Our business involves significant risks, some of which are described
below. You should carefully consider these risks, as well as other information in this Quarterly Report on Form
10-Q,
including our financial statements and the related notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations, cash flows, the trading price of
our common stock and our growth prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements
We have a limited operating history, have incurred significant losses since our inception and we will incur losses in the future, which makes it
difficult to assess our future viability.
We are a clinical-stage biopharmaceutical company with a limited operating history.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused substantially all of our efforts on our research and development activities, including developing our
clinical product candidates, tenapanor and RDX7675, and developing our proprietary drug discovery and design platform. To date, we have not commercialized any products or generated any revenue from the sale of products.
We are not profitable and have incurred losses in each year since our inception in October 2007, and we do not know whether or when we will
become profitable. We have only a limited operating history upon which to evaluate our business and prospects. We continue to incur significant research, development and other expenses related to our ongoing operations. As of September 30,
2017, we had an accumulated deficit of $288.3 million.
We expect that our operating losses will substantially increase for the
foreseeable future as we prepare for the potential commercialization of tenapanor and RDX7675, incur manufacturing and development costs for tenapanor and RDX7675, including costs associated with completing the ongoing Phase 3 development of
tenapanor in
IBS-C
and in hyperphosphatemia, preparing the new drug application, or NDA, for submission to the U.S. Food and Drug Administration, or FDA, to request marketing authorization for tenapanor for
the treatment of patients with
IBS-C,
completing the ongoing
onset-of-action
trial and the Phase 3 clinical trial for RDX7675,
and continuing our discovery and research activities.
Our prior losses, combined with expected future losses, have had and will continue
to have an adverse effect on our stockholders equity and working capital. Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a
period-to-period
comparison of our results of operations may not be a good indication of our future performance.
We have substantial net operating loss and tax credit carryforwards for Federal and California income tax purposes. Such net operating losses
and tax credits carryforwards may be reduced as a result of certain intercompany restructuring transactions. In addition, the future utilization of such net operating loss and tax credit carryforwards and credits will be subject to limitations,
pursuant to Internal Revenue Code Sections 382 and 383, as a result of ownership changes that have occurred previously and additional limitations may be applicable as a result of ownership changes that could occur in the future.
We have never generated any revenue from product sales and may never be profitable.
We have no products approved for sale and have never generated any revenue from product sales. Our ability to generate revenue from product
sales and achieve profitability depends on our ability to successfully complete the development of and obtain the regulatory and marketing approvals necessary to commercialize one or more of our product candidates. We do not anticipate generating
revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales or pursuant to milestone payments depends heavily on many factors, including but not limited to:
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the successful completion of nonclinical and clinical development of our product candidates;
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obtaining regulatory approvals for our product candidates, either on our own, or with one or more collaboration partners;
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our ability to successfully commercialize our product candidates, either on our own, or with one or more collaboration partners;
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developing a sustainable and scalable manufacturing process for any approved product candidates and establishing and maintaining supply and manufacturing relationships with third parties that can provide an adequate (in
amount and quality) supply of product to support clinical development and the market demand for our product candidates, if approved;
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obtaining market acceptance of our product candidates, if approved, as viable treatment options;
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addressing any competing technological and market developments;
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identifying, assessing, acquiring, in licensing and/or developing new product candidates;
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negotiating favorable terms in any collaboration partnership, licensing or other arrangements into which we may enter;
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maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and
know-how,
and our ability to develop, manufacture and
commercialize our product candidates and products without infringing intellectual property rights of others; and
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attracting, hiring, and retaining qualified personnel.
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In cases where we are successful in
obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which regulatory approval is granted, the accepted price for the product, the
ability to get reimbursement at any price and whether we are commercializing the product or the product is being commercialized by a collaboration partner, and in such case, whether we have royalty and/or
co-promotion
rights for that territory. If the number of patients suitable for our product candidates is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we
expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from the sale of such products, even if approved. Even if we achieve
profitability in the future, we may not be able to sustain profitability in subsequent periods. Our failure to generate revenue from product sales would likely depress our market value and could impair our ability to raise capital, expand our
business, discover or develop other product candidates or continue our operations. A decline in the value of our common stock could cause our stockholders to lose all or part of their investment.
We will require substantial additional financing to achieve our goals, and the inability to access this necessary capital when needed on acceptable
terms, or at all, could force us to delay, limit, reduce or terminate our planned clinical programs for RDX7675, our
pre-commercialization
efforts for tenapanor or RDX7675, or our other product development and
platform development activities.
Since our inception, most of our resources have been dedicated to our research and development
activities, including developing our clinical product candidates, tenapanor and RDX7675, and developing our proprietary drug discovery and design platform. We believe that we will continue to expend substantial resources for the foreseeable future,
including costs associated with conducting the clinical programs for tenapanor and RDX7675, research and development, conducting preclinical studies and clinical trials for our other programs, obtaining regulatory approvals, developing and
maintaining scalable manufacturing processes for our product candidates and sales and marketing. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts
necessary to successfully complete the development, regulatory approval process and commercialization or
co-promotion
of any of our product candidates. Our future funding requirements will depend on many
factors, including, but not limited to:
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the progress, timing, scope, results and costs of our clinical trial programs evaluating tenapanor for the treatment of hyperphosphatemia in ESRD patients on dialysis, the completion of our Phase 3 clinical program
evaluating tenapanor for the treatment of
IBS-C,
and the subsequent submission of an NDA with the FDA to request marketing authorization, as well as our decision whether or not to pursue other indications for
tenapanor;
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the progress, timing, scope, results and costs of our clinical programs for RDX7675;
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the time and cost necessary to obtain regulatory approvals for our product candidates and the costs of post-marketing studies that could be required by regulatory authorities;
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our ability to successfully commercialize our product candidates, either alone or with one or more collaboration partners;
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the manufacturing costs of our product candidates, and the availability of one or more suppliers for our product candidates at reasonable costs, both for clinical and commercial supply;
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the selling and marketing costs associated with our product candidates, including the cost and timing of building our sales and marketing capabilities, should we elect to do so;
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our ability to establish and maintain collaboration partnerships,
in-license/out-license
or other similar arrangements and the financial
terms of such agreements;
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the timing, receipt, and amount of sales of, or royalties on, our future products, if any;
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the sales price and the availability of adequate third-party reimbursement for our product candidates;
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the cash requirements of any future acquisitions or discovery of product candidates;
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the number and scope of preclinical and discovery programs that we decide to pursue or initiate, and any clinical trials we decide to pursue for other product candidates;
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the time and cost necessary to respond to technological and market developments; and
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the costs of filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights, including litigation costs and the outcome of such litigation, including costs of
defending any claims of infringement brought by others in connection with the development, manufacture or commercialization of our product candidates.
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Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to
us on a timely basis, we may be required to delay, limit, reduce or terminate the clinical development of RDX7675, delay, limit, reduce or terminate our research activities, preclinical and clinical trials for our other product candidates and our
establishment and maintenance of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, either alone or with a collaboration partner.
Risks Related to Our Business
We are substantially
dependent on the success of our lead product candidate, tenapanor, which may not be successful in nonclinical studies or clinical trials, receive regulatory approval or be successfully commercialized.
To date, we have invested a significant amount of our efforts and financial resources in the research and development of tenapanor, which is
currently our lead product candidate and one of only two product candidates in clinical trials. The clinical and commercial success of tenapanor will depend on a number of factors, including the following:
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our ability to, in a timely manner and under terms that are acceptable to us, to establish one or more collaborative relationships for the commercialization of tenapanor;
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the ability of the third-party manufacturers we contract with to successfully execute and scale up the manufacturing processes for tenapanor, which has not yet been demonstrated, and to manufacture supplies of tenapanor
and to develop, validate and maintain commercially viable manufacturing processes that are compliant with cGMP, requirements;
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whether the FDA or foreign regulatory authorities require additional nonclinical and/or clinical studies, which could delay the commercialization of tenapanor;
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whether the FDA or foreign regulatory authorities require us to conduct clinical trials in addition to those anticipated prior to approval to market tenapanor;
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whether we will be required to conduct clinical trials in addition to those anticipated to obtain adequate commercial pricing;
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the prevalence and severity of adverse side effects of tenapanor;
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whether tenapanors safety and efficacy profile is satisfactory to the FDA and foreign regulatory authorities to gain marketing approval;
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the timely receipt of necessary marketing approvals from the FDA and foreign regulatory authorities;
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our ability, either alone, or with a collaboration partner, to successfully commercialize tenapanor, if approved for marketing and sale by the FDA or foreign regulatory authorities, including educating physicians and
patients about the benefits, administration and use of tenapanor;
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achieving and maintaining compliance with all regulatory requirements applicable to tenapanor;
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acceptance of tenapanor as safe, effective and well-tolerated by patients and the medical community;
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our ability to manage the complex pricing and reimbursement negotiations associated with marketing the same product at different doses for separate indications, if tenapanor is approved for marketing and sale by the FDA
or foreign regulatory authorities for both
IBS-C
and hyperphosphatemia in dialysis patients;
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the availability, perceived advantages, relative cost, relative safety and relative efficacy of tenapanor compared to alternative and competing treatments;
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obtaining and sustaining an adequate level of coverage and reimbursement for tenapanor by third-party payors;
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enforcing intellectual property rights in and to tenapanor;
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avoiding third-party interference, opposition, derivation or similar proceedings with respect to our patent rights, and avoiding other challenges to our patent rights and patent infringement claims; and
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a continued acceptable safety and tolerability profile of tenapanor following approval.
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As
tenapanor is a
first-in-class
drug, there is a higher likelihood that approval may not be attained as compared to a class of drugs with approved products. While
tenapanor met the primary endpoint in two Phase 3 clinical studies evaluating tenapanor for the treatment of patients with
IBS-C,
there can be no assurance that our NDA that we plan to submit for this
indication, once submitted, will be accepted by FDA or that we will receive marketing authorization from FDA. Although tenapanor met the primary endpoint in the first Phase 3 clinical trial for the treatment of hyperphosphatemia in ESRD patients on
dialysis, there can be no assurances that the second Phase 3 trial of tenapanor in this indication will achieve the primary endpoint, or that, tenapanor will receive regulatory approval. Further, it may not be possible or practicable to demonstrate,
or if approved, to market, tenapanor on the basis of certain of the benefits we believe tenapanor possesses. For example, the reduction of serum phosphorus is currently an approvable endpoint in ESRD patients on dialysis, but not for the broader CKD
patient population in the United States. If the number of patients in the market for tenapanor or the price that the market can bear is not as significant as we estimate, we may not generate sufficient revenue from sales of tenapanor, if approved.
Accordingly, there can be no assurance that tenapanor will ever be successfully commercialized or that we will ever generate income from sales of tenapanor. If we are not successful in completing the development of, obtaining approval for, and
commercializing tenapanor, or are significantly delayed in doing so, our business will be materially harmed.
Clinical drug development involves a
lengthy and expensive process with an uncertain outcome, and we may encounter substantial delays in our clinical studies. Furthermore, results of earlier studies and trials may not be predictive of future trial results.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical
studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial
process. The results of preclinical and clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. An unexpected adverse event profile, or the results of drug-drug interaction studies, may present
challenges for the future development and commercialization of a product candidate for a particular condition despite receipt of positive efficacy data in a clinical study. Although tenapanor met the primary endpoint in the first Phase 3 clinical
trial for the treatment of hyperphosphatemia in ESRD patients on dialysis, there can be no assurances that the second Phase 3 trial results of tenapanor in that indication will show the desired safety and efficacy. While tenapanor met the primary
endpoint in two Phase 3 clinical trials evaluating tenapanor for the treatment of
IBS-C
patients, there can be no assurance that
T3MPO-3,
the long-term safety study of
tenapanor in patients with
IBS-C,
will demonstrate acceptable long-term safety. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in
advanced clinical trials for similar indications that we are pursuing due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if
our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates, or if such regulatory approval is obtained, the content of the label approved by regulatory authorities may materially and
adversely impact our ability to commercialize the product.
We do not know whether future clinical trials will begin on time, or whether
our ongoing or future clinical trials will need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure
to:
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manufacture sufficient quantities of product candidate meeting specified quality standards for use in clinical trials;
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obtain regulatory approval to commence a trial, if applicable;
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reach agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among
different CROs and trial sites;
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obtain institutional review board, or IRB, approval at each site;
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recruit suitable patients in a timely manner to participate in our trials;
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have patients complete a trial or return for post-treatment
follow-up;
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ensure that clinical sites observe trial protocol, comply with good clinical practices, or GCPs, or continue to participate in a trial;
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address any patient safety concerns that arise during the course of a trial;
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address any conflicts with new or existing laws or regulations; or
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initiate or add a sufficient number of clinical trial sites.
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Patient enrollment is a
significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the
clinical trial, competing clinical trials and clinicians and patients perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be
approved for the indications we are investigating.
We could also encounter delays if a clinical trial is suspended or terminated by us,
by the IRBs of the institutions in which such trials are being conducted, by an independent data safety monitoring board for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to
a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting
in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the
clinical trial.
Further, if there are delays in the completion of, or termination of, any clinical trial of our product candidates, the
commercial prospects of our product candidates may be harmed, and our ability to generate revenue from product sales from any of these product candidates will be delayed. In addition, any delays in completing the clinical trials will increase costs,
slow down our product candidate development and approval process and jeopardize the ability to commence product sales and generate revenue from product sales. Any of these occurrences may significantly harm our business, financial condition and
prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We intend to devote significant resources to the development of RDX7675 which may not be successful in nonclinical studies or clinical trials, receive
regulatory approval or be successfully commercialized.
In connection with the ongoing
onset-of-action
clinical trial and the Phase 3 clinical trial for RDX7675, we expect to invest a significant amount of our efforts and financial resources in the development of RDX7675. We are pursuing a
505(b)(2) regulatory path for approval of RDX7675, which, among other things allows us to rely on the FDAs previous findings of safety and efficacy and may eliminate the need to conduct certain nonclinical and clinical studies of our product
candidate. This regulatory pathway, which can accelerate development, may not be available to us if a pharmaceutically equivalent product to RDX7675 were approved prior to the approval of our 505(b)(2) application. If we are unable to rely upon a
505(b)(2) regulatory pathway for the approval of RDX7675, the development of RDX7675 may be substantially delayed or we may be required to abandon such development.
The clinical and commercial success of RDX7675 will depend on a number of factors, including the following:
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the ability of the third-party manufacturers we contract with, to successfully develop and scale up the manufacturing processes for RDX7675, which has not yet been demonstrated, to manufacture supplies of RDX7675 and to
develop, validate and maintain commercially viable manufacturing processes that are compliant with cGMP, requirements;
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the significant expansion of the market for the treatment of hyperkalemia beyond its currently limited size, including the success of commercial launches of new hyperkalemia products and the use of any such products by
nephrologists and cardiologists in the chronic setting;
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our ability to successfully obtain labeling claims necessary or desirable for the commercial success of RDX7675;
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the availability of, and the perceived advantages regarding the relative palatability, relative cost, relative safety, relative tolerance and relative efficacy of RDX7675 and alternative and competing treatments;
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the strength and breadth of any intellectual property protection that we have or may be granted for RDX7675, and our enforcement of any intellectual property rights in RDX7675;
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the timely receipt of necessary marketing approvals and exclusivity periods, if any, from the FDA and foreign regulatory authorities;
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our ability to successfully commercialize RDX7675, if approved for marketing and sale by the FDA or foreign regulatory authorities, including educating physicians and patients about the benefits, administration and use
of RDX7675;
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obtaining and sustaining an adequate level of coverage and reimbursement for RDX7675 by third-party payors; and
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the effectiveness of our marketing, sales and distribution strategy and operations.
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We cannot be certain that clinical trials evaluating RDX7675 will establish a safety and efficacy
profile sufficient to enable RDX7675 to gain approval by the FDA, or if approved, compete effectively with alternative and competing treatments. Further, it may not be possible or practicable to demonstrate, or if approved, to market, RDX7675 on the
basis of certain of the benefits we believe RDX7675 may possess. Accordingly, there can be no assurance that RDX7675 will ever be successfully commercialized or that we will ever generate revenue from sales of RDX7675. If we are not successful in
completing the development of, obtaining approval for, and commercializing RDX7675, or are significantly delayed in doing so, our business will be materially harmed.
We may not be successful in our efforts to develop our product candidates that are at an early stage of development, including RDX8940 or expand our
pipeline of product candidates, as a result of numerous factors, which may include the inability to access capital necessary to fund such efforts on acceptable terms.
A key element of our strategy has been focused on the expansion of our pipeline of product candidates utilizing our proprietary drug discovery
and design platform and to advance such product candidates through clinical development. In December 2016, we filed an IND to commence clinical development of RDX8940 in the United States. In August 2017, we completed a comprehensive strategic
review of our operations, assessing several core areas, to optimally position the company to advance towards delivering on multiple significant opportunities with our late-stage portfolio and execute on our strategic objectives. This review resulted
in the prioritization of resources to focus on the upcoming milestones for the late-stage programs, a delay in the development of a number of earlier-stage programs, including RDX8940, and a reduction in workforce. RDX8940 and those product
candidates that are in the discovery and lead identification stages of preclinical development will require substantial preclinical and clinical development, testing and regulatory approval prior to commercialization, and we may not be able to
access the capital necessary to fund such efforts on acceptable terms. In addition, of the large number of drugs in development, only a small percentage of such drugs successfully complete the FDA regulatory approval process and are commercialized.
Accordingly, even if we are able to continue to fund our research and early stage development programs, there can be no assurance that any product candidates will reach the clinic or be successfully developed or commercialized.
Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product
candidates are ultimately identified. Although our research and development efforts to date have resulted in several development programs, we may not be able to develop product candidates that are safe, effective and well-tolerated. Our research
programs may initially show promise in identifying potential product candidates, and we may select candidates for development, yet we may fail to advance product candidates to clinical development for many reasons, including the following:
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we may be unable to access sufficient capital on acceptable terms to fund the development of all of our assets and as a result we may be forced to delay or terminate the development of certain product candidates;
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the research methodology used and our drug discovery and design platform may not be successful in identifying potential product candidates;
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competitors may develop alternatives that render our product candidates obsolete or less attractive;
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product candidates we develop may nevertheless be covered by third parties patents or other exclusive rights;
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the market for a product candidate may change during our program so that the continued development of that product candidate is no longer reasonable;
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a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective, well-tolerated or otherwise does not meet applicable regulatory or
commercial criteria;
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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
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a product candidate may not be accepted as safe, effective and well-tolerated by patients, the medical community or third-party payors, if applicable.
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Even if we are successful in continuing to expand our pipeline, through our own research and development efforts, the potential product
candidates that we identify or for which we acquire rights may not be suitable for clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to receive
marketing approval and achieve market acceptance. If we do not successfully develop and commercialize a product pipeline, we may not be able to generate revenue from product sales in future periods or ever achieve profitability.
Our proprietary drug discovery and design platform, and, in particular, APECCS, is a new approach to the discovery, design and development of new product
candidates and may not result in any products of commercial value.
We have developed a proprietary drug discovery and design
platform to enable the identification, screening, testing, design and development of new product candidates, and have developed APECCS as a component of this of this platform. We utilize APECCS in the design of our small molecules and to identify
new and potentially novel targets in the GI tract. However, there can be no
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assurance that APECCS will be able to identify new targets in the GI tract or that any of these potential targets or other aspects of our proprietary drug discovery and design platform will yield
product candidates that could enter clinical development and, ultimately, be commercially valuable.
We rely on third parties to conduct some of our
nonclinical studies and all of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our product candidates.
We do not have the ability to independently conduct clinical trials and, in some cases, nonclinical studies. We rely on medical
institutions, clinical investigators, contract laboratories, and other third parties, such as CROs, to conduct clinical trials on our product candidates. The third parties with whom we contract for execution of the clinical trials play a significant
role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we control only certain aspects of their activities and
have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely, and will continue to rely, on these third parties to conduct some of our nonclinical studies and all of our clinical trials, we
remain responsible for ensuring that each of our studies and clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on third parties does not relieve us of our regulatory
responsibilities. We, and these third parties are required to comply with current GLPs for nonclinical studies, and good clinical practices, or GCPs, for clinical studies. GLPs and GCPs are regulations and guidelines enforced by the FDA, the
Competent Authorities of the Member States of the European Economic Area, or EEA, and comparable foreign regulatory authorities for all of our products in nonclinical and clinical development, respectively. Regulatory authorities enforce GCPs
through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our third party contractors fail to comply with applicable regulatory requirements, including GCPs, the clinical data generated in our clinical
trials may be deemed unreliable and the FDA, the European Medicines Agency, or EMA, or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. There can be no
assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under cGMP
regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
Even if our product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success, which will depend, in part,
upon the degree of acceptance among physicians, patients, patient advocacy groups, health care payors and the medical community.
Even if our product candidates obtain FDA or other regulatory approvals, and are ultimately commercialized, our product candidates may not
achieve market acceptance among physicians, patients, third-party payors, patient advocacy groups, and the medical community. Market acceptance of our product candidates for which marketing approval is obtained depends on a number of factors,
including:
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the efficacy of the products as demonstrated in clinical trials;
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the prevalence and severity of any side effects and overall safety and tolerability profile of the product;
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the clinical indications for which the product is approved;
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advantages over new or traditional or existing therapies, including recently approved therapies or therapies that the physician community anticipate will be approved;
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acceptance by physicians, major operators of clinics and patients of the product as a safe, effective and well-tolerated treatment;
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relative convenience and ease of administration of our products;
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the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments;
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the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of physicians and patients;
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the availability of alternative products and their ability to meet market demand;
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the strength of our or our collaboration partners marketing and distribution organizations;
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the quality of our relationships with patient advocacy groups; and
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sufficient third-party coverage or reimbursement.
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Any failure by our product candidates that
obtain regulatory approval to achieve market acceptance or commercial success would adversely affect our results of operations.
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Our product candidates may cause undesirable side effects or have other properties that could delay our
clinical trials, or delay or prevent regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following regulatory approval, if any. If any of our product candidates receives marketing
approval and we or others later identify undesirable side effects caused by the product candidate, the ability to market the product candidates could be compromised.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical
trials, result in the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authorities or limit the commercial profile of an approved label. To date, patients treated with tenapanor have experienced drug-related
side effects including diarrhea, nausea, flatulence, abdominal discomfort, abdominal pain, abdominal distention and changes in electrolytes. In the event that trials conducted by us with tenapanor or trials we conduct with our other product
candidates, reveal an unacceptable severity and prevalence of these or other side effects, such trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny
approval of tenapanor, or any such other product candidate, for any or all targeted indications. Additionally, despite a positive efficacy profile, the prevalence and/or severity of these or other side effects could cause us to cease further
development of a product candidate for a particular indication, or entirely. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.
Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, in the event that any of
our product candidates receives regulatory approval and we or others later identify undesirable side effects caused by one of our products, a number of potentially significant negative consequences could occur, including:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we may be required to recall the product;
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additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof, including the imposition of a Risk Evaluation and Mitigation
Strategies, or REMS, plan that may require creation of a Medication Guide outlining the risks of such side effects for distribution to patients, as well as elements to assure safe use of the product, such as a patient registry and training and
certification of prescribers;
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we may be subject to fines, injunctions or the imposition of civil or criminal penalties;
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regulatory authorities may require the addition of labeling statements, such as a black box warning or a contraindication;
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we could be sued and held liable for harm caused to patients;
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the product may become less competitive; and
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our reputation may suffer
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Any of the foregoing events could prevent us from achieving or
maintaining market acceptance of a particular product candidate, if approved, and could result in the loss of significant revenue to us, which would materially and adversely affect our results of operations and business.
We face substantial competition and our competitors may discover, develop or commercialize products faster or more successfully than us.
The biotechnology and pharmaceutical industries are highly competitive, and we face significant competition from companies in the
biotechnology, pharmaceutical and other related markets that are researching and marketing products designed to address diseases that we are currently developing products to treat. If approved for marketing by the FDA or other regulatory agencies,
tenapanor and RDX7675, as well as our other product candidates, would compete against existing treatments.
For example, tenapanor will,
if approved, compete directly with phosphate binders for the treatment of hyperphosphatemia in ESRD patients on dialysis. The various types of phosphate binders commercialized in the United States include the following:
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Calcium carbonate (many
over-the-counter
brands including Tums and Caltrate)
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Calcium acetate (several prescription brands including PhosLo and Phoslyra)
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Lanthanum carbonate (Fosrenol marketed by Shire)
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Sevelamer hydrochloride (Renagel, marketed by Sanofi)
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Sevelamer carbonate (Renvela, marketed by Sanofi)
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Sucroferric oxyhydroxide (Velphoro, marketed by Vifor Fresenius)
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Ferric citrate (Auryxia, marketed by Keryx)
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The hydrochloride form of sevelamer, Renagel, was
launched in the United States by Genzyme Corporation in 1998 prior to its acquisition by Sanofi, and the carbonate form, Renvela, was launched in 2008. Sanofi booked 922 million ($1.05 billion) in worldwide sales of sevelamer during 2016
and 494 million in first half of 2017. Generic sevelamer carbonate has been approved in certain jurisdictions in Europe since 2015 and in the U.S. market since June 2017. In addition to the currently marketed phosphate binders, we are
aware of at least two other binders in development, including fermagate (Alpharen), an iron-based binder in Phase 3 being developed by Opko Health, Inc., and PT20, an iron-based binder in Phase 3 being developed by Shield Therapeutics.
Numerous treatments exist for constipation and the constipation component of
IBS-C,
many of which are
over-the-counter.
These include psyllium husk (such as Metamucil), methylcellulose (such as Citrucel), calcium polycarbophil (such as FiberCon), lactulose (such as Cephulac),
polyethylene glycol (such as MiraLax), sennosides (such as Exlax), bisacodyl (such as Ducolax), docusate sodium (such as Colace), magnesium hydroxide (such as Milk of Magnesia), saline enemas (such as Fleet) and sorbitol. These agents are generally
inexpensive and work well to temporarily relieve constipation.
We are also aware of two prescription products marketed for
IBS-C,
Linzess (linaclotide) marketed by Ironwood Pharmaceuticals and Allergan and Amitiza (lubiprostone) marketed by Sucampo and Takeda. Additionally, Trulance (plecanatide) was approved by FDA in January 2017 for
use in adults for treatment of chronic idiopathic constipation, and Synergy Pharmaceuticals, the drugs manufacturer, presented Phase 3 data from two clinical studies of Trulance in patients with
IBS-C
in
December 2016 and submitted an NDA for this indication in March 2017.
Finally, we are aware of at least two drugs approaching or on the
market for the treatment of hyperkalemia. Veltassa (patiromer FOS), an oral, polymer-based potassium binder, was approved for marketing by the FDA in October 2015 and was commercially launched by Relypsa, a company that was acquired by Galenica in
September 2016. Additionally, ZS Pharma submitted an NDA to the FDA in June 2015 for
ZS-9,
a sodium zirconium cyclosilicate-based oral potassium binder and received approval in Europe in February 2017 by the
European Medicines Agency. If approved in the United States,
ZS-9
will be commercially launched by AstraZeneca, a company that acquired ZS Pharma in December 2015.
It is possible that our competitors will develop and market drugs or other treatments that are less expensive and more effective than our
product candidates, or that will render our product candidates obsolete. It is also possible that our competitors will commercialize competing drugs or treatments before we, or our collaboration partners, can launch any products developed from our
product candidates. We also anticipate that we will face increased competition in the future as new companies enter into our target markets.
Many of our competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug development
resources than we do. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Large pharmaceutical companies in particular have extensive
expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with
respect to potentially competitive products or technologies. These organizations may also establish exclusive collaboration partnerships or licensing relationships with our competitors.
We may experience difficulties in managing our current activities and growth given our level of managerial, operational, financial and other resources.
On August 7, 2017, our Board of Directors approved a restructuring plan, pursuant to which we reduced our workforce by 29%,
resulting in 75 remaining employees. We will need to manage our operations and clinical trials, and continue our development and
pre-commercial
activities for our product candidates with this reduced
workforce. Our management and personnel, and systems currently in place may not be adequate to support our current activities or future growth. Our need to effectively execute our business strategy requires that we:
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manage our clinical trials effectively, including the ongoing
T3MPO-3
clinical trials of tenapanor in
IBS-C,
the Phase 3 trial of tenapanor
for hyperphosphatemia, the ongoing
onset-of-action
clinical trial in RDX7675 and the Phase 3 clinical trial for RDX7675, all of which are being or will be conducted at
multiple trial sites;
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manage our internal research and development efforts effectively while carrying out our contractual obligations to licensors, contractors, collaborators, government agencies and other third parties;
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continue to improve our operational, financial and management controls, reporting systems and procedures; and
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retain and motivate our remaining employees and potentially identify, recruit, and integrate additional employees.
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If we are unable to maintain or expand our managerial, operational, financial and other resources to the extent required to manage our
development and
pre-commercialization
activities, our business will be materially adversely affected.
We
currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to commercialize tenapanor or any of our other product candidates.
We currently do not have a sales organization. In order to commercialize or
co-promote
tenapanor,
RDX7675 or any of our other product candidates, either alone, or with a collaboration partner, we must enter collaborative relationships with one or more third parties; or build marketing, sales, distribution, managerial and other
non-technical
capabilities. There can be no assurances that we will be successful in establishing collaborative relationships in a timely manner or on terms that are acceptable to us. If one or more of our product
candidates receives regulatory approval, and we have not entered collaborative relationships for the commercialization of such product candidate in the approved territory, we would have to establish appropriate sales organizations with technical
expertise supporting distribution capabilities to commercialize the product candidate, which will be expensive and time consuming. As a company, we have no prior experience in the marketing, sale and distribution of pharmaceutical products and there
are significant risks involved in building and managing a sales organization, including our ability to secure the capital necessary to fund such efforts on acceptable terms, hire, retain, and incentivize qualified individuals, generate sufficient
sales leads, provide adequate training to sales and marketing personnel, comply with regulatory requirements applicable to the marketing and sale of drug products and effectively manage a geographically dispersed sales and marketing team.
If we are unable to enter collaborative relationships a timely manner, or on acceptable terms, and/or we fail or are delayed in the
development of our internal sales, marketing and distribution capabilities, the commercialization of our products would be adversely impacted, and we may not be able to successfully commercialize our product candidates.
We rely completely on third parties to manufacture our nonclinical and clinical drug supplies, and we intend to rely on third parties to produce
commercial supplies of any approved product candidate. Our business would be harmed if those third parties fail to obtain approval of the FDA, Competent Authorities of the Member States of the EEA or comparable regulatory authorities, fail to
provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
We do not
currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our drug supplies for use in the conduct of our nonclinical and clinical studies, and we lack the resources and the capability to manufacture any
of our product candidates on a clinical or commercial scale. The facilities used by our contract manufacturers to manufacture any drug products must be approved by the FDA pursuant to inspections that will be conducted after an NDA is submitted to
the FDA. We do not control the manufacturing process of our product candidates, and we are completely dependent on our contract manufacturing partners for compliance with the regulatory requirements, known as cGMPs, for manufacture of both active
drug substances and finished drug products.
If our contract manufacturers cannot successfully manufacture material that conforms to our
specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract
manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws
any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical
studies. There are a limited number of suppliers for raw materials that we use to manufacture our drugs, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to
produce our product candidates for our clinical studies, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do
not begin a clinical study unless we believe we have on hand, or will be able to manufacture, a sufficient supply of a product candidate to complete such study, any significant delay or discontinuity in the supply of a product candidate, or the raw
material components thereof, for an ongoing clinical study due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing, and potential regulatory approval of our product
candidates, which could harm our business and results of operations.
27
Third-party payor coverage and reimbursement status of newly-approved products is uncertain. Failure to
obtain or maintain adequate coverage and reimbursement for our products, if approved, could limit our ability to market those products and decrease our ability to generate revenue.
The pricing, coverage and reimbursement of our product candidates, if approved, must be adequate to support a commercial infrastructure. The
availability and adequacy of coverage and reimbursement by governmental and private payors are essential for most patients to be able to afford treatments such as ours, assuming approval. Sales of our product candidates will depend substantially,
both domestically and abroad, on the extent to which the costs of our product candidates will be paid for by health maintenance, managed care, pharmacy benefit, and similar healthcare management organizations, or reimbursed by government
authorities, private health insurers, and other third-party payors. If coverage and reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage
is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a return on our investment.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the
principal decisions about coverage and reimbursement for new drugs are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S.
Department of Health and Human Services responsible for administering the Medicare program, as CMS decides whether and to what extent a new drug
will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for products
such as ours.
In July 2010, CMS released its final rule to implement a bundled prospective payment system for the treatment of ESRD
patients as required by the Medicare Improvements for Patients and Providers Act, or MIPPA. The bundled payment covers a bundle of items and services routinely required for dialysis treatments furnished to Medicare beneficiaries in
Medicare-certified ESRD facilities or at their home, including the cost of certain routine drugs. The final rule delayed the inclusion of oral medications without intravenous equivalents in the bundled payment until January 1, 2014 and in April
2014, President Obama signed the Protecting Access to Medicare Act of 2014, which further extended this implementation date to January 1, 2024. Additionally, section 204 of the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014,
or ABLE, provides that payment for oral-only ESRD drugs cannot be made under the ESRD Prospective Payment System prior to January 1, 2025. As a result of the recent legislation, beginning in 2025, ESRD-related drugs may be included in the
bundle and separate Medicare reimbursement will no longer be available for such drugs, as it is today under Medicare Part D. While it is too early to project the full impact bundling may have on the industry, the impact could potentially cause
dramatic price reductions for tenapanor and RDX7675, if approved. We may be unable to sell tenapanor and/or RDX7675, if approved, to dialysis providers on a profitable basis if third-party payors reduce their current levels of payment, or if our
costs of production increase faster than increases in reimbursement levels.
Outside the United States, international operations are
generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, Japan, China and other countries has and will continue to put pressure
on the pricing and usage of our product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for
medicinal products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside
the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause
such organizations to limit both coverage and the level of reimbursement for new products approved and, as a result, these caps may not cover or provide adequate payment for our product candidates. We expect to experience pricing pressures in
connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in
general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product
candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will
face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such
product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under
state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would
require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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a diversion of managements time and our resources;
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substantial monetary awards to trial participants or patients;
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regulatory investigations, product recalls or withdrawals, or labeling, marketing or promotional restrictions;
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the inability to commercialize or
co-promote
our product candidates.
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Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against
potential product liability claims could prevent or inhibit the commercialization of any products we develop. We currently carry product liability insurance covering use in our clinical trials in the amount of $10.0 million in the aggregate.
Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable
cost or in sufficient amounts to protect us against losses.
We are highly dependent on the services of our President and Chief Executive Officer,
Michael Raab, our Chief Operating Officer, Reginald Seeto, MBBS, our Chief Scientific Officer, Jeremy Caldwell, Ph.D., and our Chief Development Officer, David Rosenbaum, Ph.D. If we are not able to retain these members of our management team, or
recruit additional management, clinical and scientific personnel, our business will suffer.
Our success depends in part on our
continued ability to attract, retain and motivate highly qualified personnel. In particular, we are highly dependent upon Michael Raab, our President and Chief Executive Officer, Reginald Seeto, MBBS, our Chief Operating Officer, Jeremy Caldwell,
Ph.D., our Chief Scientific Officer and David Rosenbaum, Ph.D., our Chief Development Officer. The loss of services of any of these individuals could delay or impair the successful development of our product pipeline, completion of our planned
clinical trials or the commercialization of our product candidates. Although we have entered into employment agreements with our senior management team, including Mr. Raab and Drs. Seeto, Caldwell and Rosenbaum, these agreements are terminable
at will with or without notice and, therefore, we may not be able to retain their services as expected. Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems
in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. In addition to the
competition for personnel, the San Francisco Bay area in particular is characterized by a high cost of living. As such, we could have difficulty attracting experienced personnel to our company and may be required to expend significant financial
resources in our employee recruitment and retention efforts.
Our internal computer systems, or those of our CROs or other contractors or
consultants, may fail or suffer data security breaches, which could adversely affect our business.
Our business is increasingly
dependent on critical, complex and interdependent information technology systems to support business processes as well as internal and external communications. Despite the implementation of security measures, the size and complexity of our internal
computer systems, and those of our CROs and other contractors, make them vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced
any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data from
completed or ongoing clinical trials for any of our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, our systems are potentially
vulnerable to data security breaches, whether by employees or others, which may expose sensitive data to unauthorized persons. Such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the
public exposure of personal information of our employees, clinical trial patients, customers, and others. Such disruptions and breaches of security could expose us to liability and have a material adverse effect on the operating results and
financial condition of our business.
29
We incur significant costs as a result of operating as a public company, and our management will devote
substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our
business.
We incur significant legal, accounting and other expenses as a public company, including costs resulting from public
company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Market require that we satisfy certain
corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other
personnel will need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will increase our legal and financial compliance costs and will make some
activities more time consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and
regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees
or to serve as executive officers, or to obtain certain types of insurance, including directors and officers insurance, on acceptable terms.
We are subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and
Exchange Commission, or SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Section 404 requires an annual management
assessment of the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we intend to take advantage of
certain exemptions from various reporting requirements that are applicable to public companies that are emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of
Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting
firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our IPO
(December 31, 2019), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the
market value of our common stock that is held by
non-affiliates
exceeds $700 million as of the prior June 30
th
, and (4) the date on which we have
issued more than $1.0 billion in
non-convertible
debt during the prior three-year period.
During the course of our review and testing of our internal controls, we may identify deficiencies and be unable to remediate them before we
must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our
independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our
reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our
financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Market or other adverse consequences that would materially harm our business.
We may form collaboration partnerships in the future, and we may not realize the benefits of such collaborations.
We currently expect to form collaboration partnerships, create joint ventures or enter into licensing arrangements with third parties that we
believe will complement or augment our existing business. In particular, we currently expect to form one or more collaboration partnerships in connection with the commercialization of tenapanor, if approved. We face significant competition in
seeking appropriate collaboration partners, and the negotiation process to secure appropriate terms is time-consuming and complex. Any delays in identifying suitable collaboration partners and entering into agreements to develop our product
candidates could also delay the commercialization of our product candidates, which may reduce their competitiveness even if they reach the market. Moreover, we may not be successful in our efforts to establish such a collaboration partnership for
any future product candidates and programs on terms that are acceptable to us, or at all. This may be because our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, our research and
development pipeline may be viewed as insufficient, and/or third parties may not view our product candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile. Even
if we are successful in entering a collaboration partnership or license arrangement, there is no guarantee that the collaboration partnership will be successful, or that any future collaboration partner will commit sufficient resources to the
development, regulatory approval, and commercialization effort for such products, or that such alliances will result in us achieving revenues that justify such transactions.
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We may engage in strategic transactions that could impact our liquidity, increase our expenses and present
significant distractions to our management.
We may consider strategic transactions, such as acquisitions of companies, asset
purchases, and or
in-licensing
of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs,
collaboration partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur
non-recurring
or other charges, may increase our
near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our operations and financial results. For example, these transactions may entail numerous
operational and financial risks, including:
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up-front,
milestone and royalty payments, equity investments and financial support of new research and development candidates including increase of personnel, all of which may be
substantial;
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exposure to unknown liabilities;
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disruption of our business and diversion of our managements time and attention in order to develop acquired products, product candidates or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for acquisitions;
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higher-than-expected acquisition and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
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Accordingly, although there can
be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks and could have a material adverse effect on our
business, results of operations, financial condition and prospects.
If we seek and obtain approval to commercialize our product candidates outside
of the United States, or otherwise engage in business outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.
We may decide to seek marketing approval for certain of our product candidates outside the United States or otherwise engage in business
outside the United States, including entering into contractual agreements with third-parties. We expect that we will be subject to additional risks related to entering these international business markets and relationships, including:
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different regulatory requirements for drug approvals in foreign countries;
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differing United States and foreign drug import and export rules;
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reduced protection for intellectual property rights in foreign countries;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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different reimbursement systems, and different competitive drugs;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
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potential liability resulting from development work conducted by these distributors; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters.
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Our business involves the use of hazardous materials and we and third-parties with whom we contract must
comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our research and
development activities involve the controlled storage, use and disposal of hazardous materials, including the components of our product candidates and other hazardous compounds. We and manufacturers and suppliers with whom we may contract are
subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our
manufacturers facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental
damage resulting in costly
clean-up
and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. We cannot guarantee
that that the safety procedures utilized by third-party manufacturers and suppliers with whom we may contract will comply with the standards prescribed by laws and regulations or will eliminate the risk of accidental contamination or injury from
these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our
business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not
currently carry biological or hazardous waste insurance coverage.
We may be adversely affected by the current global economic environment.
Our ability to attract and retain collaboration partners or customers, invest in and grow our business and meet our financial
obligations depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic conditions and financial, business and other factors beyond our control, such as the rate of
unemployment, the number of uninsured persons in the United States, presidential elections, other political influences and inflationary pressures. Our results of operations could be adversely affected by general conditions in the global economy and
in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. We cannot anticipate all the ways in which the current global economic climate and global financial
market conditions could adversely impact our business.
We are exposed to risks associated with reduced profitability and the potential
financial instability of our collaboration partners or customers, many of which may be adversely affected by volatile conditions in the financial markets. For example, unemployment and underemployment, and the resultant loss of insurance, may
decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, our collaboration partners or customers may experience reductions in revenues, profitability
and/or cash flow that could lead them to reduce their support of our programs or financing activities. If collaboration partners or customers are not successful in generating sufficient revenue or are precluded from securing financing, they may not
be able to pay, or may delay payment of, accounts receivable that are owed to us. In addition, the volatility in the financial markets could cause significant fluctuations in the interest rate and currency markets. We currently do not hedge for
these risks. The foregoing events, in turn, could adversely affect our financial condition and liquidity. In addition, if economic challenges in the United States result in widespread and prolonged unemployment, either regionally or on a national
basis, prior to the effectiveness or after the repeal of certain provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively known as the Affordable Care Act, a
substantial number of people may become uninsured or underinsured. To the extent economic challenges result in fewer individuals pursuing or being able to afford our product candidates once commercialized, our business, results of operations,
financial condition and cash flows could be adversely affected.
We may be adversely affected by earthquakes or other natural disasters and our
business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our corporate headquarters
and other facilities are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes. We do not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt our operations, and have a
material adverse effect on our business, results of operations, financial condition and prospects.
If a natural disaster, power outage or
other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or
that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited
and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken
together with our lack of earthquake insurance, could have a material adverse effect on our business.
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Risks Related to Government Regulation
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If we are
ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The
research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries,
which regulations differ from country to country. Neither we nor any of our collaboration partners is permitted to market any drug product in the United States until we receive marketing approval from the FDA. We have not submitted an application or
obtained marketing approval for any of our product candidates anywhere in the world. Obtaining regulatory approval of a NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States
and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:
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civil and criminal penalties;
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withdrawal of regulatory approval of products;
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product seizure or detention;
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total or partial suspension of production; and
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refusal to approve pending NDAs or supplements to approved NDAs.
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Prior to obtaining approval
to commercialize a drug candidate in the United States or abroad, we or our collaboration partners must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory
agencies, that such drug candidates are safe and effective for their intended uses. The number of nonclinical studies and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that
the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical
data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay
or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all targeted indications.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the
commencement of clinical studies, and depends upon numerous factors. The FDA and comparable foreign authorities have substantial discretion in the approval process and we may encounter matters with the FDA or such comparable authorities that
requires us to expend additional time and resources and delay or prevent the approval of our product candidates. For example, the FDA may require us to conduct additional studies or trials for drug product either prior to or post-approval, such as
additional drug-drug interaction studies or safety or efficacy studies or trials, or it may object to elements of our clinical development program such as the number of subjects in our current clinical trials from the United States. In addition,
approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidates clinical development and may vary among jurisdictions, which may cause delays in the
approval or result in a decision not to approve an application for regulatory approval. Despite the time and expense exerted, failure can occur at any stage.
Applications for our product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our, or our collaboration partners, clinical studies;
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the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which approval is sought;
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the FDA or comparable foreign regulatory authorities may disagree with the interpretation of data from preclinical studies or clinical studies;
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the data collected from clinical studies of our product candidates may not be sufficient to support the submission of a NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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we or our collaboration partners may be unable to demonstrate to the FDA or comparable foreign regulatory authorities that a product candidates risk-benefit ratio for its proposed indication is acceptable;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers responsible for clinical and
commercial supplies; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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This lengthy approval process, as well as the unpredictability of the results of clinical studies, may result in our failure and/or that of
our collaboration partners to obtain regulatory approval to market any of our product candidates, which would significantly harm our business, results of operations, and prospects. Additionally, if the FDA requires that we conduct additional
clinical studies, places limitations in our label, delays approval to market our product candidates or limits the use of our products, our business and results of operations may be harmed.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not
include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
Even if we receive regulatory approval for a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review,
which may result in significant additional expense. Additionally, any product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal, and we may be subject to penalties if we fail to comply with regulatory
requirements or experience unanticipated problems with our products.
Even if a drug is approved by the FDA or foreign regulatory
authorities, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These
requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCP regulations for any clinical trials that we conduct
post-approval.
As such, we and our third party contract manufacturers will be subject to continual review and periodic inspections to assess compliance with regulatory requirements. Accordingly, we and others
with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production, and quality control. Regulatory authorities may also impose significant restrictions on a
products indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing studies. Furthermore, any new legislation addressing drug safety issues could result in delays or increased costs to assure compliance.
We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements
concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the products
approved label. As such, we may not promote our products for indications or uses for which they do not have FDA approval.
Later discovery
of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among
other things:
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warning letters, fines or holds on clinical trials;
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;
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injunctions or the imposition of civil or criminal penalties;
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suspension or revocation of existing regulatory approvals;
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suspension of any of our ongoing clinical trials;
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refusal to approve pending applications or supplements to approved applications submitted by us;
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restrictions on our or our contract manufacturers operations; or
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product seizure or detention, or refusal to permit the import or export of products.
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Any
government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and
adversely affect our ability to commercialize our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected.
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In addition, the FDAs policies may change and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing
facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet supply demands.
All
entities involved in the preparation of product candidates for clinical studies or commercial sale, including our existing contract manufacturers for our product candidates are subject to extensive regulation. Components of a finished therapeutic
product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with cGMP regulations. These regulations govern manufacturing processes and procedures (including record keeping) and the implementation
and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the
properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA or comparable regulatory filing on a timely basis
and must adhere to cGMP regulations enforced by the FDA and other regulatory agencies through their facilities inspection programs. The facilities and quality systems of some or all of our third-party contractors must pass a
pre-approval
inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a
manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee
the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a
pre-approval
plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever. In
addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel.
The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our
third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or
the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales or the
temporary or permanent suspension of production or closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authority can
impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product, withdrawal of an approval, or suspension of production. As a result, our business, financial condition, and results of
operations may be materially harmed.
Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer
would need to be qualified through an NDA, a supplemental NDA or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for
commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical studies, regulatory submissions,
required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent
cost, our clinical studies may be delayed or we could lose potential revenue.
If we fail to comply or are found to have failed to comply with FDA
and other regulations related to the promotion of our products for unapproved uses, we could be subject to criminal penalties, substantial fines or other sanctions and damage awards.
The regulations relating to the promotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and
other government agencies. If tenapanor, RDX7675 or our other product candidates receive marketing approval, we and our collaborating partners, if any, will be restricted from marketing the product outside of its approved labeling, also referred to
as
off-label
promotion. However, physicians may nevertheless prescribe an approved product to their patients in a manner that is inconsistent with the approved label, which is an
off-label
use. We intend to implement compliance and training programs designed to ensure that our sales and marketing practices comply with applicable regulations regarding
off-label
promotion. Notwithstanding these programs, the FDA or other government agencies may allege or find that our practices constitute prohibited promotion of our product candidates for unapproved uses. We
also cannot be sure that our employees will comply with company policies and applicable regulations regarding the promotion of products for unapproved uses.
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Over the past several years, a significant number of pharmaceutical and biotechnology companies
have been the target of inquiries and investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices,
including the Department of Justice and various U.S. Attorneys Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These
investigations have alleged violations of various federal and state laws and regulations, including claims asserting antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act,
anti-kickback laws, and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement. Many of these investigations originate as qui tam actions under the
False Claims Act. Under the False Claims Act, any individual can bring a claim on behalf of the government alleging that a person or entity has presented a false claim, or caused a false claim to be submitted, to the government for payment. The
person bringing a qui tam suit is entitled to a share of any recovery or settlement. Qui tam suits, also commonly referred to as whistleblower suits, are often brought by current or former employees. In a qui tam suit, the government
must decide whether to intervene and prosecute the case. If it declines, the individual may pursue the case alone.
If the FDA or any
other governmental agency initiates an enforcement action against us or if we are the subject of a qui tam suit and it is determined that we violated prohibitions relating to the promotion of products for unapproved uses, we could be subject to
substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and monitoring to ensure compliance with
applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects and reputation.
If approved, tenapanor, RDX7675 and our other product candidates may cause or contribute to adverse medical events that we are required to report to
regulatory agencies and if we fail to do so we could be subject to sanctions that would materially harm our business.
Some
participants in clinical studies of tenapanor have reported adverse effects after being treated with tenapanor, including diarrhea, nausea, flatulence, abdominal discomfort, abdominal pain, abdominal distention and changes in electrolytes. If we are
successful in commercializing any products, FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of
our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate
that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our
reporting obligations, the FDA or a foreign regulatory agency could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of our products or delay in approval or clearance of future products.
Our employees, independent contractors, principal investigators, CROs, collaboration partners, consultants and vendors may engage in misconduct or other
improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our
employees, independent contractors, principal investigators, CROs, collaboration partners, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or
negligent conduct or unauthorized activities that violate: (1) FDA regulations, including those laws that require the reporting of true, complete and accurate information to the FDA; (2) manufacturing standards; (3) federal and state
healthcare fraud and abuse laws and regulations; or (4) laws that require the reporting of true and accurate financial information and data. Specifically, sales, marketing and business arrangements in the healthcare industry are subject to
extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,
customer incentive programs and other business arrangements. These activities also include the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It
is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct, even
if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil,
criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, other sanctions, contractual damages,
reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
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Failure to obtain regulatory approvals in foreign jurisdictions would prevent us from marketing our
products internationally.
In order to market any product in the EEA (which is composed of the 28 Member States of the European
Union plus Norway, Iceland and Liechtenstein), and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Before
granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the riskbenefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ
from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and
approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative
effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if
we do file we may not receive necessary approvals to commercialize our products in any market.
We and our collaboration partners, if any, may be
subject to healthcare laws, regulation and enforcement; our failure or the failure of any such collaboration partners to comply with these laws could have a material adverse effect on our results of operations and financial conditions.
Although we do not currently have any products on the market, once we begin commercializing our products, we and our collaboration partners, if
any, may be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate as
a commercial organization include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce
either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that
are false or fraudulent;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare
transactions and protects the security and privacy of protected health information;
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the federal physician sunshine requirements under the Affordable Care Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the CMS information related to payments
and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers;
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state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or
otherwise restrict payments that may be made to healthcare providers and other potential referral sources;
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state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or pricing information and marketing expenditures; and state
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts; and
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European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with and payments to healthcare providers.
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our
business activities could be subject to challenge under one or more of such laws. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the
courts, and
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their provisions are open to a variety of interpretations. Further, the Affordable Care Act, among other things, amends the intent requirement of the federal anti-kickback and criminal health
care fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services
resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against it, could
cause us to incur significant legal expenses and divert our managements attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental laws and
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and
imprisonment, any of which could adversely affect our ability to market our products and adversely impact our financial results.
Legislative or
regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of our product candidates and to produce, market and distribute our products after clearance or approval is
obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory
provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may
significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our product candidates. We cannot determine what effect changes
in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
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additional clinical trials to be conducted prior to obtaining approval;
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changes to manufacturing methods;
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recall, replacement, or discontinuance of one or more of our products; and
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additional record keeping.
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Each of these would likely entail substantial time and cost and
could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition and results of operations.
In addition, the full impact of recent healthcare reform and other changes in the healthcare industry and in healthcare spending is
currently unknown, and may adversely affect our business model. In the United States, the Affordable Care Act was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both
government and private insurers. The Affordable Care Act, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid
managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%
point-of-sale
discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers
outpatient drugs to be covered under Medicare Part D.
We currently expect that federal and state legislatures within the United States and
foreign governments will continue to consider changes to existing healthcare legislation, and we currently expect that the new Presidential Administration and U.S. Congress will seek to modify or repeal all, or certain provisions of, the Affordable
Care Act. There is still uncertainty with respect to any regulatory changes, and such regulatory changes could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were otherwise authorized by the
Affordable Care Act. However, we cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies,
managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any drug products for which we may obtain regulatory approval, our ability to set a price that we believe
is fair for our products, our ability to obtain coverage and reimbursement approval for a product, our ability to generate revenues and achieve or maintain profitability, and the level of taxes that we are required to pay.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. These new laws, among
other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year that will remain in effect through 2025 unless additional action is taken by Congress, additional specific reductions in Medicare payments to several
types of providers, including hospitals, imaging centers and cancer treatment centers, and an increase in the statute of limitations period for the government to recover overpayments to providers from three to five years. Recently, there has also
been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has
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resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Risks Related to Intellectual Property
We may become subject to claims alleging infringement of third parties patents or proprietary rights and/or claims seeking to invalidate
our patents, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of tenapanor, RDX7675 or our other product candidates, or prevent or delay the continued use of our
drug discovery and development platform, including APECCS.
There have been many lawsuits and other proceedings asserting
infringement or misappropriation of patents and other intellectual property rights in the pharmaceutical and biotechnology industries. There can be no assurances that we will not be subject to claims alleging that the manufacture, use or sale of
tenapanor, RDX7675 or any other product candidates, or that the use of our drug discovery and development platform, including APECCS, infringes existing or future third-party patents, or that such claims, if any, will not be successful. Because
patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending which may later result in issued
patents that may be infringed by the manufacture, use or sale of tenapanor, RDX7675 or other product candidates or by the use of APECCS. Moreover, we may face patent infringement claims from
non-practicing
entities that have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect. We may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of tenapanor, RDX7675
or our other product candidates, or by the use of APECCS.
We may be subject to third-party patent infringement claims in the future
against us or our that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorneys fees if we are found to be willfully infringing a third
partys patents. We may be required to indemnify future collaboration partners against such claims. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against
such claims. If a patent infringement suit were brought against us we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. In addition, if a patent
infringement suit were brought against us regarding the use of APECCS, we could be forced to stop our use of APECCS or modify our processes to avoid infringement, which may not be possible at a reasonable cost, if at all, and which could result in
substantial delay in our use of APECCS for the discovery of new product candidates or potential targets. As a result of patent infringement claims, or in order to avoid potential claims, we may choose to seek, or be required to seek, a license from
the third party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, we may be unable to maintain such licenses and
the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease our use of APECCS or some other aspect
of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms, or unable to maintain such licenses when granted. Even if we are successful in defending against
such claims, such litigation can be expensive and time consuming to litigate and would divert managements attention from our core business. Any of these events could harm our business significantly.
In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim
technology similar or identical to ours, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office, or the USPTO, to determine which party is entitled to a patent on the disputed invention.
We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology. Since patent applications
are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates.
If our intellectual property related to our product candidates is not adequate or if we are not able to protect our trade secrets or our confidential
information, we may not be able to compete effectively in our market.
We rely upon a combination of patents, trade secret
protection and confidentiality agreements to protect the intellectual property related to our product candidates, our drug discovery and development platform and our development programs. Any disclosure to or misappropriation by third parties of our
confidential or proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The
patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Additionally, our research and development efforts may result in product candidates for which patent protection is limited
or not available. Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which
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may result in such patents being narrowed, invalidated or held unenforceable. For example, U.S. patents can be challenged by any person before the new USPTO Patent Trial and Appeals Board at any
time before one year after that person is served an infringement complaint based on the patents. Patents granted by the European Patent Office may be similarly opposed by any person within nine months from the publication of the grant. Similar
proceedings are available in other jurisdictions, and in the United States, Europe and other jurisdictions third parties can raise questions of validity with a patent office even before a patent has granted. Furthermore, even if they are
unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, a third party may develop a competitive product that provides therapeutic
benefits similar to one or more of our product candidates but has a sufficiently different composition to fall outside the scope of our patent protection. If the breadth or strength of protection provided by the patents and patent applications we
hold or pursue with respect to our product candidates is successfully challenged, then our ability to commercialize such product candidates could be negatively affected, and we may face unexpected competition that could have a material adverse
impact on our business. Further, if we encounter delays in our clinical trials, the period of time during which we or our collaboration partners could market tenapanor or other product candidates under patent protection would be reduced.
Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our
proprietary rights, and the outcome of such litigation would be uncertain. If we or one of our collaboration partners were to initiate legal proceedings against a third party to enforce a patent covering the product candidate, the defendant could
counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged
failure to meet any of several statutory requirements, including lack of novelty, obviousness or
non-enablement.
Grounds for an unenforceability assertion could be an allegation that someone connected with
prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for
example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability against our
intellectual property related to a product candidate, we would lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent protection would have a material adverse impact on our business. Moreover,
our competitors could counterclaim that we infringe their intellectual property, and some of our competitors have substantially greater intellectual property portfolios than we do.
We also rely on trade secret protection and confidentiality agreements to protect proprietary
know-how
that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our drug discovery and development processes that involve proprietary
know-how,
information or technology that is not covered by patents. Although we require all of our employees, consultants, advisors and any third parties who have access to our proprietary
know-how,
information or
technology, to assign their inventions to us, and endeavor to execute confidentiality agreements with all such parties, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual
property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached by such consultants, advisors or third parties, or by our former employees. The breach of such agreements by individuals or
entities who are actively involved in the discovery and design of our potential drug candidates, or in the development of our discovery and design platform, including APECCS, could require us to pursue legal action to protect our trade secrets and
confidential information, which would be expensive, and the outcome of which would be unpredictable. If we are not successful in prohibiting the continued breach of such agreements, our business could be negatively impacted. We cannot guarantee that
our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the
United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our
technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby
potentially extending the term of marketing exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, if any, one of the U.S. patents
covering each of such approved product(s) or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product.
Patent term extension also may be available in certain foreign countries upon regulatory approval of our product candidates. Nevertheless, we may not be granted patent term extension either in the United States or in any foreign country because of,
for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection
during any such extension, afforded by the governmental authority could be less than we request.
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If we are unable to obtain patent term extension or restoration, or the term of any such
extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue
could be reduced, possibly materially.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to
protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity.
Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. In addition, the United States
has recently enacted and is currently implementing wide-ranging patent reform legislation, including the Leahy-Smith America Invents Act signed into law on September 16, 2011. That Act includes a number of significant changes to U.S. patent
law. These include provisions that affect the way patent applications are prosecuted and new venues and opportunities for competitors to challenge patent portfolios. Because of that Act, the U.S. patent system is now a first to file
system, which may make it more difficult to obtain patent protection for inventions and increase the uncertainties and costs surrounding the prosecution of our or our collaboration partners patent applications and the enforcement or defense of
our or our collaboration partners issued patents, all of which could materially adversely affect our business, results of operations and financial condition. The United States Supreme Court has ruled on several patent cases in recent years,
either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this
combination of events has created uncertainty with respect to the value of patents once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements
imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance
with these requirements.
The USPTO and various foreign patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions to
maintain patent applications and issued patents. Noncompliance with these requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such
an event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may not be able to enforce our
intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights
to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation
of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our
efforts and attention from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in
all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United
States and foreign countries may affect our ability to obtain and enforce adequate intellectual property protection for our technology.
We may be
subject to claims that we or our employees have misappropriated the intellectual property, including
know-how
or trade secrets, of a third party, or claiming ownership of what we regard as our own intellectual
property.
Many of our employees, consultants and contractors were previously employed at or engaged by other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Some of these employees, consultants and contractors, executed proprietary rights,
non-disclosure
and
non-competition
agreements in connection with such previous employment. Although we try to ensure that our employees, consultants and contractors do not use the intellectual property and other proprietary
information or
know-how
or trade secrets of others in their work for us, and do not perform work for us that is in conflict with their obligations to another employer or any other entity, we may be subject to
claims that we or these employees, consultants
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and contractors have used or disclosed such intellectual property, including
know-how,
trade secrets or other proprietary information. In addition, an
employee, advisor or consultant who performs work for us may have obligations to a third party that are in conflict with their obligations to us, and as a result such third party may claim an ownership interest in the intellectual property arising
out of work performed for us. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights or personnel, or access to consultants and contractors. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction
to management.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development
of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own, which may result
in claims by or against us related to the ownership of such intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are
successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.
Risks Related to Our Common Stock
Our stock price
may be volatile and our stockholders may not be able to resell shares of our common stock at or above the price they paid.
The
trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this Risk Factors section and
others such as:
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results from, or any delays in, clinical trial programs relating to our product candidates, including the ongoing clinical trials for tenapanor and RDX7675;
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ability to commercialize or obtain regulatory approval for our product candidates, or delays in commercializing or obtaining regulatory approval;
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announcements of regulatory approval, a complete response letter or a refuse to file letter to tenapanor or RDX7675, or specific label restrictions or patient populations for its use, or changes or delays in the
regulatory review process;
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announcements relating to future collaboration partnerships;
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announcements of therapeutic innovations or new products by us or our competitors;
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adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain or sales and marketing activities;
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changes or developments in laws or regulations applicable to our product candidates;
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the success of our testing and clinical trials;
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failure to meet any of our projected timelines or goals with regard to the clinical development of any of our product candidates
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the success of our efforts to acquire or license or discover additional product candidates;
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any intellectual property infringement actions in which we may become involved;
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the success of our efforts to obtain adequate intellectual property protection for our product candidates;
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announcements concerning our competitors or the pharmaceutical industry in general;
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achievement of expected product sales and profitability;
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manufacture, supply or distribution shortages;
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actual or anticipated fluctuations in our operating results;
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FDA or other U.S. or foreign regulatory actions affecting us or our industry or other healthcare reform measures in the United States;
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changes in financial estimates or recommendations by securities analysts;
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trading volume of our common stock;
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sales of our common stock by us, our executive officers and directors or our stockholders in the future;
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general economic and market conditions and overall fluctuations in the United States equity markets; and
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the loss of any of our key scientific or management personnel.
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In addition, the stock markets
in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations
may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any
of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial
position. Any adverse determination in litigation could also subject us to significant liabilities.
One of our principal stockholders owns a
significant percentage of our stock and, together with our management, will be able to exert significant control over matters subject to stockholder approval.
As of September 30, 2017, entities affiliated with New Enterprise Associates, or NEA, a venture capital fund associated with one of our
directors, collectively beneficially owned approximately 29.6% of our common stock, and NEA together with our executive officers and directors beneficially owned approximately 34.3% of our capital stock, including outstanding restricted stock units
that will vest within 60 days of September 30, 2017, and warrants and stock options exercisable for shares of our common stock within 60 days of September 30, 2017. Therefore, these stockholders may be able to determine all matters
requiring stockholder approval, and the entities affiliated with New Enterprise Associates alone, will have significant ability to influence decisions through their ownership position. For example, these stockholders may be able to influence or
control elections of directors, amendments to our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common
stock that certain stockholders may feel are in their best interest as one of our stockholders.
If we sell shares of our common stock in future
financings, stockholders may experience immediate dilution and, as a result, our stock price may decline.
We may from time to time
issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In
addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into
common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.
Sales of a substantial
number of shares of our common stock in the public market could cause our stock price to fall.
If our existing stockholders sell,
or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of September 30, 2017, we had approximately 47.5 million shares of common stock
outstanding. Of those shares, approximately 14.4 million were held by current directors, executive officers and other affiliates, or may otherwise be subject to Rule 144 under the Securities Act of 1933, or the Securities Act.
As of September 30, 2017, approximately 0.7 million shares of common stock issuable upon vesting of outstanding restricted stock
units and approximately 4.0 million shares of common stock issuable upon exercise of outstanding options were eligible for sale in the public market to the extent permitted by the provisions of the applicable vesting schedules, and Rule 144 and
Rule 701 under the Securities Act. In addition, as of September 30, 2017, approximately 2.2 million shares of common stock issuable upon exercise of outstanding warrants were eligible for sale in the public market. If these additional
shares of common stock are issued and sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
As of September 30, 2017, the holders of approximately 5.6 million shares of our outstanding common stock are entitled to rights with
respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased
by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.
Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to
entrenchment of management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain
provisions that could significantly reduce the value of our shares to a potential acquirer or delay or prevent changes in control or changes in our management without the consent of our board of directors. The provisions in our charter documents
include the following:
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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from
being able to fill vacancies on our board of directors;
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the required approval of at least
two-thirds
of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause;
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the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder
approval, which could be used to significantly dilute the ownership of a hostile acquirer;
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the ability of our board of directors to alter our bylaws without obtaining stockholder approval;
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the required approval of at least
two-thirds
of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our
amended and restated certificate of incorporation regarding the election and removal of directors;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of
our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting, which may discourage or
deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of us.
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In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.
We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under
Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has
approved the transaction.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party
claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and
amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and our indemnification
agreements that we have entered into with our directors and officers provide that:
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We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a
corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe such persons conduct was unlawful.
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We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
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We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is
ultimately determined that such person is not entitled to indemnification.
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We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings
authorized by our board of directors or brought to enforce a right to indemnification.
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The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to
indemnify such persons.
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We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
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We do not currently intend to pay dividends on our common stock, and, consequently, our stockholders ability to achieve a return on their
investment will depend on appreciation in the price of our common stock.
We do not currently intend to pay any cash dividends on
our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our loan and security agreements could restrict our ability to pay dividends. Therefore, our
stockholders are not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders ability to receive a return on their investment will depend on any future
appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.