYDE, and in 2016, following inspection, the EMA found us to be in general compliance with the relevant European Union manufacturing directives. Following consummation of the asset sale to Ipsen, pursuant to which our nanoliposome facility would be transferred to Ipsen, Ipsen would manufacture several batches of MM-310 for us pursuant to a manufacturing services agreement that we expect to enter into.

Our biologics facility produces our antibody product candidates and is comprised of multi-suite clean rooms, includes single-use bioreactors, and is sized to be able to produce sufficient material to meet the demands of our planned and ongoing clinical trials. Although we have the capability to continue to manufacture our bulk antibody product candidates at our current facility, we have determined that utilizing contract manufacturing organizations, or CMOs, to manufacture our future needs of bulk antibody product candidates, including MM-121 and MM-141, will allow us to better meet our operational objectives.

We are developing and testing diagnostic assays for predictive biomarkers in an internal laboratory under good clinical laboratory practices and through collaborations with third-party vendors. Upon completion of the development of the diagnostic tests, we plan to evaluate external as well as internal options for manufacturing and commercialization of the tests.

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In 2013, we entered into an agreement with Watson Laboratories, Inc., or Actavis, as more fully described below, pursuant to which we utilize our nanoliposomal manufacturing capabilities to develop, manufacture and exclusively supply the bulk liposomal form of doxorubicin hydrochloride ( HCl) liposome injection to Actavis. Under this agreement, we have also agreed to develop additional products for Actavis, the identities of which will be mutually agreed upon in the future. Upon consummation of the asset sale, this agreement would be transferred to Ipsen.

Sources and Availability of Raw Materials

We currently rely on single source suppliers for certain raw materials that we use for our nanoliposome manufacturing process. We purchase these materials from our suppliers on a purchase order basis and do not have long-term supply agreements in place.

Commercial Activities

In October 2015, following receipt from the FDA of marketing approval for ONIVYDE, we commenced ONIVYDE commercial activities in the United States through our focused field organization. Prior to commercial launch, we spent time and resources building our marketing, field, access and distribution teams to provide healthcare education and reimbursement support as well as our product distribution infrastructure. We believe that our commercial infrastructure provides the foundation to address the educational and supportive needs of oncologists who treat a broad array of tumor types. Outside the United States, we expect to enter into distribution and other marketing arrangements with third parties for any of our other product candidates that obtain marketing approval. Following the consummation of the asset sale, Ipsen will assume responsibility for the commercialization of ONIVYDE within the United States.

Outside of the United States and Taiwan, Baxalta has exclusive commercialization rights for all potential indications of ONIVYDE worldwide. PharmaEngine has exclusive commercialization rights in Taiwan. We believe our commercialization partners for ONIVYDE possess the relevant expertise to successfully commercialize ONIVYDE outside of the United States. For instance, Baxalta has previously demonstrated the ability to successfully launch innovative products, penetrate markets and drive the growth of multiple brands in highly competitive markets.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our systems biology technologies, integrated research, clinical and manufacturing capabilities, development experience and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the effectiveness of diagnostics in guiding the use of related therapeutics, the level of generic competition and the availability of reimbursement from government and other third-party payors.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. In addition, our ability to compete may be affected because in many cases insurers or other third-party payors seek to encourage the use of generic products. There are many generic products currently on the market for the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. If our therapeutic product candidates are approved, we expect that they will be priced at a significant premium over competitive generic products.

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The initial focus of our business is to develop therapeutics and diagnostics for the treatment of solid tumor cancers. Cancer is the second most common cause of death in the United States, exceeded only by heart disease, and accounts for almost one of every four deaths in the United States. There are a variety of available drug therapies marketed for solid tumors. In many cases, these drugs are administered in combination to enhance efficacy. Some of these drugs are branded and subject to patent protection, and others are available on a generic basis, including the active ingredients in ONIVYDE and MM-310. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. In general, although there has been considerable progress over the past few decades in the treatment of solid tumors and the currently marketed therapies provide benefits to many patients, these therapies all are limited to some extent in their efficacy and frequency of adverse events, and none of them are successful in treating all patients. As a result, the level of morbidity and mortality from solid tumor cancers remains high.

The following table sets forth information about the incidence and selected treatments for some of the solid tumor cancers for which we have developed and are developing therapeutic product candidates and diagnostics. The U.S. estimated annual incidence is based on information from the American Cancer Society, Cancer Fact & Figures 2017 .

In addition to the marketed and generic therapies for solid tumors, there are also a number of products in late stage clinical development to treat solid tumors. These products in development may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies. As a result, they may provide significant competition for any of our product candidates for which we obtain market approval.

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Pancreatic Cancer

The only indication in the United States for which we have received marketing approval from the FDA is for ONIVYDE in combination with 5-FU and leucovorin for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy. Pancreatic cancer is a rare and deadly disease. There are approximately 54,000 patients diagnosed with pancreatic cancer each year in the United States, the overwhelming majority of whom have adenocarcinoma. Globally there are approximately 338,000 new cases each year. Most patients receive gemcitabine-based therapy during either adjuvant/neoadjuvant treatment for locally advanced disease or during first- or second-line therapy for metastatic disease.

Collaboration and License Agreements

We are party to a number of collaboration agreements for the development and commercialization of our product candidates and license agreements under which we license patents, patent applications and other intellectual property. We consider the following collaboration and license agreements to be material to our business.

Baxalta

On September 23, 2014, we entered into the Baxalta agreement with Baxter International Inc., Baxter Healthcare Corporation and Baxter Healthcare SA for the development and commercialization of ONIVYDE outside of the United States and Taiwan, or the licensed territory. In connection with Baxter International Inc.’s separation of the Baxalta business, the Baxalta agreement was assigned to Baxalta during the second quarter of 2015. As part of the Baxalta agreement, we granted Baxalta an exclusive, royalty-bearing right and license under our patent rights and know-how to develop and commercialize ONIVYDE in the licensed territory. Baxalta is responsible for using commercially reasonable efforts to develop, obtain regulatory approvals for and, following regulatory approval, commercialize ONIVYDE in the licensed territory. A joint steering committee comprised of an equal number of representatives from each of Baxalta and us is responsible for approving changes to the global development plan for ONIVYDE, including all budgets, and overseeing the parties’ development and commercialization activities with respect to ONIVYDE. Unless otherwise agreed, we will be responsible for conducting all clinical trials contemplated by the global development plan for ONIVYDE and manufacturing all clinical material needed for such trials.

Under the terms of the Baxalta agreement, we received a $100.0 million nonrefundable upfront cash payment in September 2014. In addition, we are eligible to receive from Baxalta (i) up to an aggregate of $100.0 million upon the achievement of specified research and development milestones, of which we have received $62.5 million from Baxalta as of December 31, 2016, (ii) up to an aggregate of $520.0 million upon the achievement of specified regulatory milestones, of which we have received $60.0 million from Baxalta as of December 31, 2016, and (iii) up to an aggregate of $250.0 million upon the achievement of specified sales milestones. Under the terms of the Baxalta agreement, we will bear up to the first $98.8 million of costs related to the development of ONIVYDE for pancreatic cancer patients who have not previously received gemcitabine-based therapy; however, we expect most of these costs to be offset by payments received upon the achievement of clinical trial-related milestones. We will share equally with Baxalta all other clinical trial costs contemplated by the global development plan. We are also entitled to tiered, escalating royalties ranging from sub-teen double-digits to low twenties percentages of net sales of ONIVYDE in the licensed territory.

In February 2016, we entered into a commercial supply agreement with Baxalta, or the Baxalta supply agreement, pursuant to which we supply ONIVYDE to Baxalta and, at Baxalta’s option, manage fill and finish activities conducted by a third-party contract manufacturer for Baxalta. Baxalta also has the option to manufacture ONIVYDE itself, in which case we will perform a technology transfer of our manufacturing process to Baxalta.

If not terminated earlier by either party, the Baxalta agreement will expire upon expiration of all royalty and other payment obligations of Baxalta under the Baxalta agreement. Either party may terminate the Baxalta agreement in the event of an uncured material breach by the other party. Baxalta may also terminate the Baxalta agreement on a product-by-product, country-by-country or sub-territory-by-sub-territory basis or in its entirety, for its convenience, upon 180 days’ prior written notice. In addition, we may terminate the Baxalta agreement if Baxalta challenges or supports any challenge of our licensed patent rights.

Under the Baxalta agreement, Baxalta has also agreed that, subject to limited exceptions, until September 23, 2017, neither Baxalta nor any of its affiliates will (1) effect or seek, offer or propose to effect, or cause or participate in or in any way advise, assist or encourage any other person to effect or seek, offer or propose to effect or cause or participate in, any acquisition of any of our securities or assets, any tender or exchange offer, merger or other business combination involving us, any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to us, or any solicitation of proxies or consents to vote any of our voting securities, (2) form, join or in any way participate in a group with respect to any of our securities, (3) otherwise act, alone or in concert with others, to seek to control or influence our management, board of directors or policies, (4) take any action

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that might force us to make a public announcement regarding any of the foregoing or (5) enter into any agreements, discussions or arrangements with any third party with respect to any of the foregoing.

Upon consummation of the asset sale, both the Baxalta agreement and the Baxalta supply agreement will be assigned to Ipsen.

PharmaEngine

In May 2011, we entered into an assignment, sublicense and collaboration agreement with PharmaEngine, or the PharmaEngine agreement. Under the agreement, PharmaEngine assigned to us its rights and obligations under a 2005 agreement with Hermes BioSciences, Inc., or Hermes, to develop and commercialize ONIVYDE in Europe and certain countries in Asia. Through our acquisition of Hermes in 2009, we held the rights to ONIVYDE in North America and the rest of the world. PharmaEngine also granted to us an exclusive right and license, with the right to sublicense, under PharmaEngine technology and rights to develop and commercialize ONIVYDE worldwide outside of Taiwan. We granted to PharmaEngine a paid-up, royalty free, exclusive right and license under our technology and rights to develop and commercialize ONIVYDE in Taiwan. Upon entering into the PharmaEngine agreement, we paid PharmaEngine a $10.0 million upfront license fee. In addition, we made a milestone payment of $5.0 million to PharmaEngine in connection with dosing the first patient in our Phase 3 clinical trial of ONIVYDE, which occurred and was paid in the first quarter of 2012.

In September 2014, we amended the PharmaEngine agreement to redefine sublicense revenue and reduce the portion of sublicense revenue that we are required to pay to PharmaEngine. As a result of this amendment, we made a $7.0 million milestone payment to PharmaEngine in September 2014. Additionally, as a result of this amendment, a previously contingent $5.0 million milestone payment was paid to PharmaEngine in the second quarter of 2015. Prior to the amendment of the PharmaEngine agreement, this milestone payment was contingent upon the award of certain specified regulatory designations.

Since entering into the PharmaEngine agreement, we have paid PharmaEngine an aggregate of $73.5 million in upfront license fees and milestone payments. This amount includes an $11.0 million milestone payment made in July 2015 in connection with the EMA’s acceptance for review of a Marketing Authorization Application for ONIVYDE, which occurred in the second quarter of 2015, a $10.0 million milestone payment made in June 2016 in connection with the South Korean Ministry of Food and Drug Safety, or MFDS, acceptance for review of a new drug application for ONIVYDE, which occurred in the second quarter of 2016, and a $25.5 million milestone payment made in December 2016 in connection with Baxalta’s receipt of marketing authorization from the European Commission for ONIVYDE in combination with 5-FU and leucovorin for the treatment of adult patients with metastatic adenocarcinoma of the pancreas who have progressed following gemcitabine-based therapy, which occurred in the fourth quarter of 2016. In addition to these amounts, we could also be required to pay PharmaEngine up to an additional $25.0 million in aggregate regulatory milestones, $38.0 million in sublicense fees and $130.0 million in aggregate sales milestones, in each case with respect to Europe and certain countries in Asia. Under the agreement, PharmaEngine is entitled to tiered royalties based on net sales of ONIVYDE in Europe and certain countries in Asia. The royalty rates under the agreement range from high single digits up to the low teens as a percentage of our net sales of ONIVYDE in these territories. Our obligation to pay royalties to PharmaEngine continues on a country-by-country basis until ten years after the first commercial sale of ONIVYDE in such country. We are responsible for the development and commercialization, and all related costs and expenses, of ONIVYDE in all countries except Taiwan, where PharmaEngine retains the right to develop and commercialize ONIVYDE at its expense. Each party has agreed to use commercially reasonable efforts to develop, in accordance with a development plan, and commercialize ONIVYDE in its respective territory.

Multiple executive committees were formed under the PharmaEngine agreement, each comprised of an equal number of representatives from each party. The steering committee is responsible for reviewing and approving changes to the development plan, providing overall strategic direction with respect to development of ONIVYDE under the development plan and overseeing other committees. The steering committee is also responsible for resolving any disputes arising under the agreement at the steering committee or that are referred to it by any of the other committees. If a matter is unresolved by the steering committee, it may be referred for resolution to executive officers from both companies. We have final decision making authority on any such matter not resolved by the executive officers that relates to the worldwide development of ONIVYDE or commercialization of ONIVYDE outside of Taiwan. The development committee is responsible for recommending to the steering committee changes to the development plan and overseeing the progress of the development program and monitoring the parties’ compliance with their respective obligations under the development plan.

Upon expiration of all royalty and other payment obligations due to PharmaEngine under this agreement on a country-by-country basis, the licenses granted under the agreement will be deemed to be perpetual, fully paid-up and irrevocable with respect to the licensed product in such country. Either party may terminate the agreement in the event of an uncured material breach by the other party. In addition, we may terminate the agreement for convenience upon 90 days’ prior written notice. If PharmaEngine terminates this agreement in its entirety or with respect to Europe or the Asian territories because of our material breach, or if we terminate the agreement for convenience with respect to Europe or the Asian territories, then we are required to grant PharmaEngine a license under

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our technology and rights with respect to ONIVYDE in Europe or the Asian territories, as applicable, and PharmaEngine is required to pay us single-digit royalties for net sales of ONIVYDE in such territories.

In August 2015, we also entered into a commercial supply agreement with PharmaEngine, or the PharmaEngine supply agreement, pursuant to which we supply ONIVYDE to PharmaEngine.

Upon consummation of the asset sale, both the PharmaEngine agreement and the PharmaEngine supply agreement will be assigned to Ipsen.

Actavis

In November 2013, we entered into a development, license and supply agreement with Actavis, or the Actavis agreement, pursuant to which we develop, manufacture and exclusively supply the bulk form of doxorubicin hydrochloride (HCl) liposome injection, or the initial product, to Actavis. We also refer to the initial product as MM-436. The Actavis agreement was subsequently amended in January 2015 to transfer certain responsibilities from us to Actavis in exchange for reducing the aggregate milestone payments that we are eligible to receive by $0.4 million. We will manufacture and supply the initial product to Actavis in bulk form at an agreed upon unit price, and Actavis is responsible for all costs related to finished product processing and global commercialization. Pursuant to the Actavis agreement, we have also agreed to develop additional products for Actavis in the future, the identities of which will be mutually agreed upon. We are eligible to receive up to $15.1 million in milestone and development payments, as well as additional reimbursement for specific activities performed by us at the request of Actavis. We will also receive a mid-twenties percentage of net profits on global sales of the initial product and any additional products. In October 2016, the FDA accepted for review an Abbreviated New Drug Application filed by Actavis for the initial product, which triggered the payment of $1.1 million of milestones from Actavis to us. As of December 31, 2016, we had received $4.9 million in total milestone and development payments and reimbursement for specific activities from Actavis.

The Actavis agreement will expire with respect to the initial product and any additional products developed in the future ten years after Actavis’ first sale of the applicable product, unless terminated earlier, and will automatically renew for additional two year periods thereafter unless either party provides notice of non-renewal. Either party may terminate the Actavis agreement in the event of an uncured material breach or bankruptcy filing by the other party. Actavis may also terminate the agreement for convenience in specified circumstances upon 90 days’ prior written notice.

Upon consummation of the asset sale, the Actavis agreement will be assigned to Ipsen.

Dyax

In January 2007, we entered into an amended and restated collaboration agreement with Dyax Corp., or Dyax, which superseded a prior collaboration agreement with Dyax that we entered into in December 2005. Under this collaboration agreement, Dyax uses its proprietary phage display technology to identify antibodies that bind to targets of interest to us as therapeutics or diagnostics. Further, Dyax has granted to us a worldwide, non-exclusive, royalty free right to use and make any and all of the antibodies identified by Dyax for certain research purposes. In order to clinically develop or commercialize any such antibody, however, we must obtain an additional product license from Dyax on a target-by-target basis. We have the option to obtain one or more product licenses on terms set forth in the collaboration agreement, subject to limitations on the availability of each such product license under an agreement between Dyax and Cambridge Antibody Technologies, which has merged with MedImmune, LLC and is now owned by AstraZeneca PLC. In January 2016, Dyax was acquired by Shire plc.

As consideration for the grant of the initial research license, we paid Dyax a research fee based on the total estimated full time equivalent researchers that were required to conduct the research plan and a fee for achieving certain technical milestones. If we elect to obtain a product license with respect to any therapeutic or diagnostic target, we are required to pay to Dyax an additional upfront license fee for the applicable antibody. We also may be required to make additional maximum aggregate development and regulatory milestone payments of $16.2 million for therapeutic products and maximum aggregate regulatory milestone payments of $1.0 million for diagnostic products directed to selected targets. In addition, Dyax is entitled to mid single digit royalties based on net sales of products covered by any product license that we obtain from Dyax. Our obligation to pay royalties to Dyax continues on a product-by-product and country-by-country basis until the later of a specified number of years after the first commercial sale of the product in such country and the expiration of the patent rights covering the product in such country. MM-121 and a component of MM-141 were identified under this agreement, and we have obtained the required target licenses from Dyax by exercising our product license options and paying the applicable license fees. We are obligated to use commercially reasonable efforts to develop and commercialize the antibodies for which we obtain a commercial license.

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This agreement will remain in effect, unless terminated earlier, for so long as we or any of our affiliates or sublicensees continue to develop or commercialize products that remain royalty-bearing under the agreement. Either party may terminate the agreement in the event of an uncured material breach by the other party. We also may terminate the agreement in its entirety or on a product-by-product basis at any time upon 90 days’ prior written notice.

Adimab

In November 2009, we entered into a collaboration agreement with Adimab LLC, or Adimab, to allow us to evaluate the utility of using antibodies identified during the collaboration as therapeutics or diagnostics. Under the agreement, Adimab granted to us a worldwide, non-exclusive, royalty free right to use materials provided by Adimab to perform non-clinical research during the evaluation term. Adimab also granted to us an option to obtain the assignment of specified patent rights claiming the selected antibodies and a license under Adimab’s background patent rights and know-how for the development and commercialization of the antibodies.

As partial consideration for the research license grant, we paid Adimab a technology access fee at the time of grant, research fees based on the total estimated full time equivalent researchers that were required to conduct the research plan and a fee for achieving certain technical milestones. We have exercised our assignment and license option by paying Adimab a fee of $1.0 million. In addition, we are required to pay Adimab up to an aggregate of $13.5 million per therapeutic area, for the first four therapeutic areas, upon achievement of specified development and regulatory milestones, of which we have paid $1.5 million with respect to the first therapeutic area, and up to an aggregate of $500,000 per diagnostic product upon the achievement of specified regulatory milestones. In addition, Adimab is entitled to mid single digit royalty payments based on net sales of therapeutic products and diagnostic products arising from the collaboration. Our obligation to pay royalties to Adimab continues on a product-by-product and country-by-country basis until the later of a specified number of years after the first commercial sale of the product in such country and the expiration of the patent rights covering the product in such country, provided that the royalty term will not extend beyond a specified number of years after the first commercial sale of the product in such country. We are obligated to use commercially reasonable efforts to develop and commercialize at least one product that incorporates the antibodies for which we exercised our assignment and license option in each of the United States, Europe and Japan. MM-151 was generated under this agreement.

The term of the agreement expires on a country-by-country basis on the earliest date after which no payments are due to Adimab, unless earlier terminated. Either party may terminate the agreement in the event of an uncured material breach by the other party. In addition, we may terminate the agreement at any time upon 90 days’ prior written notice.

University of California

In November 2000, we entered into a separate exclusive license agreement with The Regents of the University of California, or the Regents. Under the agreement, the Regents granted us a royalty-bearing world-wide right and license under certain patent rights for the development and commercialization of products that are covered by the licensed patent rights, including MM-302. The agreement requires that we diligently pursue the development, manufacture and commercialization of licensed products. In addition, we are required to meet specified development, regulatory and commercialization milestones within timeframes specified in the agreement. We have the sole responsibility for the development and commercialization of products under the licensed technology.

We are required to pay to the Regents an annual license maintenance fee of $95,000 until the first commercial sale of a licensed product. We also are responsible for all development costs and have agreed to spend a minimum of $150,000 per year for such costs. In addition, we are responsible for up to an aggregate of $700,000 per product upon the achievement of specified development and regulatory milestones. The Regents are also entitled to royalties in the low single digits based on net sales of products covered by the licensed technology. If we sublicense the rights granted to us under the licensed technology to a third party, then we are also obligated to pay to the Regents a portion of the sublicensing income related to the licensed technology.

If not terminated earlier, this agreement terminates upon the expiration or abandonment of all patents licensed under this agreement. The Regents may terminate the agreement in the event of an uncured material breach by us. We may terminate the agreement on a country-by-country basis at any time upon 60 days’ prior written notice.

Intellectual Property

Our success will significantly depend on our ability to obtain and maintain patent and other proprietary protection for our commercially important technology, inventions and know-how, defend and enforce our patents, preserve the confidentiality of our trade secrets, establish and protect our commercial brands and operate without infringing the valid and enforceable patents and proprietary rights of third parties. To accomplish this, we rely on a combination of intellectual property rights, including patents, trade

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secrets, copyrights and trademarks, as well as regulatory exclusivity and contractual protections. We aggressively strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our products and compositions, their methods of use and processes for their manufacture, as well as our diagnostic and drug discovery technologies and any other inventions that are commercially important to the development of our business. In some circumstances, we also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, such as our proprietary network modeling programs and large scale protein and liposome production methods.

We also rely on trademark protection of our corporate and product brands. We are the owner of multiple federal trademark registrations in the United States and outside the United States. ONIVYDE ^® is a registered U.S. trademark of ours. In addition, we have multiple additional pending trademark registration applications in the United States and other countries covering the MERRIMACK ^® and PROVYDE ^® word marks and related logos in trademark classes relevant to our products and services.

We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We require each of our employees, consultants and advisors to execute a confidentiality and inventions assignment agreement before beginning their employment, consulting or advisory relationship with us. These agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of their relationship with us except in limited circumstances. These agreements also generally provide that we will own all inventions conceived by the individual in the course of rendering services to us. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of the use, formulation, manufacture and composition of our products and product candidates, as well as successfully asserting and/or defending these patents against third-party challenges. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent to which we have rights under valid and enforceable patents that cover these activities.

As of January 31, 2017, we owned or controlled a total of 33 issued U.S. patents and 171 corresponding issued foreign patents, in addition to 148 pending U.S. patent applications and 175 pending patent applications in the rest of the world, covering our most advanced product candidates. We intend to continue to protect our proprietary technology with additional filings as appropriate. We do not have patents or patent applications in every jurisdiction where there is a potential commercial market for our product candidates. We continually evaluate our patent portfolio and patent strategy and believe our owned and licensed patents and patent applications, as well as applicable periods of regulatory exclusivity available after new product approval, provide us with a competitive advantage; however, if markets where we do not have patents or patent applications become commercially important, our business may be adversely affected.

The latest patent expiration dates for issued patents covering the composition or use of each of our most advanced product candidates as of January 31, 2017 are summarized below. As described in more detail below, the expiration dates in the table below refer to the latest-expiring granted patent covering the product, product candidate, technology or use thereof in the United States, and one or more countries outside of the United States, but do not account for any patent term extension or extended exclusivity terms, such as pediatric extensions, that may be available in the United States and certain foreign jurisdictions.

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application.

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In the United States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors, including those involved in the filing of a new drug application, or NDA, or a biologics license application, or BLA. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process, provided the total patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally calculated as one-half the time between the effective date of an investigational new drug application, or IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the FDA’s approval of that application. Only one patent applicable to each approved drug is eligible for the extension and the application for extension must be made prior to expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.

Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. The stated patent exclusivity dates for patent exclusivity outside of the United States may also be eligible for further extension, and/or regulatory market and/or data exclusivity in certain countries, upon product approval in individual countries for various reasons, including supplemental protection certificate(s) after product approval in eligible countries outside the United States, and/or conducting certain investigations of pediatric exclusivity or use of products covered by the applicable patent.

ONIVYDE ^® (MM-398)

ONIVYDE is covered by issued U.S. patents on the product composition through at least 2028, and corresponding issued patents in other countries through at least 2025, not including additional exclusivity upon product approval from patent term extension, supplemental protection certificates and/or pediatric exclusivity.

In the United States, ONIVYDE is covered by multiple issued patents, including eight U.S. patents listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations publication, commonly known as the Orange Book, including U.S. patents covering the ONIVYDE drug product and drug substance (through at least 2028) and additional U.S. patents covering approved methods of using ONIVYDE (through at least 2033). We have applied for restoration of patent term, or patent term extension, for at least one of our U.S. patents covering the ONIVYDE drug product and drug substance listed in the Orange Book, to add patent life beyond the current expiration date. In addition, ONIVYDE may be eligible to receive an additional six months of exclusivity added to the term of individual patents and any other marketing exclusivity covering ONIVYDE under the Best Pharmaceuticals for Children Act, or BPCA, if we were to submit information which could be requested in writing by the FDA relating to the use of the active moiety of the drug in children. We also own multiple pending patent applications covering the manufacture and use of ONIVYDE in various indications, including pancreatic cancer, through at least 2033, if issued.

In Europe, the ONIVYDE liposome composition is covered by an issued European patent through at least 2025, not including additional exclusivity pursuant to supplementary protection certificates that may be obtained in the future in individual European countries in accordance with local laws.

Outside the United States and Europe, the ONIVYDE composition is covered by issued patents through 2025 in Japan and eight other countries, and pending patent applications in five countries. In addition, we own multiple pending patent applications that, if issued, provide additional patent coverage on the use of ONIVYDE for various indications through at least 2036. We may apply for extended exclusivity terms (supplemental protection certificates) for our other patents world-wide as appropriate, depending on the expected length of clinical trials and other factors involved in the submission of the relevant drug approval application.

MM-121 (seribantumab)

We own issued patents in the United States, Europe, Japan and eleven other countries covering the MM-121 composition through at least 2028, not including additional exclusivity available after product approval from patent term extension, supplemental protection certificates and/or pediatric exclusivity. In addition, we own granted patents in the United States, Europe and eight other countries covering treatment of patients with certain forms of breast cancer through at least 2031, and multiple pending patent applications in the United States, Europe and other countries covering various related methods of use, including the treatment of patients with heregulin positive forms of cancer (through 2034, if issued), treatment of patients with heregulin positive NSCLC (through 2036, if issued), treatment of patients with certain forms of breast cancer (through 2031 or 2032, if issued) and/or related diagnostic tests and methods (through 2029, if issued).

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MM-141 (istiratumab)

We own issued patents in the United States, Japan, and three other countries, and pending patent applications in Europe and ten other countries, covering the MM-141 composition through at least 2032, not including additional exclusivity available after product approval from patent term extension, supplemental protection certificates and/or pediatric exclusivity. In addition, we own multiple pending patent applications in the United States and Europe covering methods of treating pancreatic cancer with MM-141 (through 2035, if issued).

MM-310

We have an exclusive license to patent filings covering the MM-310 composition through at least 2031 from the University of California, including issued patents in the United States and four other countries, with additional patent filings in Europe and seven other countries. In addition, we own multiple pending patent filings covering the MM-310 liposome composition, companion diagnostic technology for MM-310 and therapeutic uses of MM-310 through at least 2037 (if issued).

MM-302

We own patent coverage on the use of the MM-302 composition in treating various forms of cancer (including breast cancer) through at least 2031 in the United States. In addition, we have an exclusive license to patents covering the MM-302 composition through at least 2019 in the United States, Europe and two other countries. Our patent coverage does not include additional exclusivity available after product approval from patent term extension, supplemental protection certificates and/or pediatric exclusivity. In addition, we own multiple pending patent applications in the United States, Europe and other countries covering various related methods of use (expiring between 2031 and 2035, if issued) and/or related diagnostic tests and methods (expiring between 2033 and 2034, if issued).

MM-151

We own issued patents in the United States and two other countries, and pending patent applications in Europe, Japan and eight other countries covering the MM-151 composition and related patient diagnostic technology through at least 2032, not including additional exclusivity available after product approval from patent term extension, supplemental protection certificates and/or pediatric exclusivity. In addition, we own multiple pending patent applications in the United States, Europe, Japan and additional countries covering methods of treating colorectal cancer with MM-151 (through 2035, if issued).

Silver Creek

In August 2010, we acquired 12,000,000 shares of Series A preferred stock of Silver Creek in exchange for our grant to Silver Creek of technology licenses. We granted to Silver Creek a royalty free license under certain antibody growth factor patent rights to develop and commercialize products covered by the licensed patent rights. This license is exclusive to Silver Creek for therapeutic or diagnostic use in humans for the promotion of organ regeneration and co-exclusive with us for all other uses. We also granted to Silver Creek royalty free, non-exclusive licenses under certain patent rights and know-how to use certain of our technologies for research and development purposes. Either party may terminate the agreement in the event of an uncured material breach by the other party. As of December 31, 2016 and 2015, we owned approximately 50% and 56%, respectively, of the outstanding voting stock of Silver Creek, making Silver Creek a majority owned subsidiary.

Silver Creek is applying our systems biology approach to the research and development of regenerative medicines to repair the heart. In the future, we may consider forming additional businesses or business units to apply our systems biology approach to multiple additional disease areas outside the oncology field. We expect to do so in some cases, as with Silver Creek, through the establishment of separately funded companies.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, import and export of pharmaceutical products, biological products and medical devices, such as those we are developing.

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United States drug and biological product approval process

In the United States, the FDA regulates drugs and biological products under the Federal Food, Drug, and Cosmetic Act, or FDCA, the Public Health Service Act, or PHSA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval may subject an applicant to a variety of administrative or judicial actions, including, among other things, the FDA’s refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of untitled or warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, civil penalties and criminal prosecution.

Generally, the process required by the FDA before a drug or biological product may be marketed in the United States involves the following:

We expect that all of our clinical product candidates, other than ONIVYDE, will be subject to review as biological products under BLA standards. We expect that ONIVYDE will continue to be subject to review as a drug under NDA standards. MM-302 contains both drug and biological components. We believe that this combination product would be subject to review as a biological product, pursuant to a BLA.

Preclinical studies

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed protocol for clinical studies, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not necessarily result in the FDA allowing clinical trials to commence.

Clinical trials

Clinical trials involve the administration of the investigational new drug to human subjects – healthy volunteers or patients – under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing

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review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. For clinical trials involving an IND, an IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Progress reports detailing the results of clinical trials involving an IND must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic product has been associated with unexpected serious harm to patients.

Disclosure of clinical trial information

Sponsors of applicable clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public on the ClinicalTrials.gov website as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Marketing approval

Assuming successful completion of the required clinical testing, the results of the preclinical and clinical studies, together with detailed information relating to the product’s pharmacology chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA or BLA requesting approval to market the product for one or more indications. FDA approval of the NDA or BLA is required before marketing of the product may begin in the United States. Under federal law, the submission of most NDAs and BLAs is subject to a substantial application user fee, currently $2,038,100 for fiscal year 2017, and the sponsor of an approved NDA or BLA is also subject to annual product and establishment user fees, currently $97,750 per product and $512,200 per establishment. These fees may be increased or decreased annually.

The FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days after receipt before accepting them for filing based on the agency’s threshold determination that they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the additional information, which would also be subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review of NDAs and BLAs. Most such applications for non-priority products are reviewed within ten to twelve months after filing, and most applications for priority review products, that is, drugs and biologics that the FDA determines represent a significant improvement over existing therapy, are reviewed in six to eight months after filing. The review process may be extended by the FDA for three additional months to consider certain late-submitted information or clarification regarding information already provided in the submission. The FDA may also refer applications for novel drugs or biological products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

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Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. In addition, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and integrity of the clinical data submitted.

The testing and approval process requires substantial time, effort and financial resources, and each may take many years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. We may encounter difficulties or unanticipated costs in our efforts to develop our product candidates and secure necessary governmental approvals, which could delay or preclude us from marketing our products.

After the FDA’s evaluation of the NDA or BLA and inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug or biological product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

Even if the FDA approves a product, the agency may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions through a Risk Evaluation and Mitigation Strategy or other risk management mechanisms, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, some types of changes to the approved product, such as changes in indications, manufacturing changes and labeling, are subject to further testing requirements and FDA review and approval.

Fast track designation

The FDA is required to facilitate the development and expedite the review of drugs and biologics that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new drug or biologic candidate may request the FDA to designate the product for a specific indication as a fast track product concurrent with or after the filing of the IND for the product candidate. The FDA must determine if the product candidate qualifies for fast track designation within 60 days after receipt of the sponsor’s request.

In addition to other benefits, such as the ability to use surrogate endpoints and have more frequent interactions with the FDA, the FDA may initiate review of sections of a fast track product’s NDA or BLA before the application is complete. This rolling review is available if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA or BLA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

Priority review

Under FDA priority review guidelines, a product candidate may be eligible for review within a six to eight month time frame from the time a complete application is accepted for filing. Products regulated by the FDA’s Center for Drug Evaluation and Research, or CDER, are eligible for priority review if they provide a significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. Products regulated by the FDA’s Center for Biologics Evaluation and Research are eligible for priority review if they provide a significant improvement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious or life-threatening disease. A fast track designated product candidate would ordinarily meet the FDA’s criteria for priority review.

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Accelerated approval

Under the FDA’s accelerated approval regulations, the FDA may approve a drug or biologic for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based on a surrogate endpoint that is reasonably likely to predict clinical benefit. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

Breakthrough therapy designation

The FDA is also required to expedite the development and review of the application for approval of drugs that are intended to treat a serious or life-threatening disease or condition where preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. Under the breakthrough therapy program, the sponsor of a new drug candidate may request that the FDA designate the drug candidate for a specific indication as a breakthrough therapy concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for breakthrough therapy designation within 60 days of receipt of the sponsor’s request.

Orphan drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug or biologic for the same orphan indication, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA or BLA application user fee.

Pediatric information

Under the Pediatric Research Equity Act of 2003, an NDA, BLA or supplement to an NDA or BLA must contain data from pediatric studies that are adequate to assess the safety and effectiveness of the drug or biological product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Under the Food and Drug Administration Safety and Innovation Act, or FDASIA, the FDA has additional authority to take action against manufacturers not adhering to pediatric study requirements. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan drug designation.

The Hatch-Waxman Act

Abbreviated new drug applications

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent that claims to cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA. Generally, an ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct or submit results of preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.

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The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that:

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid is called a Paragraph IV certification. If the ANDA applicant does not challenge the listed patents, the ANDA will not be approved until all the listed patents claiming the referenced product have expired.

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of a 30 month period, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that the patent involved is deemed invalid or not infringed.

The ANDA also will not be approved until any applicable non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired. Federal law provides a period of five years following approval of a drug containing no previously approved active ingredients during which ANDAs for generic versions of those drugs cannot be received by the FDA, except that the application may be submitted in four years if it contains a Paragraph IV certification. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and thus, no ANDA may be filed before the expiration of the exclusivity period. Federal law provides for a period of three years of exclusivity following approval of a listed drug that contains previously approved active ingredients but is approved in a new dosage form, route of administration or combination, or for a new use, the approval of which was required to be supported by new clinical trials conducted by or for the sponsor, during which the FDA cannot grant effective approval of an ANDA based on that listed drug. Under the BPCA, federal law also provides that periods of patent and non-patent marketing exclusivity listed in the Orange Book for a drug may be extended by six months if the NDA sponsor agrees to conduct and report on pediatric studies identified by the FDA in a written request within the statutory timeframes. Applications under the BPCA are treated as priority applications, with all the benefits that designation confers.

Patent term extension

After NDA approval, owners of relevant drug patents may apply for up to a five year patent term extension. The allowable patent term extension is calculated as half of the drug’s testing phase, based on the time between IND application and NDA submission, and all of the review phase, based on the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

For patents that might expire during the application phase, the patent owner may request an interim patent term extension. An interim patent term extension increases the patent term by one year and may be renewed up to four times. For each interim patent term extension granted, the post-approval patent term extension is reduced by one year. The director of the U.S. Patent and Trademark Office must determine that approval of the drug covered by the patent for which a patent term extension is being sought is likely. Interim patent term extensions are not available for a drug for which an NDA has not been submitted.

Section 505(b)(2) new drug applications

Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDA’s previous approval of a similar product, or published literature, in support of its application. Our NDA for ONIVYDE was submitted and reviewed under Section 505(b)(2).

Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, it may

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eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of a 30 month period, settlement of the lawsuit or a decision in the infringement case that the patent involved is deemed invalid or not infringed.

Combination products

A combination product is a product comprised of (i) two or more regulated components (i.e., drug/device, biologic/device, drug/biologic or drug/device/biologic) that are physically, chemically, or otherwise combined or mixed and produced as a single entity; (ii) two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products; (iii) a drug, device, or biological product packaged separately that according to its investigational plan or proposed labeling is intended for use only with an approved individually specified drug, device, or biological product where both are required to achieve the intended use, indication, or effect and where, upon approval of the proposed product, the labeling of the approved product would need to be changed (e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose); or (iv) any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.

The FDA is divided into various branches, or Centers, by product type. Different Centers typically review drug, biologic or device applications. In order to review an application for a combination product, the FDA must decide which Center should be responsible for the review. FDA regulations require that the FDA determine the combination product’s primary mode of action, or PMOA, which is the single mode of a combination product that provides the most important therapeutic action of the combination product. The Center that regulates that portion of the product that generates the PMOA or that has expertise in the relevant therapeutic area becomes the lead evaluator. If there are two independent modes of action, neither of which is subordinate to the other, the FDA makes a determination as to which Center to assign the product based on consistency with other combination products raising similar types of safety and effectiveness questions or to the Center with the most expertise in evaluating the most significant safety and effectiveness questions raised by the combination product. When evaluating an application, a lead Center may consult other Centers but still retain complete reviewing authority, or it may collaborate with another Center, by which the lead Center assigns review of a specific section of the application to another Center, delegating its review authority for that section. Typically, the FDA requires a single marketing application submitted to the Center selected to be the lead evaluator, although the agency has the discretion to require separate applications to more than one Center. One reason to submit multiple evaluations is if the applicant wishes to receive some benefit that accrues only from approval under a particular type of application, like new drug product exclusivity. If multiple applications are submitted, each application may be evaluated by a different lead Center.

Biosimilars law

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, amended the PHSA to create a new licensure framework for biosimilar products, which could ultimately subject our biological products to competition. Under the BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a referenced, branded biologic product. Previously, there had been no licensure pathway for such biosimilar or interchangeable products. For purposes of the BPCIA, a reference product is defined as the single biological product licensed under a full BLA against which a biological product is evaluated in an application submitted under a follow-on BLA. Biosimilarity sufficient to reference a prior FDA-approved product requires that there be no differences in conditions of use, route of administration, dosage form, and strength, and no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical trial, absent a waiver by the Secretary of the U.S. Department of Health & Human Services. A biosimilar product may be deemed interchangeable with a prior approved product if it meets the higher hurdle of demonstrating that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

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The BPCIA also created a 12-year period of reference product exclusivity, which can be extended to 12½ years with pediatric exclusivity. The 12-year exclusivity period begins on the date of first licensure of the reference product under the PHSA and during which the licensure of a follow-on application for a biosimilar or interchangeable product cannot be made effective. During the first four years (or four and one-half years with pediatric exclusivity) of the 12-year period, an application for a biosimilar or interchangeable version of the reference product cannot be submitted to the FDA.

The BPCIA includes limits on obtaining 12-year reference product exclusivity for certain changes or modifications to the reference product. A separate 12-year reference product exclusivity period does not apply to:

The FDA has not yet issued proposed regulations setting forth its interpretation of the BPCIA’s provisions but has issued guidance documents and draft guidance documents related to BPCIA implementation concerning biosimilarity and interchangeability, BLA submission requirements, exclusivity, labeling and naming.

In addition to creating a 12-year period of reference product exclusivity, the BPCIA clarifies the interaction of that exclusivity with orphan drug exclusivity, such that the licensure of a biosimilar or interchangeable version of a reference product that was designated and approved as an orphan drug may only occur after the later of the expiration of any applicable seven-year orphan drug exclusivity or the 12-year reference product exclusivity (or seven and one-half years and 12½ years with pediatric exclusivity).

Like pediatric exclusivity applicable to drug products approved under the FDCA, pediatric exclusivity applicable to biological reference products is subject to an exception. Pediatric exclusivity will not apply to either the 12-year reference product or the seven-year orphan drug exclusivity periods if the FDA determines later than nine months prior to the expiration of such period that the study reports a BLA sponsor submitted in response to a written request for pediatric studies met the terms of that request.

Our investigational biological products, if approved, could be considered reference products entitled to 12-year exclusivity. Even if our products are considered to be reference products eligible for exclusivity, another company could market a competing version of any of our biological products if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product.

The BPCIA also sets forth a complex mechanism for resolving patent disputes that involves a step-wise exchange of information prior to the initiation of a patent infringement lawsuit against a biosimilar or interchangeable product sponsor. Unlike the Hatch-Waxman Act, the BPCIA provides no automatic stay on approval of a biosimilar or interchangeable product application.

Overview of FDA regulation of companion diagnostics

We are developing in vitro and in vivo diagnostics for use in selecting the patients that we believe will respond to our cancer therapeutics.

The FDA published final guidance in July 2014 that addresses issues critical to developing in vitro companion diagnostics. The guidance provides that in vitro companion diagnostics that are essential for the safe and effective use of a corresponding therapeutic product must be approved contemporaneously with that therapeutic in most circumstances. Based on the guidance and the FDA’s past treatment of companion diagnostics, we believe that the FDA will likely require one or more of our in vitro diagnostics to obtain premarket approval, or PMA, in conjunction with approval of the associated therapeutic, which will involve coordination of review by CDER and by the FDA’s Center for Devices and Radiological Health Office of In Vitro Diagnostics and Radiological Health. Our in vivo diagnostics, which are in the form of imaging agents, are regulated as drugs by CDER for therapeutic uses. As such, they are generally subject to the regulatory requirements applicable to other new drug candidates.

Diagnostic tests determined by the FDA to be useful, but not essential, for the safe and effective use of a corresponding therapeutic product are also subject to the same medical device pathways, but their clearance or approval would not be subject to a coordinated review of the diagnostic test and the therapeutic product.

The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk are placed in either Class I or II, which requires the manufacturer to submit to the FDA a premarket notification requesting permission for commercial distribution.

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Some low risk devices are exempt from this requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III, requiring a PMA. A medical device, including an in vitro diagnostic, or IVD, to be commercially distributed in the United States must receive either 510(k) clearance or PMA (or be a Class I exempt device that does not require pre-market review) from the FDA prior to marketing.

510(k) clearance pathway

If any of the diagnostic products under development were determined by FDA not to be essential to the safe and effective prescription of a corresponding therapeutic product, it is possible that the diagnostic test could require 510(k) clearance. The FDA’s 510(k) clearance pathway usually takes from three to twelve months, but it can take significantly longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, would require a new 510(k) clearance or, depending on the modification, a PMA. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) notice or a PMA, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or a PMA is obtained. If the FDA requires us to seek 510(k) clearance or a PMA for any modifications to a previously cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or approval. Also, in these circumstances, we may be subject to significant regulatory fines or penalties.

PMA pathway

Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life supporting or implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device or a preamendment Class III device for which PMA applications have not been called, are placed in Class III requiring PMA. The PMA pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The PMA pathway generally takes from one to three years or even longer from submission of the application. Most companion diagnostic tests have been classified as Class III devices subject to the PMA pathway.

A PMA application for an IVD must provide extensive preclinical and clinical trial data. Preclinical data for an IVD includes many different tests, including how reproducible the results are when the same sample is tested multiple times by multiple users at multiple laboratories. The clinical data need to establish that the test is sufficiently safe, effective and reliable in the intended use population. In addition, the FDA must be convinced that a device has clinical utility, meaning that an IVD provides information that is clinically meaningful. A biomarker’s clinical significance may be obvious, or the applicant may be able to rely upon published literature or submit data to show clinical utility.

A PMA application also must provide information about the device and its components regarding, among other things, device design, manufacturing and labeling. The sponsor must pay an application fee.

As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with Quality System Regulation, or QSR, requirements, which impose elaborate design control, testing, manufacturing, control, documentation and other quality assurance procedures.

Upon submission, the FDA determines if the PMA application is sufficiently complete to permit a substantive review, and, if so, the FDA accepts the application for filing. The FDA then commences an in-depth review of the PMA application. The entire process typically takes one to three years, but may take longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information already provided. The FDA also may respond with a not approvable determination based on deficiencies in the application and require additional clinical trials that are often expensive and time-consuming and can substantially delay approval. During the review period, an FDA advisory committee, typically a panel of clinicians, likely will be convened to review the application and recommend to the FDA whether, or upon what conditions, the device should be approved. Although the FDA is not bound by the advisory panel decision, the panel’s recommendation is important to the FDA’s overall decision making process.

If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA concludes that the applicable criteria have been met, the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA

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can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in material adverse enforcement action, including the loss or withdrawal of the approval.

Even after approval of a PMA, a new PMA or PMA supplement may be required in the event of a modification to the device, its labeling or its manufacturing process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to the information needed to support the proposed change from the product covered by the original PMA.

Clinical trials

A clinical trial is almost always required to support a PMA application. All clinical trials of investigational devices must be conducted in compliance with the FDA’s requirements. If an investigational device could pose a significant risk to patients pursuant to FDA regulations, the FDA must approve an Investigational Device Exemption, or IDE, application prior to initiation of investigational use. IVD trials usually do not require an IDE, as the FDA does not judge them to be a significant risk because the results do not affect the patients in the study. However, for a trial where the IVD result directs the therapeutic care of patients with cancer (companion diagnostics), we believe that the FDA would consider the investigation to present significant risk and require an IDE.

An IDE application must be supported by appropriate data, such as laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The FDA typically grants IDE approval for a specified number of patients. A nonsignificant risk device does not require FDA approval of an IDE. Both significant risk and nonsignificant risk investigational devices require approval from IRBs at the study centers where the device will be used.

During the trial, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial monitoring, reporting and record keeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices and comply with all reporting and record keeping requirements. Prior to granting PMA, the FDA typically inspects the records relating to the conduct of the study and the clinical data supporting the PMA application for compliance with applicable requirements.

Although the QSR does not fully apply to investigational devices, the requirement for controls on design and development does apply. The sponsor also must manufacture the investigational device in conformity with the quality controls described in the IDE application and any conditions of IDE approval that the FDA may impose with respect to manufacturing.

Post-market

After a device is on the market, numerous regulatory requirements apply. These requirements include: the QSR, labeling regulations, the FDA’s general prohibition against promoting products for unapproved or “off label” uses, the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur, and the Reports of Corrections and Removals regulation, which requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA.

The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions such as: fines, injunctions and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for PMA of new products; withdrawing PMAs already granted; and criminal prosecution.

Other regulatory requirements

Any drug or biological products manufactured or distributed by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse drug experiences. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization. Regulatory approval of oncology products often requires that patients in clinical trials be followed for long periods to determine the overall survival benefit of the drug or biologic.

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In addition, drug and biologic manufacturers and other entities involved in the manufacture and distribution of approved drugs and biological products are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. The FDA was also granted new inspection authorities under FDASIA. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks or imposition of distribution or other restrictions under a Risk Evaluation and Mitigation Strategy program. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs and biologics may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability.

Additional provisions

Anti-kickback and false claims laws

In addition to FDA restrictions on marketing of pharmaceutical products, pharmaceutical companies that participate in federal healthcare programs like Medicare or Medicaid are subject to various U.S. federal and state laws that may restrict certain marketing practices. These laws include but are not limited to anti-kickback statutes and false claims statutes. The federal anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. The Patient Protection and Affordable Care Act as amended by the Health Care Education and Reconciliation Act of 2010, collectively the Health Care Reform Laws, amended the intent element of the anti-kickback statute such that liability under the statute can be proved even if a person or entity does not have actual knowledge of the statute or specific intent to violate it. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemption or safe harbor. In addition to the federal anti-kickback statute, the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HIPAA, makes it a crime to knowingly and willfully execute or attempt to execute a scheme to defraud any healthcare benefit program

The federal civil False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Government enforcement agencies and private whistleblowers have initiated investigations or brought private lawsuits against pharmaceutical companies for a variety of allegedly improper promotional or marketing activities, such as allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product,

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or for engaging in promotion for “off-label” uses. Additionally, the Health Care Reform Laws amended the federal False Claims Act such that a violation of the federal anti-kickback statute can serve as a basis for liability under the False Claims Act. In addition to the federal civil False Claims Act, the federal false statements statute prohibits, among other things, knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

The majority of states also have statutes or regulations similar to the federal anti-kickback statute and/or False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. In addition, the federal transparency law under the Health Care Reform Laws, known as the Open Payments program, requires manufacturers of drugs, devices, biologics and medical supplies reimbursable under Medicare or Medicaid to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals, as well as physician ownership and investment interests, and provides for public reporting of the data reported by manufacturers.

Government price reporting

We are required to report certain price data and pay certain rebates to the U.S. government as a condition of participation in federal healthcare programs. Medicaid is jointly administered by federal and state governments for the benefit of low income and certain disabled beneficiaries. Under the Medicaid Drug Rebate Program, we are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. For most brand name drugs, including ONIVYDE, the total Medicaid rebate amount consists of the basic rebate and the additional rebate. The basic rebate is set by law as the greater of 23.1% of the drug’s average manufacturer price, or AMP, or the difference between AMP and the best price for the drug available from us to any commercial customer (with limited exceptions). The additional rebate is designed to capture price increases that outpace inflation (measured by the Consumer Price Index - Urban). The rebate amount is calculated each quarter based on our report of current AMP and best price figures for each of our products to the Centers for Medicare & Medicaid Services, or CMS, the federal agency that administers the Medicaid and Medicare programs. The requirements for calculating AMP and best price are complex. We are required to report any revisions to AMP or best price previously reported within a certain period, which revisions could affect our Medicaid rebate liability for prior quarters. In addition, if we fail to provide information timely or we are found to have knowingly submitted false information to the government, the Medicaid statute provides for civil monetary penalties.

Medicare is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities or other conditions irrespective of age. Medicare Part B generally covers drugs that must be administered by physicians or other healthcare practitioners, are provided in connection with certain durable medical equipment, or are certain oral anti-cancer drugs and certain oral immunosuppressive drugs. Medicare Part B pays for such drugs furnished by physicians under a payment methodology based on the average sales price, or ASP, of the drugs. We report ASP for ONIVYDE. Manufacturers, including us, are required to provide ASP information to CMS on a quarterly basis. The manufacturer-submitted information is used to calculate Medicare payment rates. The payment rates for drugs in the hospital outpatient setting are also paid on a methodology based on ASP, although that could change on a calendar year basis. CMS also has the statutory authority to adjust payment rates for specific drugs outside the hospital outpatient setting based on a comparison of ASP payment rates to widely available market prices or to AMP, which could decrease Medicare payment rates. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, the governing statute provides for civil monetary penalties.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Service’s, or PHS’, 340B drug pricing discount program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of low-income patients. The 340B ceiling price is calculated using a statutory formula, which is based on the AMP and Medicaid rebate amount for the covered outpatient drug, as calculated under the Medicaid Drug Rebate Program.

In order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we participate in the Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing program. As part of this program, we are obligated to make our products available for procurement on an FSS contract under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price, or FCP, to the VA, Department of Defense, Coast Guard and the PHS. The FCP is based on the non-federal average manufacturer price, or Non-FAMP, which we calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to penalties of $100,000 for each item of false information. These obligations also contain extensive disclosure and certification requirements.

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Under Section 703 of the National Defense Authorization Act for FY 2008, we are required to pay quarterly rebates on utilization of innovator products that are dispensed through the Tricare retail pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP. We are required to list our covered products on a Tricare Agreement in order for these products to be eligible for Department of Defense formulary inclusion.

If we overcharge the government in connection with our FSS contract or the Tricare retail pharmacy program, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Data protection

We are subject to data protection laws and regulations (i.e., laws and regulations that address privacy and data security). The legislative and regulatory landscape for data protection continues to evolve, and in recent years there has been an increasing focus on privacy and data security issues. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information. Failure to comply with data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. In addition, we may obtain health information from third parties (e.g., healthcare providers who prescribe our products) that are subject to privacy and security requirements under HIPAA. We could be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information in a manner that is not authorized or permitted.

Foreign regulation

In order to market any therapeutic or diagnostic product outside of the United States, we need to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we need to obtain the necessary approvals by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others.

The EMA grants orphan medicinal product designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the European Union. In addition, orphan medicinal product designation can be granted if the drug is intended for a life threatening, seriously debilitating or serious and chronic condition and without incentives it is unlikely that sales of the drug in the European Union would be sufficient to justify developing the drug. Orphan medicinal product designation is only available if there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan medicinal product will be of significant benefit to patients. Orphan medicinal product designation provides opportunities for free protocol assistance and fee reductions for access to the centralized regulatory procedures. Orphan medicinal product designation also provides ten years of market exclusivity following drug approval. The exclusivity period may be reduced to six years if the designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

Foreign Corrupt Practices Act

Various federal and foreign laws govern our international business practices with respect to payments to government officials. Those laws include the U.S. Foreign Corrupt Practices Act, or FCPA, which prohibits U.S. companies and their representatives from paying, offering to pay, promising or authorizing the payment of anything of value to any foreign government official, government staff member, political party or political candidate for the purpose of obtaining or retaining business or to otherwise obtain favorable treatment or influence a person working in an official capacity. In many countries, the healthcare professionals we may interact with may meet the FCPA’s definition of a foreign government official. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls.

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We are subject also to the U.K. Bribery Act 2010, or Bribery Act, which proscribes giving and receiving bribes in the public and private sectors, bribing a foreign public official, and failing to have adequate procedures to prevent employees and other agents from giving bribes. U.S. companies that conduct business in the United Kingdom generally will be subject to the Bribery Act. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances. Other countries have enacted similar anti-corruption laws and/or regulations.

New legislation and regulations

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA.

In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations changed or what the effect of such changes, if any, may be.

For example, the FDASIA, which was enacted in 2012, is a broad, sweeping law that establishes new user fee programs and provides the FDA with new authority in the areas of drugs, biologics and medical devices. In particular, the FDASIA provides the FDA with new inspection authorities. A drug or biologic will be considered adulterated, with possible resulting civil and criminal penalties, if the owner or operator of the establishment where it is made, processed, packed or held delays, denies, limits or refuses inspection. The FDASIA also replaces the biennial inspection schedule for drugs and biologics with a risk-based inspection schedule. The law grants the FDA authority to require a drug or biologics manufacturer to provide, in advance or instead of an inspection, and at the manufacturer’s expense, any records or other information that the agency may otherwise inspect at the facility. The FDASIA also permits the FDA to share inspection information with foreign governments under certain circumstances. The FDASIA also provides the FDA with additional authority to exercise against manufacturers of drugs or biologics that are not adhering to pediatric study requirements, which apply even if the manufacturer is not seeking to market the drug or biologic to pediatric patients.

In addition, the Health Care Reform Laws were enacted in the United States in March 2010 and contain provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs.

With the new U.S. presidential administration and Congress, there will likely be additional legislative changes, including the repeal and replacement of certain provisions of the Health Care Reform Laws. To that end, on January 20, 2017, the President issued an Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal. The Executive Order declares that, pending repeal of the Health Care Reform Laws, it is imperative for the executive branch to ensure that the law is being efficiently implemented, take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Health Care Reform Laws, and prepare to afford the states more flexibility and control to create a more free and open healthcare market. The Executive Order directs the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authorities and responsibilities under the Health Care Reform Laws to exercise their authority and discretion to waive, defer, grant exemptions from or delay the implementation of any provision or requirement of the Health Care Reform Laws that would impose a fiscal burden on any state or a cost, fee, tax, penalty or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance or makers of medical devices, products or medications.

With respect to repeal of the Health Care Reform Laws and their replacement with new legislation, it is unclear when such legislation will be enacted, what it will provide and what impact it will have on the availability of healthcare and containing or lowering the costs of healthcare.

21st Century Cures Act

In December 2016, Congress passed the 21 ^st Century Cures Act, or the Cures Act, which includes a number of provisions designed to speed development of innovative therapies, provide funding authorization to the National Institutes of Health and provide funding for certain oncology-directed research. Because the Cures Act has only recently been enacted, its potential effect on our business remains unclear with the exception of a provision requiring that we post our policies on the availability of expanded access programs for individuals. In addition, the Cures Act includes provisions requiring the FDA to assess and publish guidance on the use of novel clinical trial designs, the use of real world evidence in applications, the availability of summary level review for supplemental applications for certain indications, and the qualification of drug development tools. Because these provisions allow the FDA to spend several years developing these policies, the effect on us could be delayed.

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The Cures Act also authorizes $1.8 billion in funding for the Obama Administration’s “cancer moonshot” initiative to be run by the National Institutes of Health. The cancer moonshot initiative’s strategic goals encourage inter-agency cooperation and fund research and innovation to catalyze new scientific breakthroughs, bring new therapies to patients, and strengthen prevention and diagnosis. The initiative aims to stimulate drug development through the creation of a public-private partnership with 20 to 30 pharmaceutical and biotechnology companies to expedite cancer researchers’ access to investigational agents and approved drugs. This partnership is designed to permit researchers to obtain drugs and other technologies from a preapproved “formulary” list without having to negotiate with each company for individual research projects. We will monitor these developments but cannot currently assess how this initiative may impact our business

Pharmaceutical coverage, pricing and reimbursement

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for ONIVYDE or any other drug products for which we obtain regulatory approval and could adversely affect our net revenue and results.

Significant uncertainty exists as to the coverage and reimbursement status of ONIVYDE or any other drug products for which we obtain regulatory approval. Sales of ONIVYDE or any of our product candidates, if approved, depend in significant part on the availability of adequate financial coverage and reimbursement from third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations.

Political, economic and regulatory influences are subjecting the healthcare industry in the United States to fundamental changes. There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could impact our ability to sell our products profitably. The Health Care Reform Laws expanded healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. This law substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Healthcare Reform Laws contain a number of provisions that may impact our business and operations. On February 1, 2016, CMS issued final regulations to implement the changes to the Medicaid Drug Rebate program under the Healthcare Reform Laws. These regulations become effective, in general, on April 1, 2016. We are evaluating the impact of these regulations on our business and operations.

The Healthcare Reform Laws also obligate the Health Resources and Services Administration, or HRSA, the agency which administers the 340B program, to create regulations and processes to improve the integrity of the 340B program and to update the agreement that manufacturers must sign to participate in the 340B program to obligate a manufacturer to offer the 340B price to covered entities if the manufacturer makes the drug available to any other purchaser at any price and to report the ceiling prices for its drugs to the government. HRSA recently issued a proposed regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, as well as proposed omnibus guidance that addresses many aspects of the 340B program, including a proposed expansion of manufacturer recordkeeping requirements and 340B ceiling price restatement and refund obligations. HRSA is currently expected to issue additional proposed regulations in 2016. Any final regulation could affect our obligations under the 340B program in ways we cannot anticipate. Further, legislation may be introduced that, if passed, could further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in the inpatient setting.

In addition, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. These cuts reduce reimbursement payments related to our products, which could potentially negatively impact our revenue.

Medicare Part D provides coverage to enrolled Medicare patients for certain drugs, such as self-administered drugs (i.e., drugs that do not need to be injected or otherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government, and each drug plan establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the drug plan may modify from time to time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of manufacturer discounts. Manufacturers, including us, are required to provide a 50% discount on brand name prescription drugs utilized by Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits.

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Third-party payors decide which drugs they will pay for and establish reimbursement and co-pay levels. The growing emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on drug pricing. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Even with clinical trials, our product candidates may be considered less safe, less effective or less cost-effective than other products, and third-party payors may not provide coverage and reimbursement for our products or any of our product candidates that we commercialize, in whole or in part.

The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the approved drugs for a particular indication, and a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate return on our investment in product development. In addition, coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. Thus, even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. The marketability of any products for which we receive regulatory approval for commercial sale may also suffer if the government and third-party payors fail to provide adequate coverage and reimbursement.

Payors also are increasingly considering new metrics as the basis for reimbursement rates, such as ASP, AMP and actual acquisition cost. The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. CMS surveys and publishes retail community pharmacy acquisition cost information in the form of National Average Drug Acquisition Cost, or NADAC, files to provide state Medicaid agencies with a basis of comparison for their own reimbursement and pricing methodologies and rates. It may be difficult to project the impact of these evolving reimbursement mechanics on the willingness of payors to cover our products.

For Medicare and other health insurance programs in the United States, Healthcare Common Procedure Coding System codes, or HCPCS codes, are used to ensure that claims for certain items and services (including most drugs) are submitted and adjudicated in an orderly and consistent manner. The HCPCS code set is maintained by CMS and applications for HCPCS codes are submitted to CMS. Based primarily on the existence of an HCPCS code that appropriately describes a product, a new product may be assigned to a new or existing HCPCS code and may be the only product or one of several products described by that HCPCS code. For many drug HCPCS codes, CMS sets the Medicare payment rate for the code.

Beyond the United States, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. There can be no assurance that any country that has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricing arrangements for any of our products.

Employees

As of January 31, 2017, we had 294 full-time employees, of whom 175 are engaged in research, development and manufacturing. None of our employees is represented by a labor union or covered by collective bargaining agreements.

On October 3, 2016, we announced a 22% reduction in headcount, or 85 employees, as part of a major corporate restructuring with the objective of prioritizing our research and development on a focused set of systems biology-derived oncology products and strengthening our financial runway. Additionally, on January 9, 2017, we announced that we will further reduce headcount in

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connection with the asset sale to Ipsen and the completion of our strategic pipeline review, with approximately 121 employees who will become employees of Ipsen at the closing of the transaction, and a further approximately 94 positions that will be eliminated .

Despite these announcements, we consider our relationship with our employees to be good.

Segment, Geographic and Financial Information

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We view our operations and manage our business in one operating segment and we operate in only one geographic region.

Financial information about (1) our net product revenues and other revenues, net loss per share available to common stockholders and our total assets is provided in our consolidated financial statements included in this Annual Report on Form 10-K and (2) our research and development expenses in each of the last three fiscal years is provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Information about our dependence on limited amounts of customers is provided in Note 1, “Nature of the Business and Summary of Significant Accounting Policies” – “Concentration of Credit Risk” in the accompanying notes to the consolidated financial statements.

Our Corporate Information

We were originally incorporated in the Commonwealth of Massachusetts in 1993 and reincorporated under the laws of the State of Delaware in October 2010. Our principal executive offices are located at One Kendall Square, Suite B7201, Cambridge, MA 02139, and our telephone number is (617) 441-1000.

Information Available on the Internet

We maintain a website with the address www.merrimack.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the “SEC Filings” link in the “Investors” section of our website as soon as reasonably practicable after those materials have been electronically filed with, or furnished to, the Securities and Exchange Commission, or the SEC. We also make available on our website our corporate governance guidelines, the charters for our audit committee, corporate governance and nominating committee, organization and compensation committee and executive committee, and our code of business conduct and ethics, which applies to our directors, officers and employees, and such information is available in print and free of charge to any of our stockholders who requests it. In addition, we intend to disclose on our website any amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed pursuant to rules of the SEC.

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