ITEM 1A. RISK FACTORS
You should consider carefully the following risk factors, together with all the other information in this Annual Report
on Form 10-K, including our consolidated financial statements and notes thereto, and in our other public filings with the SEC. The occurrence of any of the following risks could harm our
business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this
report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history and have incurred significant losses since our inception, and we
anticipate that we will continue to incur losses for the foreseeable future.
We do not expect to generate revenue or profitability that is necessary to finance our operations in the short term. We incurred net losses of
$54.4 million, $28.9 million and $13.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated
deficit of $123.2 million. We do not expect to generate any product revenues in the foreseeable future. We do not know whether or when we will generate revenue or become profitable.
We
have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and our clinical trials. Our net losses may fluctuate
significantly from quarter to quarter and year to year. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders' equity and working capital.
We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as
we:
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continue to develop and conduct clinical trials with respect to our lead product candidate, RA101495 SC;
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initiate and continue research, preclinical and clinical development efforts for any future product candidates;
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seek to identify additional research programs and additional product candidates;
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seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any;
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establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may
obtain marketing approval, if any;
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require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization;
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maintain, expand and protect our intellectual property portfolio;
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hire and retain additional personnel, such as clinical, quality control and scientific personnel;
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add operational, financial and management information systems and personnel, including personnel to support our product development and help us
comply with our obligations as a public company; and
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add equipment and physical infrastructure to support our research and development.
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
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future
performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary
capital when needed on acceptable terms, or at all, could force us to delay, reduce or eliminate our product discovery and development programs or commercialization efforts.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a very time-consuming, expensive and
uncertain process that takes years to complete. Our operations have consumed substantial amounts of cash since inception. As of December 31, 2017, our cash, cash equivalents were
$70.4 million. In February 2018, we raised an additional $54.1 million in net proceeds in our underwritten public offering. Our research and development expenses were
$45.3 million, $27.9 million and $15.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. We expect our expenses to increase in connection with our
ongoing activities, particularly as we initiate new clinical trials of, initiate new research and preclinical development efforts for and seek marketing approval for, our current or future product
candidates or any product candidates that we acquire, if any. In addition, if we obtain marketing approval for any of our product candidates, we may incur significant commercialization expenses
related to product sales, marketing, manufacturing and distribution to the extent that such sales, marketing, manufacturing and distribution are not the responsibility of a future collaborator.
Furthermore, as a public company, we will incur significant additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in
connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we may be forced to delay, reduce or eliminate our research and development programs or
any future commercialization efforts.
We
will be required to expend significant funds in order to advance the development of RA101495 SC, as well as other product candidates we may seek to develop. In addition, while
we may seek one or more collaborators for future development of our product candidates for one or more indications, we may not be able to enter into a collaboration for any of our product candidates
for such indications on suitable terms, on a timely basis or at all. In any event, our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or
to fund the completion of development of any of our product candidates. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings,
collaborations and licensing
arrangements or other sources. We do not have any committed external source of funds. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise
capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Our
future funding requirements, both short-term and long-term, will depend on many factors, including:
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the scope, progress, timing, costs and results of clinical trials of, and research and preclinical development efforts for, our current and
future product candidates;
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our ability to enter into, and the terms and timing of, any collaborations, licensing or other arrangements;
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the number of future product candidates that we pursue and their development requirements;
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the outcome, timing and costs of seeking regulatory approvals;
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the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not
the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates;
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our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
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the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights including
enforcing and defending intellectual property related claims; and
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the costs of operating as a public company.
We may never achieve or maintain profitability and investors may lose their entire investment.
Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless
and until we are, or any future collaborator is, able to obtain marketing approval for, and successfully commercialize, one or more of our product candidates. Successful commercialization will require
achievement of key milestones, including completing clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those
products for which we, or any of our future collaborators, may obtain marketing approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance
or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately predict the timing and amount of revenues, and if or when we might achieve
profitability. We and any future collaborators
may never succeed in these activities and, even if we do, or any future collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Because
our only source of revenue to date, our research collaboration with Merck & Co., or Merck, has reached the end of its research term and identified a product
candidate, to the extent we continue to receive revenue from this collaboration, we must rely on Merck's efforts to develop and commercialize that target candidate, which we do not control.
Our
failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product
offerings or continue our operations. If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to
relinquish rights to our technologies or product candidates.
We expect our expenses to increase in connection with our planned operations. To the extent that we raise additional capital through the sale of
common stock, convertible securities or other equity securities, the ownership interest of our existing stockholders may be diluted, and the terms of these securities could include liquidation or
other preferences and anti-dilution protections that could adversely affect the rights of our common stockholders. In addition, debt financing, if available, may result in fixed payment obligations
and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming
stock or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing financing could require a substantial amount of time and attention from our
management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management's ability to oversee the development of our product
candidates.
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If
we raise additional funds through collaborations or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to
delay, limit, reduce or terminate our
product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We have a limited operating history and no history of commercializing pharmaceutical products, which may make
it difficult to evaluate the prospects for our future viability.
We commenced operations in 2008. Our operations to date have been limited to financing and staffing our company, developing our technology and
conducting preclinical research and early-stage clinical trials for our product candidates. We have not yet demonstrated an ability to successfully conduct late-stage clinical trials, obtain marketing
approvals, manufacture a commercial-scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially
clinical-stage biopharmaceutical companies such as ours. Any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history or
a history of successfully developing and commercializing pharmaceutical products.
We
may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving our business objectives. We will eventually need to transition
from a company with a development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We
expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are
beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
The United States, or U.S., government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of
business entities, referenced herein as the Tax Reform Act. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, adopting elements
of a territorial tax system and introducing certain anti-base erosion provisions. The effect of the Tax Reform Act on our business, whether adverse or favorable, is uncertain, and it may not become
evident for some period of time.
Risks Related to the Discovery, Development and Commercialization of Our Product Candidates
We are at a very early stage in our development efforts, our approach is unproven and we may not be able to
successfully develop and commercialize any product candidates.
RA101495 SC is a novel therapeutic compound and its potential therapeutic benefit is unproven. There is only one approved therapy inhibiting C5.
Our product candidates may not demonstrate in patients any or all of the pharmacological benefits we believe they may possess or compare favorably to the approved C5 inhibitor therapy. We have not yet
succeeded and may never succeed in demonstrating efficacy and safety for these or any other product candidates in clinical trials or in obtaining marketing approval thereafter. For example, although
we have evaluated RA101495 SC in preclinical studies and have evaluated RA101495 SC in an early-stage clinical trial and in our Phase 2 clinical trial, we have not yet advanced RA101495 SC into
Phase 3 clinical development, nor have we obtained regulatory approval to sell any product based on our therapeutic approaches.
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Our
development plans include exploring the potential of complement inhibition, including C5 inhibition, to treat complement-mediated diseases for which complement inhibition has
not been fully validated. This is an unproven approach to the treatment of diseases such as generalized myasthenia gravis, or gMG, atypical hemolytic uremic syndrome, or aHUS, and lupus nephritis, or
LN. The scientific evidence to support the feasibility of developing products to treat such disease by C5 inhibition is both preliminary and limited. Accordingly, our focus on treating these
diseases may not result in the discovery and development of commercially viable products.
If
we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates, commercialize products, raise capital, expand our business or
continue our operations.
Our business depends heavily upon the success of RA101495 SC, which is still under development. If we are
unable to obtain regulatory approval for or successfully commercialize RA101495 SC, our business will be materially harmed.
We currently have no products approved for sale and are investing a significant portion of our efforts and financial resources in the
development of our lead product candidate, RA101495 SC. Successful continued development and ultimate regulatory approval of RA101495 SC for paroxysmal nocturnal hemoglobinuria, or PNH, and, in the
future, a range of debilitating autoimmune diseases including gMG, aHUS and LN is critical to the future success of our business. We will need to raise sufficient funds for, and successfully enroll
and complete, our clinical development program for RA101495 SC in PNH. The future regulatory and commercial success of this product candidate is subject to a number of risks, including the
following:
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we may not have sufficient financial and other resources to initiate or complete the necessary clinical trials for RA101495 SC;
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notwithstanding topline results from our Phase 2 clinical trial and ongoing long-term extension trial in PNH, we may not be able to
obtain adequate evidence of clinical efficacy and safety for RA101495 SC in PNH, gMG or renally impaired patients;
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we do not know the degree to which RA101495 SC will be accepted as a therapy, if approved;
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in our clinical programs, we may experience variability in patients, adjustments to clinical trial procedures and the need for additional
clinical trial sites, which could delay our clinical trial progress;
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the results of our clinical trials may not meet the level of statistical or clinical significance required by the Food and Drug Administration,
or FDA, the European Medicines Agency, or EMA, or comparable foreign regulatory bodies for marketing approval;
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notwithstanding complete enrollment in our Phase 2 clinical trial in PNH, we may have difficulty enrolling patients in trials if, for
instance, a current or future effective standard of care limits the desire of patients, physicians, or regulatory agencies to participate in or support clinical trials;
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notwithstanding the lack of meaningful safety or tolerability concerns in our Phase 2 clinical trial and ongoing long-term extension
trial in PNH, patients in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to RA101495 SC, which could delay or prevent further clinical
development;
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the standards implemented by regulatory agencies may change at any time;
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the FDA, EMA or other foreign regulatory agencies may require endpoints for a clinical trial for the treatment of PNH, gMG, aHUS and LN that
differ from the endpoints of our planned current or future trials, which may require us to conduct additional clinical trials;
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the mechanism of action of RA101495 SC is complex and we cannot guarantee the degree to which it will translate into a medical benefit in any
indications;
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if approved for PNH, gMG, aHUS and LN, RA101495 SC will likely compete with the off-label use of currently marketed products and other
therapies in development;
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our intellectual property rights may not be patentable, valid or enforceable; and
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we may not be able to obtain, maintain, defend or enforce our patents and other intellectual property rights.
Of
the large number of drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a new drug application, or NDA, to the FDA and even fewer
are approved for commercialization. Furthermore, even if we do receive regulatory approval to market RA101495 SC, any such approval may be subject to limitations on the indicated uses or patient
populations for which we may market the product. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, we cannot assure you that RA101495 SC
will be successfully developed or commercialized. If we or any of our future development partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize
RA101495 SC, we may not be able to generate sufficient revenue to continue our business.
We face substantial competition, which may result in others discovering, developing or commercializing
products before or more successfully than we do, and reducing or eliminating our commercial opportunity.
The development and commercialization of new products is highly competitive. We expect that we, and any future collaborators, will face
significant competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide with respect to any of our product candidates that we, or any
future collaborators, may seek to develop or commercialize in the future, including from drugs that act through the complement system and drugs that use different approaches. The principal competitor
for our program in PNH is eculizumab, a C5 inhibitor, which is marketed as Soliris by Alexion Pharmaceuticals and is the only drug approved for the treatment of PNH. Alexion Pharmaceuticals is also
developing a next-generation C5 inhibitor named ALXN 1210 that is designed to use a less frequent intravenous dosing schedule. We are also aware that there are a number of other companies that are
actively developing product candidates for
the treatment of PNH, including AMY101 directed at complement component 3, or C3, inhibition that is currently in early clinical development by Amyndas Pharmaceuticals, a product candidate directed at
C3 inhibition such as APL-2 that is currently in clinical development by Apellis Pharmaceuticals, product candidates directed at C5 inhibition such as ALN-CC5, an RNAi therapeutic targeting the
production of C5 being developed by Alnylam that is in early clinical trials, Coversin, a small protein inhibitor of C5 being developed by Akari Pharmaceuticals that is in early clinical trials,
LFG316, a monoclonal antibody inhibitor of C5 being developed by Novartis Pharma, a biosimilar product candidate ABP595 being developed by Amgen that is currently in clinical trials, RO7112689, a
monoclonal antibody inhibitor of C5 being developed by F. Hoffmann-La Roche, REGN3918, a C5 antibody developed by Regeneron and other product candidates directed at other mechanisms of complement
inhibition such as ACH-4471, an orally available small molecule inhibitor of complement Factor D, that is currently in development by Achillion Pharmaceuticals.
MG
is currently treated with cholinesterase inhibitors and non-specific immunosuppressive agents, including azathioprine, cyclophosphamide, cyclosporine, intravenous immunoglobulin, or
IVIG, mycophenolate, prednisone, and tacrolimus. Alexion Pharmaceuticals recently announced approval of eculizumab for the treatment of refractory MG in Europe and gMG in the U.S. Both rituximab,
marketed by F. Hoffmann-La Roche, and belimumab, marketed by GlaxoSmithKline, which target B cell activity, are in clinical development for gMG. Anti-CD40, being developed as CFZ533 by Novartis
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Pharma,
bortezomib, and the FcRN agonist ARGX-113 developed by Argen-X, are being tested in clinical trials in gMG. A therapeutic vaccine targeting B and T-cell receptors (CV-MG-01) is in early
clinical testing for gMG.
Our
competitors may succeed in developing, acquiring or licensing technologies and products that are more effective, have fewer side effects or more tolerable side effects or are less
costly than any product candidates that we are currently developing or that we may develop, which could render our product candidates obsolete and noncompetitive.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects,
are more convenient or are less expensive than any products that we, or any future collaborators, may develop. Our competitors also may obtain FDA or other marketing approval for their products before
we, or any future collaborators, are able to obtain approval for ours, which could result in our competitors establishing a strong market position before we, or any future collaborators, are able to
enter the market.
Many
of our existing and potential future competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining marketing approvals and marketing approved products than we do, and may be able to reduce the price at which they sell their products. Mergers and acquisitions in
the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific
and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the development of
our product candidates.
If clinical trials of our product candidates fail to satisfactorily demonstrate safety and efficacy to the
FDA and other regulators, we, or any future collaborators, may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of
these product candidates.
We, and any future collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the U.S. without
obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the EMA, impose similar requirements. We have not previously submitted a NDA to the FDA or similar drug approval
filings to comparable foreign regulatory authorities for any of our product candidates. We, and any future collaborators, must complete extensive preclinical development and clinical trials to
demonstrate the safety and efficacy of our product candidates in humans before we will be able to obtain these approvals.
Clinical
testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical
trials will be conducted as planned or completed on schedule, if at all. The clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product
development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially
unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not
continue development or is not approvable. It is possible that even if one or more of our product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a
result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials. Conversely, as a result of the same factors, our clinical
trials may indicate an apparent positive effect of
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a
product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials we may fail to detect toxicity of or intolerability caused by our product candidates, or
mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case.
Any
inability to successfully complete preclinical and clinical development could result in additional costs to us, or any future collaborators, and impair our ability to generate
revenues from product sales, regulatory and commercialization milestones and royalties. Moreover, if we, or any future collaborators, are required to conduct additional clinical trials or other
testing of our product candidates beyond the trials and testing that we or they contemplate, if we or they are unable to successfully complete clinical trials of our product candidates or other
testing or the results of these trials or tests are unfavorable, uncertain or are only modestly favorable, or there are unacceptable safety concerns associated with our product candidates, we, or any
future collaborators may:
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incur additional unplanned costs;
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed
warnings;
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be subject to additional post-marketing testing or other requirements; or
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be required to remove the product from the market after obtaining marketing approval.
Our
failure to successfully complete clinical trials of our product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of our
product candidates would significantly harm our business.
Our product candidates may cause undesirable side effects or have other properties that could delay or
prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high
and unacceptable severity and prevalence of side effects or unexpected characteristics. To date, subjects exposed to our product candidate RA101495 SC in our Phase 1 clinical trial have
experienced drug-related side effects including injection site erythema, which was reported in patients receiving the highest dose, fatigue, headache, dizziness, rash and upper respiratory tract
infection. In our Phase 2 clinical trial of RA101495 SC, the most frequent adverse effect that we observed was headache.
If
unacceptable side effects arise in the development of our product candidates, we, the FDA or comparable foreign regulatory authorities, the Institutional Review Boards, or IRBs, or
independent ethics committees at the institutions in which our studies are conducted, or the Data Safety Monitoring Board, or DSMB, could suspend or terminate our clinical trials or the FDA or
comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could
also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately
recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side
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effect
profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product
candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition and prospects significantly.
Moreover,
clinical trials of our product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that
our clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail
to identify undesirable side effects. If, following approval of a product candidate, we, or others, discover that the product is less effective than previously believed or causes undesirable side
effects that were not previously identified, any of the following adverse events could occur:
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regulatory authorities may withdraw their approval of the product or seize the product;
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we, or any future collaborators, may need to recall the product, or be required to change the way the product is administered or conduct
additional clinical trials;
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additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
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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, or any future collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects
for distribution to patients;
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we, or any future collaborators, 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.
Any
of these events could harm our business and operations and could negatively impact our stock price.
If we fail to develop and commercialize other product candidates, we may be unable to grow our business.
Although the development and commercialization of RA101495 SC is our primary focus, as part of our longer-term growth strategy, we plan to
evaluate the development and commercialization of other therapies for complement-mediated diseases, including rare blood, neurologic, ocular, renal and inflammatory diseases. We will evaluate internal
opportunities from our current product candidates, and also may choose to in-license or acquire other product candidates as well as commercial products to treat patients suffering from immune-mediated
or orphan or other disorders with high unmet medical needs and limited treatment options. These other product candidates will require additional, time-consuming development efforts prior to commercial
sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign
regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not
be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced
economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives.
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Our preclinical programs may not produce product candidates that are suitable for clinical trials or that can
be successfully commercialized or generate revenue through partnerships.
We must successfully complete preclinical testing for RA101495 SC and our other programs, which may include demonstrating activity and
comprehensive studies to show the lack of toxicity and other adverse effects in established animal models, before commencing clinical trials for any product candidate. Many pharmaceutical and
biological products do not successfully complete preclinical testing and, even if preclinical testing is successfully completed, may fail in clinical trials. In addition, there can be no assurance
that positive results from preclinical studies will be predictive of results obtained from subsequent preclinical studies or clinical trials. We also cannot be certain that any product candidates that
do advance into clinical trials will successfully demonstrate safety and efficacy in clinical trials. Even if we achieve positive results in early clinical trials, they may not be predictive of the
results in later trials.
We may expend our limited resources to pursue a particular product candidate or indication and fail to
capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we intend to focus on developing product candidates for specific indications that we
identify as most likely to succeed, in terms of both their potential for marketing approval and commercialization. As a result, we may forego or delay pursuit of opportunities with other product
candidates or for other indications that may prove to have greater commercial potential.
Our
resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and
development
programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a
particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more
advantageous for us to retain sole development and commercialization rights to the product candidate.
If the FDA or comparable foreign regulatory authorities approve generic versions of any of our product
candidates that receive marketing approval, or such authorities do not grant such products appropriate periods of data exclusivity before approving generic versions of such products, the sales of such
products could be adversely affected.
Once a NDA is approved, the product covered thereby becomes a "reference-listed drug" in the FDA's publication, "Approved Drug Products with
Therapeutic Equivalence Evaluations," or the Orange Book. Manufacturers may seek approval of generic versions of reference-listed drugs through submission of abbreviated new drug applications, or
ANDAs, in the U.S. In support of an ANDA, a generic manufacturer generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions
of use or labeling as the reference-listed drug and that the generic version is bioequivalent to the reference-listed drug, meaning, in part, that it is absorbed in the body at the same rate and to
the same extent. Generic products may be significantly less costly to bring to market than the reference-listed drug and companies that produce generic products are generally able to offer them at
lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference-listed drug may be typically lost to the generic product.
The
FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference-listed drug has expired. The Federal Food, Drug, and
Cosmetic Act, or FDCA, provides a period of five years of non-patent exclusivity for a new drug containing a
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new
chemical entity, or NCE. Specifically, in cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is
accompanied by a Paragraph IV certification that a patent covering the reference-listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may
submit its application four years following approval of the reference-listed drug. It is unclear whether the FDA will treat the active ingredients in our product candidates as NCEs and, therefore,
afford them five years of NCE data exclusivity if they are approved. If any product we develop does not receive five years of NCE exclusivity, the FDA may approve generic versions of such product
three years after its date of approval, subject to the requirement that the ANDA applicant certifies to any patents listed for our products in the Orange Book. Three year exclusivity is given to a
drug if the NDA includes reports of
one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the NDA. Manufacturers
may seek to launch these generic products following the expiration of the applicable marketing exclusivity period, even if we still have patent protection for our product.
Competition
that our products may face from generic versions of our products could negatively impact our future revenue, profitability and cash flows and substantially limit our ability
to obtain a return on our investments in those product candidates.
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is
expensive, time consuming and uncertain and may prevent us or any future collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we
cannot predict when or if, and in which territories, we, or any future collaborators, will obtain marketing approval to commercialize a product candidate.
The research, testing, manufacturing, labeling, approval, selling, marketing, promotion and distribution of products are subject to extensive
regulation by the FDA and comparable foreign regulatory authorities. We, and any future collaborators, are not permitted to market our product candidates in the U.S. or in other countries until we, or
they, receive approval of a NDA from the FDA or marketing approval from applicable regulatory authorities outside the U.S. Our product candidates are in various stages of development and are subject
to the risks of failure inherent in drug development. We have not submitted an application for or received marketing approval for any of our product candidates in the U.S. or in any other
jurisdiction. We have limited experience in conducting and managing the clinical trials necessary to obtain marketing approvals, including FDA approval of a NDA.
The
process of obtaining marketing approvals, both in the U.S. and abroad, is lengthy, expensive and uncertain. It may take many years, if approval is obtained at all, and can vary
substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Securing marketing approval requires the submission of extensive
preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate's safety and efficacy. Securing marketing approval
also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory
authorities may determine that our product candidates are not safe and effective, only moderately effective or have undesirable or unintended side effects, toxicities or other characteristics that
preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that
render the approved product not commercially viable.
In
addition, changes in marketing approval policies during the development period, changes in or the enactment or promulgation of additional statutes, regulations or guidance or changes
in regulatory
review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may
refuse to
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accept
any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data
obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we, or any future collaborators, ultimately obtain may be
limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Moreover,
principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such
services. Under certain circumstances, we may be required to report some of these relationships to the FDA or other regulatory authority. The FDA or other regulatory authority may conclude that a
financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or other regulatory authority may therefore
question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or
rejection, of our marketing applications by the FDA or other regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product
candidates.
Any
delay in obtaining or failure to obtain required approvals could negatively impact our ability or that of any future collaborators to generate revenue from the particular product
candidate, which likely would result in significant harm to our financial position and adversely impact our stock price.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities
could be delayed or otherwise adversely affected.
We may not be able to initiate or continue clinical trials required by the FDA, EMA or other foreign regulatory agencies for RA101495 SC if we
are unable to locate and enroll a sufficient number of eligible patients to participate in these clinical trials. We will be required to identify and enroll a sufficient number of patients with PNH,
gMG, aHUS and LN for each of our planned clinical trials of RA101495 SC in these indications. While we completed enrollment of patients in our Phase 2 clinical trial of RA101495 SC, there can
be no assurance we will be successful in enrolling patients in our planned and future clinical trials in a timely manner or at all. Each of these is a rare disease or indication with relatively small
patient populations, which could result in slow enrollment of clinical trial participants. For example, we estimate that there are approximately 16,000
PNH patients worldwide, approximately 94,000 gMG patients worldwide, 5,500 aHUS patients worldwide, and approximately 63,000 LN patients in the U.S.
Patient
enrollment is affected by other factors, including:
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-
severity of the disease under investigation;
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-
design of the clinical trial protocol;
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-
size and nature of the patient population;
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eligibility criteria for the trial in question;
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-
perceived risks and benefits of the product candidate under trial;
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-
proximity and availability of clinical trial sites for prospective patients;
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-
availability of competing therapies and clinical trials;
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-
clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies,
including standard-of-care and any new drugs that may be approved for the indications we are investigating;
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efforts to facilitate timely enrollment in clinical trials;
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-
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patient referral practices of physicians; and
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our ability to monitor patients adequately during and after treatment.
Further,
there are only a limited number of specialist physicians who treat patients with these diseases, and major clinical centers are concentrated in a few geographic regions. We also
may encounter difficulties in identifying and enrolling such patients with a stage of disease appropriate for our ongoing or future clinical trials. For example, based on topline results from our
Phase 2 trial of RA101495 SC, for the switch patient population in our future Phase 3 program design, we currently expect to target only patients that are transfusion-independent on
long-term eculizumab therapy. Moreover, some or all
of the above factors, as well as other unanticipated causes, may result in delays to our ability to initiate or report data from these trials. In addition, the process of finding and diagnosing
patients may prove costly. Our inability to enroll a sufficient number of patients for any of our clinical trials would result in significant delays or may require us to abandon one or more clinical
trials.
Ingredients, excipients and other materials necessary to manufacture RA101495 SC may not be available on
commercially reasonable terms, or at all, which may adversely affect the development and commercialization of RA101495 SC.
We and our third-party manufacturers must obtain from third-party suppliers the active pharmaceutical ingredients, excipients and primary and
secondary packaging materials necessary for our contract manufacturers to produce RA101495 SC for our clinical trials and, to the extent approved or commercialized, for commercial distribution. There
is no guarantee that we would be able to enter into all the necessary agreements with third-party suppliers that we require for the supply of such materials on commercially reasonable terms or at all.
Even if we were able to secure such agreements or guarantees, our suppliers may be unable or choose not to provide us the ingredients, excipients or materials in a timely manner or in the quantities
required. If we or our third-party manufacturers are unable to obtain the quantities of these ingredients, excipients or materials that are necessary for the manufacture of commercial supplies of
RA101495 SC, our ability to generate revenue from the sale of RA101495 SC would be materially and adversely affected. Further, if we or our third-party manufacturers are unable to obtain active
pharmaceutical ingredients, excipients and materials as necessary for our clinical trials or for the manufacture of commercial supplies of our product candidates, if approved, potential regulatory
approval or commercialization would be delayed, which would materially and adversely affect our ability to generate revenue from the sale of our product candidates.
Even if one of our product candidates receives marketing approval, it may fail to achieve the degree of
market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become
profitable.
We have never commercialized a product, and even if one of our product candidates is approved by the appropriate regulatory authorities for
marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians are often reluctant to
switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. Further, patients often acclimate to the therapy that they are
currently taking and do not want to switch unless their physicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existing therapies. Eculizumab
is the only drug approved for the treatment of PNH, and even if we are able to obtain marketing approval of RA101495 SC for the treatment of PNH, we may not be able to successfully convince physicians
or patients to switch from eculizumab to RA101495 SC. In addition, even if we are able to demonstrate our product candidates'
safety and efficacy to the FDA and other regulators, safety concerns in the medical community may hinder market acceptance.
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Efforts
to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources, including management time and financial
resources, and may not be successful. If any of our product candidates is approved but does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not
become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
-
-
the efficacy and safety of the product;
-
-
the potential advantages of the product compared to competitive therapies;
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-
the prevalence and severity of any side effects;
-
-
whether the product is designated under physician treatment guidelines as a first-, second- or third-line therapy;
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our ability, or the ability of any future collaborators, to offer the product for sale at competitive prices;
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the product's convenience and ease of administration compared to alternative treatments;
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the willingness of the target patient population to try, and of physicians to prescribe, the product;
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-
limitations or warnings, including distribution or use restrictions contained in the product's approved labeling;
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the strength of sales, marketing and distribution support;
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-
changes in the standard of care for the targeted indications for the product; and
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-
availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
Even if we, or any future collaborators, are able to commercialize any product candidate that we, or they,
develop, the product may become subject to unfavorable pricing regulations or third-party payor coverage and reimbursement policies, any of which could harm our business.
Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their treatment. Therefore, our
ability, and the ability of any future collaborators to commercialize any of our product candidates will depend in part on the extent to which coverage and reimbursement for these products and related
treatments will be available from third-party payors including government health administration authorities and private health coverage insurers. Third-party payors decide which medications they will
cover and establish reimbursement levels. We cannot be certain that reimbursement will be available for RA101495 SC or any of our product candidates. Also, we cannot be certain that reimbursement
policies will not reduce the demand for, or the price paid for, our products. The insurance coverage and reimbursement status of newly-approved products for orphan diseases is particularly uncertain,
and failure to obtain or maintain adequate coverage and reimbursement for RA101495 SC or any other product candidates could limit our ability to generate revenue.
If
coverage and reimbursement are not available, or reimbursement is available only to limited levels, we, or any future collaborators, 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, or any future collaborators, to establish or maintain pricing sufficient to
realize a sufficient return on our or their investments. In the U.S., no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement for
products can differ
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significantly
from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the
use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
There
is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products
vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or
product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a
result, we, or any future collaborators, might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product,
possibly for lengthy time periods, which may negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability or
the ability of any future collaborators to recoup our or their investment in one or more product candidates, even if our product candidates obtain marketing approval.
The
healthcare industry is acutely focused on cost containment, both in the U.S. and elsewhere. Government authorities and other third-party payors have attempted to control costs by
limiting coverage and the amount of reimbursement for particular medications, which could affect our ability or that of any future collaborators to sell our product candidates profitably. These payors
may not view
our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or those of any future collaborators, or may not be sufficient to allow our products, if
any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price we, or they, might establish for products, which could result in
lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party payors do not provide coverage or adequate reimbursement, our
prospects for revenue and profitability will suffer.
There
may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA
or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research,
development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates
may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In
addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We
cannot be sure that coverage will be available for any product candidate that we, or any future collaborator, commercialize and, if available, that the reimbursement rates will be adequate. Further,
the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower
prices than in the U.S. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we, or any future
collaborator, obtain marketing approval could significantly harm our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
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If any product liability lawsuits are successfully brought against us or any of our collaborative partners,
we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability lawsuits related to the testing of our product candidates in seriously ill patients and will face
an even greater risk if product candidates are approved by regulatory authorities and introduced commercially. Product liability claims may be brought against us or our partners by participants
enrolled in our clinical trials, patients, health care providers or others using, administering or selling any of our future approved products. If we cannot
successfully defend ourselves against any such claims, we may incur substantial liabilities, which may result in:
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-
decreased demand for any of our future approved products;
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-
injury to our reputation;
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-
withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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-
significant litigation costs;
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-
substantial monetary awards to or costly settlements with patients or other claimants;
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product recalls or a change in the indications for which they may be used;
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-
loss of revenue;
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-
diversion of management and scientific resources from our business operations; and
-
-
the inability to commercialize our product candidates.
If
any of our product candidates are approved for commercial sale, we will be highly dependent upon consumer perceptions of us and the safety and quality of our products. We could be
adversely affected if we are subject to negative publicity associated with illness or other adverse effects resulting from patients' use or misuse of our products or any similar products distributed
by other companies.
Although
we maintain clinical trial liability insurance, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other
proceeding, even if resolved in our favor, could be substantial. We will need to increase our insurance coverage if we commercialize any product that receives marketing approval. In addition,
insurance coverage is becoming increasingly expensive. If we are unable to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability
claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, which could harm our business, financial condition, results of operations and
prospects.
We currently have no marketing, sales or distribution infrastructure with respect to our product candidates.
If we are unable to develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our product
candidates.
We currently have no marketing, sales or distribution capabilities and have limited sales or marketing experience within our organization. If
our product candidate RA101495 SC is approved, we intend either to establish a sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize
RA101495 SC, or to outsource this function to a third party. Either of these options would be expensive and time consuming. Some or all of these costs may be incurred in advance of any approval of
RA101495 SC. In addition, we may not be able to hire a sales force in the U.S. or other target market that is sufficient in size or has adequate expertise in the medical markets that we intend to
target. These risks may be particularly pronounced due to our focus on our lead indications of PNH, gMG, aHUS and LN, each of which is a rare disease with relatively small patient populations. Any
failure or delay in the development of our or third parties' internal
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sales,
marketing and distribution capabilities would adversely impact the commercialization of RA101495 SC and other future product candidates.
With
respect to our existing and future product candidates, we may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to
augment or to serve as an alternative to our own sales force and distribution systems. Our product revenue may be lower than if we directly marketed or sold any approved products. In addition, any
revenue we receive will depend in whole or in part upon the efforts of these third parties, which may not be successful and are generally not within our control. If we are unable to enter into these
arrangements on acceptable terms or at all, we may not be able to successfully commercialize any approved products. If we are not successful in commercializing any approved products, our future
product revenue will suffer and we may incur significant additional losses.
The route of administration, formulation or dose for RA101495 SC, which we are currently developing for
SC self-administration, may be inadequate.
We are currently developing RA101495 SC for SC self-administration. Unsatisfactory drug availability due to problems relating to this route of
administration or the ability of the drug to bind to its target is another potential cause of lack of efficacy of RA101495 SC if and when it is commercialized. C5, the target of RA101495 SC is
predominantly found in blood. For PNH, RA101495 SC will be administered subcutaneously. In our Phase 1 study of RA101495 SC in single-ascending dose cohorts and a multiple-dose cohort,
single and repeat SC doses of RA101495 SC were safe and well tolerated in healthy volunteers. In addition, while we observed promising signs that patients complied with once-daily SC
self-administration at home of RA101495 SC in our Phase 2 clinical trial, there is no guarantee that patients will continue to comply in this trial or in future trials. If daily SC
administration proves to be unfeasible, then we may need to research additional doses, formulations or routes of administration, which could delay commercialization of RA101495 SC and result in
significant additional costs to us. Additionally, while we may offer training in SC injections, reliance on patient self-administration may lead to higher rates of user error due to poor
administration procedure by patients and reduced patient compliance as compared with administration by healthcare professionals.
If we, or any future collaborators, experience any of a number of possible unforeseen events in connection
with clinical trials of our product candidates, potential clinical development, marketing approval or commercialization of our product candidates could be delayed or prevented.
We, or any future collaborators, may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or
prevent clinical development, marketing approval or commercialization of our product candidates, including:
-
-
our product candidates may produce unfavorable or inconclusive results;
-
-
regulators may require us or any future collaborators, to conduct additional clinical trials or abandon product development programs;
-
-
the number of patients required for clinical trials of our product candidates may be larger than we, or any future collaborators, anticipate,
patient enrollment in these clinical trials may be slower than we, or any future collaborators, may anticipate or participants may drop out of these clinical trials at a higher rate than we, or any
future collaborators, anticipate;
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-
the cost of planned clinical trials of our product candidates may be greater than we anticipate;
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-
our third-party contractors or those of any future collaborators, including those manufacturing our product candidates or components or
ingredients thereof or conducting clinical trials on our behalf or on behalf of any future collaborators, may fail to comply with regulatory requirements
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We
or any future collaborators could also encounter delays if a clinical trial is suspended or terminated by us or our collaborators, by the IRBs or independent ethics committees of the
institutions in which such trials are being conducted, by the DSMB 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,
conducting clinical trials in foreign countries, as we plan to do for our product candidates, presents additional risks that may delay completion of our clinical trials. These
risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in
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healthcare
services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign
countries.
Product
development costs for us, or any future collaborators, will increase if we, or they, experience delays in testing or pursuing marketing approvals and we, or they, may be required
to obtain additional funds to complete clinical trials and prepare for possible commercialization of our product candidates. We do not know whether any preclinical tests or clinical trials will begin
as planned, will need to be restructured, or will be completed on schedule or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we, or any
future collaborators, may have the exclusive right to commercialize our product candidates or allow our competitors, or the competitors of any future collaborators, to bring products to market before
we, or any future collaborators, do and impair our ability, or the ability of any future collaborators, to successfully commercialize our product candidates and may harm our business and results of
operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
Results of preclinical studies and early clinical trials may not be predictive of results of future clinical
trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results
of clinical trials do not necessarily predict success in the results of completed clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks
in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. The design of a clinical trial can determine whether its results will support
approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be
unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies
that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we,
or any future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and
may not grant marketing approval of our product candidates.
In
some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including
changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and
the rate of dropout among clinical trial participants. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and
commercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
From
time to time, we may also publish interim, "topline" or preliminary data from our clinical studies. For example, on February 12, 2018 we announced topline data from our
Phase 2 program in PNH. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient
enrollment continues and more patient data become available. Preliminary or topline data remain subject to audit and verification procedures that may result in the final data being materially
different from the preliminary or interim data we previously published. As a result, these data should be viewed with caution until the final data are available. Adverse changes between preliminary or
interim data and final data could significantly harm our business prospects.
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Chronic dosing of patients with RA101495 SC could lead to an immune response that causes adverse reactions or
impairs the activity and/or efficacy of the drug, or causes other side effects.
There is a risk that chronic dosing of patients with RA101495 SC may lead to an immune response that causes adverse reactions or impairs the
activity and/or efficacy of the drug. Patients may develop an allergic reaction to the drug and/or develop antibodies directed at the drug. Impaired drug activity could be caused by neutralization of
the drug's inhibitory activity or by an increased rate of clearance of the drug from circulation. For example, one potential side effect of RA101495 SC that has occurred in patients receiving
eculizumab, a humanized antibody against C5, is an increased incidence of meningococcal infections as a result of inhibition of the terminal complement system in a manner similar to RA101495 SC. As a
result, patients receiving RA101495 SC will also require immunization with a meningococcal vaccine and potentially prophylactic antibiotics. While we did not observe any incidents of meningococcal
infection or thromboembolic events in our topline results from our Phase 2 clinical trial of RA101495 SC and ongoing long-term extension trial, there can be no assurance that these results will
be maintained as we continue the long-term extension trial.
Any
immune response that causes adverse reactions or impairs the activity of the drug could cause a delay in or termination of our development of RA101495 SC, which would have a material
adverse effect on our financial condition and results of operation.
The incidence and prevalence for target patient populations of RA101495 SC have not been established with
precision. If the market opportunities for RA101495 SC are smaller than we estimate or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and
ability to achieve profitability will be adversely affected, possibly materially.
The precise incidence and prevalence for PNH, gMG, aHUS and LN are unknown. Our projections of both the number of people who have these
diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our drug candidates, are based on estimates. For example, we estimate that there are
approximately 16,000 PNH patients worldwide, approximately 94,000 gMG patients worldwide, 5,500 aHUS patients worldwide, and approximately 63,000 LN patients in the U.S.
The
total addressable market opportunity for RA101945 SC will ultimately depend upon, among other things, the indication statements included in the final label for RA101945 SC, if our
product candidates are approved for sale for these indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients who can be treated with
our product candidates may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our drugs, or new patients may become increasingly difficult to identify or gain
access to, all of which would adversely affect our results of operations and our business.
Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Other Legal Compliance
Matters
We plan to seek orphan drug designation for RA101495 SC, but we may be unable to obtain such designation or
to maintain the benefits associated with orphan drug status, including market exclusivity, even if that designation is granted.
We plan to seek orphan drug designation for RA101495 SC in specific orphan indications in which there is a medically plausible basis for its use
and may seek orphan drug designation for other preclinical product candidates in our pipeline or that we may develop. In the U.S., orphan drug designation entitles a party to financial incentives such
as opportunities for grant funding towards clinical trial costs, tax advantages, and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential
orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review
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and
approval process. Although we intend to seek orphan drug designation for RA101495 SC, we may never receive such designation. Moreover, obtaining orphan drug designation for one indication
for RA101495 SC does not mean we will be able to obtain such designation for another indication.
If
a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the
product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a NDA, to market the same drug for the same indication for seven years,
except in limited circumstances such as if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to
meet the needs of patients with the disease or condition for which the drug was designated. Similarly, the FDA can subsequently approve a drug with the same active moiety for the same condition during
the exclusivity period if the FDA concludes that the later drug is clinically superior, meaning the later drug is safer, more effective, or makes a major contribution to patient care. Even if we were
to obtain orphan drug designation for RA101495 SC, we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated with developing
pharmaceutical products, and thus approval of RA101495 SC could be blocked for seven years if another company previously obtained approval and orphan drug exclusivity for the same drug and same
condition. If we do obtain exclusive marketing rights in the U.S., they may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA
later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of the relevant patients. Further,
exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition, the same drugs can be approved for
different indications and might then be used off-label in our approved indication, and different drugs for the same condition may already be approved and commercially available.
In
Europe, the period of orphan drug exclusivity is ten years, although it may be reduced to six years if, at the end of the fifth year, it is established that the criteria for
orphan drug designation are no longer met, in other words, when it is shown on the basis of available evidence that the product is sufficiently profitable not to justify maintenance of market
exclusivity. In September 2016, the EMA's Committee for Orphan Medicinal Products adopted a positive opinion recommending RA101495 SC for the treatment of PNH for designation as an orphan medicinal
product to the European Commission, which granted us orphan designation for RA101495 SC for the treatment of PNH in October 2016.
Laws and regulations governing any international operations we may have in the future may preclude us from
developing, manufacturing and selling certain products outside of the U.S. and require us to develop and implement costly compliance programs.
If we further expand our operations outside of the U.S., we must dedicate additional resources to comply with numerous laws and regulations in
each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything
of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or
business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the U.S. to comply with certain accounting provisions requiring the company to maintain
books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting
controls for international operations.
Compliance
with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the
pharmaceutical
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industry,
because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection
with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.
Various
laws, regulations and executive orders also restrict the use and dissemination outside of the U.S., or the sharing with certain non-U.S. nationals, of information classified for
national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the U.S., it will require us to dedicate additional
resources to comply with these
laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the U.S., which could limit our growth potential and increase our
development costs.
The
failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting.
The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.
Governments outside the U.S. tend to impose strict price controls, which may adversely affect our revenues,
if any.
In some countries, such as the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control.
In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in
some countries, we, or any future collaborators, may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. If reimbursement of our
products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed.
We are subject to extensive government regulation and the failure to comply with these regulations may have a
material adverse effect on our operations and business.
Both before and after approval of any product, we and our suppliers, contract manufacturers and clinical investigators are subject to extensive
regulation by governmental authorities in the U.S. and other countries, covering, among other things, testing, manufacturing, quality control, clinical trials, post-marketing studies, labeling,
advertising, promotion, distribution, import and export, governmental pricing, price reporting and rebate requirements. Failure to comply with applicable requirements could result in one or more of
the following actions: warning letters; unanticipated expenditures; delays in approval or refusal to approve a product candidate; product recall or seizure; interruption of manufacturing or clinical
trials; operating or marketing restrictions; injunctions; criminal prosecution and civil or criminal penalties including fines and other monetary penalties; adverse publicity; and disruptions to our
business. Further, government investigations into potential violations of these laws would require us to expend considerable resources and face adverse publicity and the potential disruption of our
business even if we are ultimately found not to have committed a violation.
Obtaining
FDA approval of our product candidates requires substantial time, effort and financial resources and may be subject to both expected and unforeseen delays, and there can be no
assurance that any approval will be granted on any of our product candidates on a timely basis, if at all. The
FDA may decide that our data are insufficient for approval of our product candidates and require additional preclinical, clinical or other studies or additional work related to chemistry,
manufacturing and controls. In addition, we, the FDA, IRBs or independent ethics committees may suspend or terminate human clinical trials at any time on various grounds, including a finding that the
patients are or would be exposed to an unacceptable health risk or because of the way in which the investigators on
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which
we rely carry out the trials. If we are required to conduct additional trials or to conduct other testing of our product candidates beyond that which we currently contemplate for regulatory
approval, if we are unable to complete successfully our clinical trials or other testing, or if the results of these and other trials or tests fail to demonstrate efficacy or raise safety concerns, we
may face substantial additional expenses, be delayed in obtaining marketing approval for our product candidates or may never obtain marketing approval.
We
are also required to comply with extensive governmental regulatory requirements after a product has received marketing authorization. Governing regulatory authorities may require
post-marketing studies that may negatively impact the commercial viability of a product. Once on the market, a product may become associated with previously undetected adverse effects and/or may
develop manufacturing difficulties. As a result of any of these or other problems, a product's regulatory approval could be withdrawn, which could harm our business and operating results.
Even if we obtain FDA approval of RA101495 SC or any of our other product candidates, we or our partners may
never obtain approval or commercialize our products outside of the U.S.
In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other
countries regarding clinical trial design, safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in
one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and
additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or
clinical trials which would be costly and time consuming and could delay or prevent introduction of RA101495 SC or any of our other product candidates in those countries. We do not have experience in
obtaining regulatory approval in international markets. If we or our partners fail to comply with regulatory requirements or to obtain and maintain required approvals, our target market will be
reduced and our ability to realize the full market potential of our product candidates will be harmed.
Current and future legislation may increase the difficulty and cost for us and any future collaborators to
obtain marketing approval of and commercialize our product candidates and affect the prices we, or they, may obtain.
In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the
healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability, or the ability of
any future collaborators, to profitably sell any products for which we, or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted
in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved products.
In
March 2010 for example, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively
the Affordable Care Act, or ACA. Among the provisions of the ACA of potential importance to our business and our product candidates are the following:
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an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
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expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government
investigative powers and enhanced penalties for noncompliance;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increasing to 70% effective
Janaury 1, 2019) point-of-sale discounts off negotiated prices;
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extension of manufacturers' Medicaid rebate liability;
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expansion of eligibility criteria for Medicaid programs;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements to report certain financial arrangements with physicians and teaching hospitals;
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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research.
The
new presidential administration has indicated that enacting changes to the ACA is a legislative priority, and has alternatively discussed repealing and replacing the ACA, and
amending the ACA. We do not know at this time what implications such changes, if enacted, would have on the ACA's current requirements or on our future business. Changes to the ACA or other existing
health care regulations could significantly impact our business and the pharmaceutical industry.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to
aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and will remain in effect through 2027 unless additional Congressional
action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers and
increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other
healthcare funding. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will
pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure
whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of
our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us
and any future collaborators to more stringent product labeling and post-marketing testing and other requirements.
Our
relationships with customers and third-party payors, among others, will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could
expose us to penalties, including criminal sanctions, civil penalties, contractual damages, reputational harm, fines, disgorgement, exclusion from participation in government healthcare programs,
curtailment or restricting of our operations, and diminished profits and future earnings.
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Healthcare
providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our future
arrangements with third-party payors and customers, if any, will subject us to broadly applicable fraud and abuse and
other healthcare laws and regulations. The laws and regulations may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for
which we obtain marketing approval. These include the following:
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Anti-kickback statute.
The federal Anti-Kickback Statute prohibits, among
other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return
for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as
Medicare and Medicaid. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other.
Although there are several statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution, they are drawn narrowly, and practices that involve remuneration
intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. A person or entity can be found guilty of violating the
federal Anti-Kickback Statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or services resulting from a
violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute;
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False claims laws.
The federal false claims and civil monetary penalties
laws, including the federal civil False Claims Act, impose criminal and civil penalties, including through civil whistleblower or
qui tam
actions
against individuals or entities for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false
statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble
damages and significant per-claim penalties, currently set at $11,181 to $22,363 per false claim;
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HIPAA.
The federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
Additionally, HIPAA as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations on covered entities and their
business associates, including mandatory contractual terms and technical safeguards, with respect to maintaining the privacy, security and transmission of individually identifiable health information;
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Transparency requirements.
The provision within the ACA commonly referred
to as the federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the
Children's Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments or transfers of value
made to physicians and teaching hospitals, as well as information regarding ownership and investment interests held by physicians and their immediate family members; and
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Analogous state and foreign laws.
Analogous state and foreign fraud and
abuse laws and regulations, such as state anti-kickback and false claims laws, can apply to sales or marketing
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arrangements,
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, and are generally broad and are enforced by many different foreign and state agencies
as well as through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government and require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing
expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not
pre-empted by HIPAA, thus complicating compliance efforts.
Efforts
to ensure that our business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, disgorgement,
contractual damages, reputational harm, and the curtailment or restructuring of our operations. Defending against any such actions can be costly, time-consuming and may require significant financial
and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. Further, if any of the physicians or
other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be
subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Even if we, or any future collaborators, obtain marketing approvals for our product candidates, the terms of
approvals and ongoing regulation of our products may limit how we manufacture and market our products, which could impair our ability to generate revenue.
Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive
regulation. We, and any future collaborators, must therefore comply with requirements concerning advertising and promotion for any of our product candidates for which we or they obtain marketing
approval. 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 product's
approved labeling. Thus, we and any future collaborators will not be able to promote any products we develop for indications or uses for which they are not approved.
In
addition, manufacturers of approved products and those manufacturers' facilities are required to comply with extensive FDA requirements, including ensuring that quality control and
manufacturing procedures conform to current Good Manufacturing Practices, or cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding
maintenance of records and documentation and reporting requirements. We, our contract manufacturers, any future collaborators and their contract manufacturers could be subject to periodic unannounced
inspections by the FDA to monitor and ensure compliance with cGMPs.
Accordingly,
assuming we, or any future collaborators, receive marketing approval for one or more of our product candidates, we, and any future collaborators, and our and their contract
manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.
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If we, and any future collaborators, are not able to comply with post-approval regulatory requirements, we, and any future collaborators, could have the marketing
approvals for our products withdrawn by regulatory authorities and our, or any future collaborators', ability to market any future products could be limited, which could adversely affect our ability
to achieve or sustain profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.
Any of our product candidates for which we, or any future collaborators, obtain marketing approval in the
future could be subject to post-marketing restrictions or withdrawal from the market and we, or any future collaborators, may be subject to substantial penalties if we, or they, fail to comply with
regulatory requirements or if we, or they, experience unanticipated problems with our products following approval.
Any of our product candidates for which we, or any future collaborators, obtain marketing approval, as well as the manufacturing processes,
post-approval studies and measures, labeling, advertising and promotional activities for such product, among other things, will be subject to
ongoing requirements of and review by the FDA, the EMA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration
and listing requirements, requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of
samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be
marketed or to the conditions of approval, including the requirement to implement a Risk Evaluation and Mitigation Strategy.
The
FDA, the EMA and other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of
a product. The FDA and other agencies, including the Department of Justice, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are manufactured,
marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers' communications
regarding off-label use and if we, or any future collaborators, do not market any of our product candidates for which we, or they, receive marketing approval for only their approved indications, we,
or they, may be subject to warnings or enforcement action for off-label marketing. Violation of the FDCA and other statutes relating to the promotion and advertising of prescription drugs may lead to
investigations or allegations of violations of federal and state health care fraud and abuse laws and state consumer protection laws, including the False Claims Act.
In
addition, later discovery of previously unknown adverse events or other problems with our products or their manufacturers or manufacturing processes, or failure to comply with
regulatory requirements, may yield various results, including:
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restrictions on the manufacturing of such products;
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restrictions on the labeling or marketing of such products;
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restrictions on product distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
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warning letters or untitled letters;
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withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
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recall of products;
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restrictions on coverage by third-party payors;
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fines, restitution or disgorgement of profits or revenues;
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suspension or withdrawal of marketing approvals;
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refusal to permit the import or export of products;
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product seizure; or
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injunctions or the imposition of civil or criminal penalties.
Additional time may be required to obtain regulatory approval for our product candidates because they are
combination products.
Because certain of our product candidates are designed to be self-administered SC by patients and may be packaged as pre-filled cartridges or
pens, they may be regulated as drug/device combination products that require coordination within the FDA and similar foreign regulatory agencies for review of their device and drug components.
Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development and
commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to
fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials,
including chemicals and biological
materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of
contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting
damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We
maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this
insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and
regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials. If they do not perform satisfactorily, our business
could be harmed.
We do not independently conduct clinical trials of any of our product candidates. We rely on third parties, such as contract research
organizations, or CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct these clinical trials and expect to rely on these third parties to conduct
clinical trials of any other product candidate that we develop. Any of these
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third
parties may terminate their engagements with us under certain circumstances. We may not be able to enter into alternative arrangements or do so on commercially reasonable terms. In addition,
there is a natural transition period when a new contract research organization begins work. As a result, delays would likely occur, which could negatively impact our ability to meet our expected
clinical development timelines and harm our business, financial condition and prospects.
Further,
although our reliance on these third parties for clinical development activities limits our control over these activities, we remain responsible for ensuring that each of our
trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards. For example, notwithstanding the obligations of a CRO for a trial of one of
our product candidates, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the
FDA requires us to comply with requirements, commonly referred to as Good Clinical Practices, or GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA enforces these GCPs through periodic inspections of trial
sponsors, principal investigators, clinical trial sites and IRBs. If we or our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials
may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our product candidates, which would delay the marketing approval process. We cannot be
certain that, upon inspection, the FDA will determine that any of our clinical trials comply with GCPs. We are also required to register clinical trials and post the results of completed clinical
trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore,
the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we
cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities,
including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could impede their ability to devote appropriate time to our clinical
programs. If these third parties, including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with
regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates. If that occurs, we will not be able to,
or may be delayed in our efforts to, successfully commercialize our product candidates. In such an event, our financial results and the commercial prospects for any product candidates that we seek to
develop could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed.
Use of third parties to manufacture our product candidates may increase the risk that we will not have
sufficient quantities of our product candidates, products, or necessary quantities at an acceptable cost.
We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates, and we lack
the resources and the capabilities to do so. As a result, we currently rely on third parties for supply of the active pharmaceutical ingredients, or API, in our product candidates. Our current
strategy is to outsource all manufacturing of our product candidates and products to third parties.
We
currently engage third-party manufacturers to provide the API, and other third parties to provide services for the final drug product formulation of RA101495 SC that is being used in
our clinical trials. Although we believe that there are several potential alternative manufacturers who could manufacture RA101495 SC, we may incur added costs and delays in identifying and qualifying
any such replacement. In addition, we have not yet concluded a commercial supply contract with any commercial manufacturer. There is no assurance that we will be able to timely secure needed supply
arrangements
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on
satisfactory terms, or at all. Our failure to secure these arrangements as needed could have a material adverse effect on our ability to complete the development of our product candidates or, to
commercialize them, if approved. We may be unable to conclude agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. There may be difficulties
in scaling up to commercial quantities and formulation of RA101495 SC and the costs of manufacturing could be prohibitive.
Even
if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks,
including:
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reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance;
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limitations on supply availability resulting from capacity and scheduling constraints of third-parties;
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the possible breach of manufacturing agreements by third-parties because of factors beyond our control; and
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the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us.
If
we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our
ability to obtain regulatory approval for our products. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us and there
could be a substantial delay before new facilities could be qualified and registered with the FDA and other foreign regulatory authorities.
Our
lead product candidate may ultimately be regulated as a drug/device combination product. Third-party manufacturers may not be able to comply with the cGMP regulatory requirements
applicable to drugs and drug/device combination products, including applicable provisions of the FDA's drug cGMP regulations, device cGMP requirements embodied in the Quality System Regulation,
or QSR, or similar regulatory requirements outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being
imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product candidates, operating restrictions
and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our contract manufacturers to manufacture our product candidates must be
evaluated by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the manufacturing process of, and are completely dependent on, our contract
manufacturing partners for compliance with cGMPs. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of
the FDA or others, we may not be able to secure and/or maintain regulatory approval for our product manufactured at these 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 finds deficiencies 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. Contract manufacturers may face manufacturing or quality control problems causing drug substance
production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or
other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research
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activities
and our ability to develop our product candidates and market our products following approval.
The
FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to
confirm compliance with cGMPs. Contract manufacturers may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may
not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely
affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
If our third-party manufacturer of our product candidates is unable to increase the scale of its production
of our product candidates, and/or increase the product yield of its manufacturing, then our costs to manufacture the product may increase and commercialization may be delayed.
In order to produce sufficient quantities to meet the demand for clinical trials and, if approved, subsequent commercialization of RA101495 SC
or any of our other product candidates in our pipeline or that we may develop, our third-party manufacturer will be required to increase its production and optimize its manufacturing processes while
maintaining the quality of the product. The transition to larger scale production could prove difficult. In addition, if our third-party manufacturer is not able to optimize its manufacturing process
to increase the product yield for our product candidates, or if it is unable to produce increased amounts of our product candidates while maintaining the quality of the product, then we may not be
able to meet the demands of clinical trials or market demands, which could decrease our ability to generate profits and have a material adverse impact on our business and results of operation.
We may need to maintain licenses for active ingredients from third parties to develop and commercialize some
of our product candidates, which could increase our development costs and delay our ability to commercialize those product candidates.
Should we decide to use active pharmaceutical ingredients in any of our product candidates that are proprietary to one or more third parties, we
would need to maintain licenses to those active ingredients from those third parties. If we are unable to gain or continue to access rights to these active ingredients prior to conducting preclinical
toxicology studies intended to support clinical trials, we may need to develop alternate product candidates from these programs by either accessing or developing alternate active ingredients,
resulting in increased development costs and delays in commercialization of these product candidates. If we are unable to gain or maintain continued access rights to the desired active ingredients on
commercially reasonable terms or develop suitable alternate active ingredients, we may not be able to commercialize product candidates from these programs.
We enter into various contracts in the normal course of our business in which we indemnify the other party to
the contract. In the event we have to perform under these indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we periodically enter into academic, commercial, service, collaboration, licensing, consulting and other
agreements that contain indemnification provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from
claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our
sublicensees' exercise of rights under the agreement. With respect to our commercial agreements, we indemnify our vendors from any third-party product liability claims that
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could
result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party.
Should
our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and results of
operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the indemnification obligation exceeds the
applicable insurance coverage
and does not have other assets available to indemnify us, our business, financial condition and results of operations could be adversely affected.
We expect to seek to establish collaborations and, if we are not able to establish them on commercially
reasonable terms, we may have to alter our development and commercialization plans.
We expect to seek one or more collaborators for the development and commercialization of one or more of our product candidates. For example, we
started collaborating with Merck in 2013. Likely collaborators may include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. In
addition, if we are able to obtain marketing approval for product candidates from foreign regulatory authorities, we intend to enter into strategic relationships with international biotechnology or
pharmaceutical companies for the commercialization of such product candidates outside of the U.S.
We
face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of
the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the
potential differentiation of our product candidate from competing product candidates, design or results of clinical trials, the likelihood of approval by the FDA, the EMA or comparable foreign
regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to
patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and
whether such a collaboration could be more attractive than the one with us for our product candidate. If we elect to increase our expenditures to fund development or commercialization activities on
our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product
candidates or bring them to market and generate product revenue.
Collaborations
are complex and time-consuming to negotiate and document. Further, there have been a significant number of recent business combinations among large pharmaceutical
companies that have resulted in a reduced number of potential future collaborators. Any collaboration agreements that we enter into in the future may contain restrictions on our ability to enter into
potential collaborations or to otherwise develop specified product candidates. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do
so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs,
delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own
expense.
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If we enter into collaborations with third parties for the development and commercialization of our product
candidates, our prospects with respect to those product candidates will depend in significant part on the success of those collaborations.
We expect to enter into additional collaborations for the development and commercialization of certain of our product candidates. If we enter
into such collaborations, we will have limited control over the amount and timing of resources that our collaborators will dedicate to the development or commercialization of our product candidates.
Our ability to generate revenues from these arrangements will depend on any future collaborators' abilities to successfully perform the functions assigned to them in these arrangements. In addition,
any future collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the
agreed upon terms.
Collaborations
involving our product candidates pose a number of risks, including the following:
-
-
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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-
collaborators may not perform their obligations as expected;
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-
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or
commercialization programs, based on clinical trial results, changes in the collaborators' strategic focus or available funding or external factors, such as an acquisition, that divert resources or
create competing priorities;
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-
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product
candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
-
-
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product
candidates;
-
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a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and
distribution of such product or products;
-
-
disagreements with collaborators, including disagreements over proprietary rights, including trade secrets and intellectual property rights,
contract interpretation, or the preferred course of development might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional
responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
-
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
-
-
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
-
-
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
Collaboration
agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If any future collaborator of ours is involved in
a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product candidate licensed to it by us.
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Risks Related to Our Intellectual Property
Our success depends on our ability to protect our intellectual property and proprietary technology.
Our success depends in large part on our ability to obtain and maintain patent protection and trade secret protection in the U.S. and other
countries with respect to our proprietary product candidates. If we do not adequately protect our intellectual property rights, competitors may be able to erode, negate or preempt any competitive
advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the U.S. and abroad related to our
product candidates that are important to our business; we also license or purchase patents and/or patent applications filed by others. The patent application and approval process is expensive and
time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
Agreements
through which we license patent rights may not give us control over patent prosecution, maintenance or enforcement, so that we may not be able to control which claims or
arguments are presented and may not be able to secure, maintain, or successfully enforce necessary or desirable patent protection from those patent rights. We have not had and do not have primary
control over patent prosecution and maintenance for certain of the patents and patent applications we license, and
therefore cannot guarantee that these patents and applications will be prosecuted or maintained in a manner consistent with the best interests of our business. We cannot be certain that patent
prosecution, maintenance and/or enforcement activities by our licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable
patents.
If
the scope of the patent protection we or our licensors obtain is not sufficiently broad, we may not be able to prevent others from developing and commercialize technology and products
similar or identical to ours. The degree of patent protection we require to successfully compete in the marketplace may be unavailable or severely limited in some cases and may not adequately protect
our rights or permit us to gain or keep any competitive advantage. We cannot provide any assurances that any of our licensed patents have, or that any of our pending licensed patent applications that
mature into issued patents will include, claims with a scope sufficient to protect our proprietary platform or otherwise provide any competitive advantage, nor can we assure you that our licenses are
or will remain in force. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the U.S. Furthermore, patents have a limited lifespan. In the U.S., the
natural expiration of a patent is generally twenty years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Given the
amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are
commercialized. As a result, our licensed patent portfolio may not provide us with adequate and continuing patent protection sufficient to exclude others from commercializing products which are the
same as or similar to our product candidates. In addition, the patent portfolio licensed to us is, or may be, licensed to third parties, such as outside our field, and such third parties may have
certain enforcement rights. Thus, patents licensed to us could be put at risk of being invalidated or interpreted narrowly in litigation filed by or against another licensee or in administrative
proceedings brought by or against another licensee in response to such litigation or for other reasons.
Even
if they are unchallenged, our licensed patents and pending patent applications, if issued, may not provide us with any meaningful protection or prevent competitors from designing
around our patent claims to circumvent our licensed patents by developing similar or alternative technologies or therapeutics in a non-infringing manner. For example, a third party may develop a
competitive therapy that provides benefits similar to one or more of our product candidates but that uses a vector, expression construct or delivery modality that falls outside the scope of our patent
protection or license rights. If the patent protection provided by the patents and patent applications we hold or pursue with
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respect
to our product candidates is not sufficiently broad to impede such competition, our ability to successfully commercialize our product candidates could be negatively affected, which would harm
our business. These risks apply to patents and patent applications which we have in-licensed as well as those we own now or in the future.
We,
or any future partners, collaborators, or licensees, may fail to identify patentable aspects of inventions made in the course of research, development and/or commercialization
activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen our patent position.
It
is possible that defects of form or timing in the preparation or filing of our patents or patent applications may exist, or may arise in the future, for example with respect to proper
priority claims, inventorship, claim scope, or requests for patent term adjustments. If we or our partners, collaborators, licensees, or licensors, whether current or future, fail to establish,
maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our partners, collaborators, licensees, or licensors, are not fully cooperative or
disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. If there are material defects in the form, preparation, filing,
prosecution, or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these
outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
The
patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and
pharmaceutical patents has emerged to date in the U.S. or in any foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds commonly involves
complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights
are highly uncertain.
Pending
patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications.
Assuming the other requirements for patentability are met, currently, the first inventor to file a patent application is generally entitled to the patent. However, prior to March 16,
2013, in the U.S., the first to invent was entitled to the patent. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and
other jurisdictions are not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our
patents or pending patent applications, or that we were the first to file for patent protection of such inventions. Similarly, we cannot be certain that parties from whom we do or may license or
purchase patent rights were the first to make relevant claimed inventions, or were the first to file for patent protection for them. If third parties have filed patent applications on inventions
claimed in our own patents or applications on or before March 15, 2013, the third parties may initiate an interference proceeding in the U.S. to determine who was the first to invent any of the
subject matter covered by the patent claims of our patents or applications. If third parties have filed such applications after March 15, 2013, a derivation proceeding in the U.S. can be
initiated by such third parties to determine whether our invention was derived from theirs.
Moreover,
because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in
the courts or patent offices in the U.S. and abroad. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found. If such prior
art exists, it may be used to invalidate a patent, or may prevent a patent from issuing from a pending patent application. For
example, such patent filings may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or to other patent offices around the world. It is
often
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the
case that such third-party submissions may be made anonymously such that we would not have information regarding the name of the party challenging our intellectual property. Alternately or
additionally, we may become involved in post-grant review procedures, oppositions, derivations, proceedings, reexaminations,
inter partes
review or
interference proceedings, in the U.S. or elsewhere, challenging patents or patent applications in which we have rights, including patents on which we rely to protect our business. An adverse
determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop
others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, given the amount of time
required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
Pending
and future patent applications may not result in patents being issued that protect our business, in whole or in part, or which effectively prevent others from commercializing
competitive products. Changes in either the patent laws or interpretation of the patent laws in the U.S. and other countries may diminish the value of our patents or narrow the scope of our patent
protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the U.S. For example, patent laws in various jurisdictions,
including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than U.S. law does.
The
patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in
protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
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-
the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent process. There are situations in which noncompliance 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;
-
-
patent applications may not result in any patents being issued;
-
-
patents that may be owned or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or
otherwise may not provide any competitive advantage;
-
-
our competitors, many of whom have substantially greater resources and many of whom have made significant investments in competing
technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to make, use, and sell our potential product candidates;
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-
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both
inside and outside the U.S. for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and
-
-
countries other than the U.S. may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a
better opportunity to create, develop and market competing product candidates.
Issued
patents that we have or may obtain or license may not provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any
competitive
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advantage.
Our competitors may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may also seek approval to
market their own products similar to or otherwise competitive with our products. Alternatively, our competitors may seek to market generic versions of any approved products by submitting ANDAs to the
FDA in which they claim that patents owned or licensed by us are invalid, unenforceable or not infringed. In these circumstances, we may need to defend or assert our patents, or both, including by
filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid or unenforceable, or that our competitors are
competing in a non-infringing manner. Thus, even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve
our business objectives.
Pursuant
to the terms of some of our license agreements with third parties, some of our third-party licensors have the right, but not the obligation in certain circumstances to control
enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents. Even if we are permitted to pursue such enforcement or defense, we will require the cooperation
of our licensors, and cannot guarantee that we would receive it and on what terms. We cannot be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of
such patents or defense of such claims to protect our interests in the licensed patents. If we cannot obtain patent protection, or enforce existing or future patents against third parties, our
competitive position and our financial condition could suffer.
In
addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including
entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, we cannot provide any assurances that all
such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if the steps taken to maintain
our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating its trade secrets. If any of these events occurs or if we otherwise lose
protection for our trade secrets or proprietary know-how, our business may be harmed.
It is difficult and costly to protect our intellectual property and our proprietary technologies, and we may
not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for the use, formulation
and structure of our products and product candidates, the methods used to manufacture them, the related therapeutic targets and associated methods of treatment as well as on successfully defending
these patents against potential
third-party challenges. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importing by third parties is dependent on the extent
to which we have rights under valid and enforceable patents that cover these activities.
The
patent positions of pharmaceutical, biotechnology and other life sciences companies can be highly uncertain and involve complex legal and factual questions for which important legal
principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property. Further, the
determination that a patent application or patent claim meets all of the requirements for patentability is a subjective determination based on the application of law and jurisprudence. The ultimate
determination by the USPTO or by a court or other trier of fact in the U.S., or corresponding foreign national patent offices or courts, on whether a claim meets all requirements of patentability
cannot be assured. For example, our lead C5 inhibitor portfolio consists of six families of patent applications that we own directed to our lead C5 inhibitor and related methods of use. Although we
have conducted searches for third-party
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publications,
patents and other information that may affect the patentability of claims in our various patent applications and patents, we cannot be certain that all relevant information has been
identified. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or patent applications, in our licensed patents or patent applications or in third-party
patents.
We
cannot provide assurances that any of our patent applications will be found to be patentable, including over our own prior art patents, or will issue as patents. Neither can we make
assurances as to the scope of any claims that may issue from our pending and future patent applications nor to the outcome of any proceedings by any potential third parties that could challenge the
patentability, validity or enforceability of our patents and patent applications in the U.S. or foreign jurisdictions. Any such challenge, if successful, could limit patent protection for our products
and product candidates and/or materially harm our business.
The
degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain
or keep our competitive advantage. For example:
-
-
we may not be able to generate sufficient data to support full patent applications that protect the entire breadth of developments in one or
more of our programs, including our PNH, gMG, aHUS and LN programs;
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-
it is possible that one or more of our pending patent applications will not become an issued patent or, if issued, that the patent(s) will be
sufficient to protect our technology, provide us with a basis for commercially viable products or provide us with any competitive advantages;
-
-
if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under U.S. or
foreign laws; or
-
-
if issued, the patents under which we hold rights may not be valid or enforceable.
In
addition, to the extent that we are unable to obtain and maintain patent protection for one of our products or product candidates or in the event that such patent protection expires,
it may no longer be cost-effective to extend our portfolio by pursuing additional development of a product or product candidate for follow-on indications.
We
also may rely on trade secrets to protect our technologies or products, especially where we do not believe patent protection is appropriate or obtainable. For example, the patents
underlying our proprietary peptide chemistry technology, which we license from third parties on a non-exclusive basis in some cases, expire by 2022. As a result, we anticipate that trade secrets will
serve as the primary protection for the know-how behind our proprietary platform. Also, we cannot provide any assurances that any of our licensed patents have claims with a scope sufficient to protect
our proprietary platform or otherwise provide any competitive advantage, nor can we assure you that our licenses are or will remain in full force or effect, in which case we would similarly rely on
trade secrets. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisers may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade
secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the U.S. are sometimes less willing to protect trade secrets. Moreover, our competitors may
independently develop equivalent knowledge, methods and know-how. Notably, proprietary technology protected by a trade secret does not preempt the patent of independently developed equivalent
technology, even if such equivalent technology is invented subsequent to the technology protected by a trade secret.
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Obtaining and maintaining patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and applications are required to be paid to
the USPTO and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the patents and applications. The USPTO and various non-U.S. governmental patent agencies
require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process and after a patent has issued. There are situations in which
non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Under the terms of some of
our licenses, we do not have the ability to maintain or prosecute patents in the portfolio and must therefore rely on third parties to comply with these requirements.
Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of
time.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such
candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the U.S. and, if available, in other countries where we are
prosecuting patents. In the U.S., the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent,
which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the U.S.,
and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant
more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical
data and launch their product earlier than might otherwise be the case.
Changes to the patent law in the U.S. and other jurisdictions 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 involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Recent patent
reform legislation in the U.S., including the Leahy-Smith America Invents Act, or the America Invents Act, could increase those uncertainties and costs. The America Invents Act was signed into law on
September 16, 2011, and many of the substantive changes became effective on March 16, 2013. The America Invents Act reforms U.S. patent law in part by changing the U.S. patent system
from a "first to invent" system to a "first inventor to file" system, expanding the definition of prior art, and developing a post-grant review system. This legislation changes U.S. patent law in a
way that may weaken our ability to obtain patent protection in the U.S. for those applications filed after March 16, 2013.
Further,
the America Invents Act created new procedures to challenge the validity of issued patents in the U.S., including post-grant review and
inter
partes
review proceedings, which some third parties have been using to cause the cancellation of selected or all claims of issued patents of competitors. For a patent with an
effective filing date of March 16, 2013 or later, a petition for post-grant review can be filed by a third party in a nine-month window from issuance of the patent. A petition for
inter partes
review can be filed immediately following the issuance of a patent if the patent has an effective filing date prior to March 16,
2013. A petition for
inter partes
review can be filed after
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the
nine-month period for filing a post-grant review petition has expired for a patent with an effective filing date of March 16, 2013 or later. Post-grant review proceedings can be brought on
any ground of invalidity, whereas
inter partes
review proceedings can only raise an invalidity challenge based on published prior art and patents. These
adversarial actions at the USPTO review patent claims without the presumption of validity afforded to U.S. patents in lawsuits in U.S. federal courts and use a lower burden of proof than used in
litigation in U.S. federal courts. Therefore, it is generally considered easier for a competitor or third party to have a U.S. patent invalidated in a USPTO post-grant review or
inter partes
review
proceeding than invalidated in a litigation in a U.S. federal court. If any of our patents are challenged by a third party in such a
USPTO proceeding, there is no guarantee that we or our licensors or collaborators will be successful in defending the patent, which would result in a loss of the challenged patent right to us.
In
addition, recent court rulings in cases such as
Association for Molecular Pathology v. Myriad Genetics, Inc., BRCA1- & BRCA2-Based Hereditary
Cancer Test Patent Litigation, and Promega Corp. v. Life Technologies Corp.
have narrowed the scope of patent protection available in certain circumstances
and
weakened 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 U.S. courts, the USPTO and the relevant law-making bodies in other countries, 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.
We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting, enforcing and defending patents on our product candidates in all countries throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the U.S. can be less extensive than those in the U.S. The requirements for patentability may differ in certain countries,
particularly in developing countries; thus, even in countries where we do pursue patent protection, there can be no assurance that any patents will issue with claims that cover our products.
Moreover,
our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of
some countries outside of the U.S. and Europe do not afford intellectual property protection to the same extent as the laws of the U.S. and Europe. Many companies have encountered significant problems
in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the
enforcement of patents and other intellectual property rights. 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. Consequently, we may not be able to prevent third parties
from practicing our inventions in certain countries outside the U.S. and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and
market their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is
inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Agreements
through which we license patent rights may not give us sufficient rights to permit us to pursue enforcement of our licensed patents or defense of any claims asserting the
invalidity of these patents (or control of enforcement or defense) of such patent rights in all relevant jurisdictions as requirements may vary.
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Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and
resources from other aspects of our business. Moreover, such proceedings could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing
and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.
Furthermore, while we intend to protect our intellectual property rights in major markets for our products, 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.
Others may claim an ownership interest in our intellectual property which could expose it to litigation and
have a significant adverse effect on its prospects.
A third party may claim an ownership interest in one or more of our or our licensors' patents or other proprietary or intellectual property
rights. A third party could bring legal
actions against us and seek monetary damages and/or enjoin clinical testing, manufacturing and marketing of the affected product or products. While we are presently unaware of any claims or assertions
by third-parties with respect to our patents or other intellectual property, we cannot guarantee that a third-party will not assert a claim or an interest in any of such patents or intellectual
property. If we become involved in any litigation, it could consume a substantial portion of our resources, and cause a significant diversion of effort by our technical and management personnel. If
any of these actions are successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the affected product, in which
case we may be required to pay substantial royalties or grant cross-licenses to our patents. We cannot, however, assure you that any such license will be available on acceptable terms, if at all.
Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other
intellectual property rights, Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and
credibility of witnesses and the identity of any adverse party. This is especially true in intellectual property cases that may turn on the testimony of experts as to technical facts upon which
experts may reasonably disagree.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly
and time consuming and could prevent or delay us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates without infringing the
intellectual property and other proprietary rights of third parties. Third parties may have U.S. and non-U.S. issued patents and pending patent applications relating to compounds, methods of
manufacturing compounds and/or methods of use for the treatment of the disease indications for which we are developing our product candidates or relating to the use of complement inhibition that may
cover our product candidates or approach to complement inhibition. If any third-party patents or patent applications are found to cover our product candidates or their methods of use or manufacture or
our approach to complement inhibition, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable
terms, or at all.
There
is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other
adversarial proceedings regarding intellectual property rights with respect to our products candidates, including interference and post-grant proceedings before the USPTO. There may be third-party
patents or patent applications with claims to compounds, starting materials, formulations, methods of manufacture or methods for treatment related to the composition, use or manufacture of our product
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candidates.
We cannot guarantee that any of our patent searches or analyses including, but not limited to, the identification of relevant patents, the scope of patent claims or the expiration of
relevant patents are complete or thorough, nor can we be certain that we have identified each and every patent and pending application in the U.S. and abroad that is relevant to or necessary for the
commercialization of our product candidates in any jurisdiction. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in
issued patents that our product candidates or methods of making or using them may be accused of infringing. In addition, third parties may obtain patents in the future and claim that use of our
technologies infringes upon these patents. Accordingly, third parties may assert infringement claims against us based intellectual property rights that exist now or arise in the future. The outcome of
intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of
patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use or manufacture. The scope of protection afforded by a
patent is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates,
products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is
difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful
in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly
harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If
we are found to infringe a third party's intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the
infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or
marketing the infringing product candidate or product. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license,
it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us; alternatively, or additionally it could include terms that impede or destroy our ability to
compete successfully in the commercial marketplace. In addition, we could be found liable for monetary damages, including treble damages and attorneys' fees if we are found to have willfully infringed
a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could harm our business. Claims that we
have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their
intellectual property or claiming ownership of what we regard as our own intellectual property.
Many of our current and former employees and our licensors' current and former employees, including our senior management, were previously
employed at universities or at other biotechnology or pharmaceutical companies, including some which may be competitors or potential competitors. Some of these employees, including each member of our
senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our
employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used, incorporated or disclosed intellectual
property, including trade secrets or other proprietary information, of any such third party. 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
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valuable
intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third
party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and scientific personnel.
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 senior management and scientific
personnel.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which
could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may
be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable,
or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to
stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent's claims narrowly or decide that
we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding
involving one or more of our patents could limit our ability to assert those patents against those parties or other competitors and may curtail or preclude our ability to exclude third parties from
making and selling similar or competitive products. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that
the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks thereby losing
any value in the goodwill or branding associated with those marks.
Even
if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an
adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could adversely affect the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or
other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such
litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Additionally,
for certain of our in-licensed patent rights, we do not have the right to bring suit for infringement and must rely on third parties to enforce these rights for us. If we
cannot or choose not to take action against those we believe infringe our intellectual property rights, we may have difficulty
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competing
in certain markets where such potential infringers conduct their business, and our commercialization efforts may suffer as a result.
If we fail to comply with our obligations under our existing and any future intellectual property licenses
with third parties, we could lose license rights that are important to our business.
We are a party to a collaboration and license agreement with Merck Sharp & Dohme Corp., under which we license patent rights relating to
peptides that modulate the activity of a Merck-designated non-complement cardiovascular product candidate. We are party to several other license agreements, under which we license patent rights
related to our proprietary technology and other product candidates. We may enter into additional license agreements in the future. Our license agreement with Merck imposes, and we expect that future
license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with our obligations under these licenses, our licensors may
have the right to terminate these license agreements, in which event we might not be able to market any product that is covered by these agreements, or our licensors may convert the license to a
non-exclusive license, which could negatively impact the value of the product candidate being developed under the license agreement. Termination of these license agreements or reduction or elimination
of our licensed rights may also result in our having to negotiate new or reinstated licenses with less favorable terms.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be
negatively impacted and our business would be harmed.
In addition to the protection afforded by patents, we also rely on trade secret protection for certain aspects of our intellectual property. For
example, a majority of the patents underlying our proprietary peptide chemistry technology expire by 2022. As a result, we anticipate that we will rely on trade secrets as the primary protection for
the know-how behind our proprietary platform. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such
as our employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention or patent assignment
agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade
secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and
time-consuming, and the outcome is unpredictable. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for
misappropriating the trade secret. Further, if
any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology
or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and
competitive position could be harmed.
If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our marks of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We
rely on both registration and common law protection for our trademarks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which
we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an
opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many
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foreign
jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed
against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete
effectively and our business may be adversely affected.
Risks Related to Employee Matters and Managing Growth
We only have a limited number of employees to manage and operate our business.
As of December 31, 2017, we had 63 full-time or part-time employees. Our focus on the development of RA101495 SC requires us to optimize
cash utilization and to manage and operate our business in a highly efficient manner. We cannot assure you that we will be able to hire and/or retain adequate staffing levels to develop RA101495 SC or
run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish.
Cyber-attacks or other failures in telecommunications or information technology systems could result in
information theft, data corruption and significant disruption of our business operations.
We utilize information technology, or IT, systems and networks to process, transmit and store electronic information in connection with our
business activities. As use of digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have
increased in frequency and sophistication. These threats pose a risk to the security of our systems and networks, the confidentiality and the availability and integrity of our data. There can be no
assurance that we will be successful in preventing cyber-attacks or successfully mitigating their effects. Similarly, there can be no assurance that our collaborators, CROs, third-party logistics
providers, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. Any cyber-attack or destruction or loss of
data could have a material adverse effect on our business and prospects. In addition, we may suffer reputational harm or face litigation or adverse regulatory action as a result of cyber-attacks or
other data security breaches and may incur significant additional expense to implement further data protection measures.
We depend heavily on our executive officers, directors, and principal consultants and the loss of their
services would materially harm our business.
Our success depends, and will likely continue to depend, upon our ability to hire, retain the services of our current executive officers,
directors, principal consultants and others. In addition, we have established relationships with universities and research institutions which have historically provided, and continue to provide, us
with access to research laboratories, clinical trials, facilities and patients. Our ability to compete in the biotechnology and pharmaceuticals industries depends upon our ability to attract and
retain highly qualified managerial, scientific and medical personnel.
Our
industry has experienced a high rate of turnover of management personnel in recent years. Any of our personnel may terminate their employment at will. If we lose one or more of our
executive officers or other key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers or other key employees may
be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain marketing approval
of and commercialize products successfully.
Competition
to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these additional key employees on acceptable terms given the competition
among
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numerous
pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research
institutions.
We
rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants
and advisors may be employed by other entities and may have commitments under consulting or advisory contracts with those entities that may limit their availability to us. If we are unable to continue
to attract and retain highly qualified personnel, our ability to develop and commercialize our product candidates will be limited.
Our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees, independent contractors, consultants, collaborators and contract research organizations may
engage in fraudulent conduct or other illegal activity. Misconduct by those parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that
violates: (1) FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to
such authorities, (2) manufacturing standards, (3) federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by
comparable non-U.S. regulatory authorities, and (4) laws that require the reporting of financial information or data accurately. Activities subject to these laws also involve 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, 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 be in compliance with such laws, standards or regulations. 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 and results of operations, including the imposition of civil, criminal and administrative penalties, damages,
monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and
curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and our results of operations.
We expect to expand our organization, and as a result, we may encounter difficulties in managing our growth,
which could disrupt our operations.
We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug
manufacturing, regulatory affairs and sales, marketing and distribution, as well as to support our public company operations. To manage these growth activities, we must continue to implement and
improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Our management may need to devote a significant
amount of its attention to managing these growth activities. Moreover, our expected growth could require us to relocate to a different geographic area of the country. Due to our limited financial
resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion or relocation of our operations,
retain key employees, or identify, recruit and train additional qualified personnel. Our inability to manage the expansion or relocation of our operations effectively may result in weaknesses in our
infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could also require
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significant
capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If we are unable to effectively manage our expected
growth, our expenses may increase more than expected, our ability to generate revenues could be reduced and we may not be able to implement our business strategy, including the successful
commercialization of our product candidates.
Risks Related to Our Common Stock
An active trading market for our common stock may not be sustained.
In October 2016, we closed our initial public offering. Prior to that offering, there had been no public market for our common stock. Although
shares of our common stock are listed and trading on The Nasdaq Global Market, an active trading market for our shares may not continue to be sustained. If an active market for our common stock does
not continue, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares or sell their shares at or above the prices at which they acquired their
shares or sell their shares at the time they would like to sell. Any inactive trading market for our common stock may also impair our ability to raise capital to continue to fund our operations by
selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
The price of our common stock may be volatile and fluctuate substantially.
Our stock price is likely to be highly volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology
companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced
by many factors, including:
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the success of existing or new competitive products or technologies;
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regulatory actions with respect to our product candidates or our competitors' products and product candidates;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital
commitments;
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the timing and results of clinical trials of RA101495 SC and any other product candidates;
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commencement or termination of collaborations for our development programs;
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failure or discontinuation of any of our development programs;
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results of clinical trials of product candidates of our competitors;
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regulatory or legal developments in the U.S. and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the level of expenses related to any of our product candidates or clinical development programs;
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the results of our efforts to develop additional product candidates or products;
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actual or anticipated changes in estimates as to financial results or development timelines;
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announcement or expectation of additional financing efforts;
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sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in estimates or recommendations by securities analysts, if any, that cover our stock;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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the other factors described in this "Risk Factors" section.
In
the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for
biopharmaceutical companies, which have experienced significant stock price volatility in recent years. The results of any legal proceedings are inherently uncertain and, regardless of the ultimate
outcome or the merits, require substantial time and other resources to defend. Accordingly, any litigation that we could face may result in substantial costs to us, divert management's attention and
resources from our company as well as harm our reputation with analysts and investors, which could substantially harm our business, financial condition and results of operations.
We have broad discretion in the use of our cash and cash equivalents and may not use them effectively.
Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not
improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material
adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending our use to fund operations, we may invest our cash and cash
equivalents in in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders.
We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth
companies may make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the JOBS Act, and may remain an emerging growth company for up to five years following our
initial public offering. For so long as we remain an emerging growth company, we are permitted and plan to rely on exemptions from certain disclosure requirements that are applicable to other public
companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of
2002, or SOX Section 404, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict whether investors
will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
In
addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows
an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of
this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth
companies.
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We will incur increased costs as a result of operating as a public company, and our management will be
required to devote substantial time to new compliance initiatives and corporate governance practices.
As a public company, and particularly after we are no longer an "emerging growth company," we will incur significant legal, accounting and other
expenses that we did not incur as a private company, which we anticipate could amount to between $1.0 million and $2.0 million annually. The Sarbanes-Oxley Act of 2002, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Market and other applicable securities rules and regulations impose various requirements on public
companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. We expect that we will need to hire additional accounting, finance
and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company and our management and other personnel will need to devote a substantial
amount of time towards maintaining compliance with these requirements. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and
costly.
We
are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are
often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
Pursuant
to SOX Section 404 we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an
Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on
internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with SOX Section 404 within the prescribed period, we will be
engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal
resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control
processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial
reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective. If we
identify one or more material weaknesses, it could result in an adverse
reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
A significant portion of our total outstanding shares is restricted from immediate resale but may be sold
into the market in the near future, which could cause the market price of our common stock to decline significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the
market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. As of December 31, 2017, we have 22,626,684 shares
of outstanding common stock, of which approximately 9.3 million shares are subject to restrictions on transfer under 90-day lock-up arrangements with the underwriters of this offering. These
restrictions are due to expire on February 28, 2018, resulting in a substantial number of these shares becoming eligible for public sale at that time if they are registered under the Securities
Act or if they qualify for an exemption from registration under the Securities Act including under Rules 144 or 701.
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Moreover,
based on filings with the SEC as of December 31, 2017, holders of an aggregate of approximately 13.4 million shares of our common stock have rights, subject to
conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We have also
registered shares of our common stock issued and available for issuance under our equity compensation plans, which can be freely sold in the public market, subject to vesting requirements, volume
limitations applicable to affiliates and lock-up agreements. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common
stock could decline.
Our ability to use net operating losses and research and development credits to offset future taxable income
may be subject to certain limitations.
As of December 31, 2017, we had federal and state net operating loss carryforwards of $55.7 million and $51.2 million,
respectively, which will begin to expire in 2028. As of December 31, 2017, we also had federal research and development tax credit carryforwards of $4.4 million and state research and
development tax credit carryforwards of $1.7 million, which expire at
various dates through 2037 and 2032, respectively. These net operating loss and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, in
general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its
ability to utilize its pre-change net operating losses or tax credits, or NOLs or credits, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the
aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation's stock increases its ownership by more than 50 percentage points over its
lowest ownership percentage within a specified testing period. Our existing NOLs or credits may be subject to limitations arising from previous ownership changes, our ability to utilize NOLs or
credits could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership
change under Sections 382 and 383 of the Code. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits.
The reduction of the corporate tax rate under the Tax Reform Act may cause a reduction in the economic benefit of our net operating loss carryforwards and other deferred tax assets available to us.
Under the Tax Reform Act, net operating losses generated after December 31, 2017 will not be subject to expiration.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. Accordingly,
stockholders must rely on capital appreciation, if any, for any return on their investment.
We have never declared nor paid cash dividends on our capital stock. We currently plan to retain all of our future earnings, if any, to finance
the operation, development and growth of our business. In addition, the terms of any future debt or credit agreements may preclude us from paying dividends. As a result, capital appreciation, if any,
of our common stock will be your sole source of gain for the foreseeable future.
Concentration of ownership of our common stock among our existing executive officers, directors and principal
stockholders may prevent new investors from influencing significant corporate decisions.
As of December 31, 2017, our executive officers and directors, combined with our stockholders who owned more than 5% of our outstanding
common stock and their affiliates in the aggregate, beneficially own shares representing approximately 69.4% of our common stock. As a result, if these stockholders were to choose to act together,
they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control
the election of directors and approval of any merger,
97
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consolidation
or sale of all or substantially all of our assets. This concentration of ownership control may:
-
-
delay, defer or prevent a change in control;
-
-
entrench our management or the board of directors; or
-
-
impede a merger, consolidation, takeover or other business combination involving us that other stockholders may desire.
Some
of these persons or entities may have interests different than yours. For example, because many of these stockholders purchased their shares at prices substantially below the current market price
and have held their shares for a longer period, they may be more interested in selling our company to an acquirer than other investors or they may want us to pursue strategies that deviate from the
interests of other stockholders.
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our
stockholders to change our management or hinder efforts to acquire a controlling interest in us.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of
our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
-
-
establish a classified board of directors such that all members of the board are not elected at one time;
-
-
allow the authorized number of our directors to be changed only by resolution of our board of directors;
-
-
limit the manner in which stockholders can remove directors from the board;
-
-
establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at
stockholder meetings;
-
-
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written
consent;
-
-
limit who may call a special meeting of stockholders;
-
-
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a "poison pill" that
would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
-
-
require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain
provisions of our charter or bylaws.
Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a
person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess
of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This
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Table of Contents
could
discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders. This could also have the effect of discouraging
others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that
investors are willing to pay for our stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research
about our business, our share price and trading volume could decline.
The trading market for our common stock may be influenced, in part, by the research and reports that industry or securities analysts publish
about us or our business. If no or few securities or industry analysts maintain coverage of us, or one or more of the analysts who cover us issues an adverse opinion about our company, our stock price
would likely decline. If one or more of these analysts ceases research coverage of us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn
could cause our stock price or trading volume to decline.
RA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(54,439
|
)
|
$
|
(28,864
|
)
|
$
|
(13,943
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,524
|
|
|
1,274
|
|
|
897
|
|
Stock-based compensation
|
|
|
5,573
|
|
|
1,026
|
|
|
152
|
|
Non-cash interest expense with stockholders
|
|
|
|
|
|
|
|
|
109
|
|
Loss on debt extinguishment with stockholders
|
|
|
|
|
|
|
|
|
602
|
|
Accretion of discount and debt issuance costs of convertible notes with stockholders
|
|
|
|
|
|
|
|
|
50
|
|
Change in fair value of preferred stock tranche rights
|
|
|
|
|
|
960
|
|
|
(74
|
)
|
Other, net
|
|
|
8
|
|
|
84
|
|
|
(95
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(1,023
|
)
|
|
(890
|
)
|
|
(392
|
)
|
Accounts payable and accrued expenses
|
|
|
2,012
|
|
|
4,018
|
|
|
1,102
|
|
Deferred rent
|
|
|
(415
|
)
|
|
2,389
|
|
|
517
|
|
Deferred revenue
|
|
|
|
|
|
(1,862
|
)
|
|
(883
|
)
|
Other, net
|
|
|
(19
|
)
|
|
22
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(46,779
|
)
|
|
(21,843
|
)
|
|
(12,017
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(1,412
|
)
|
|
(5,105
|
)
|
|
(331
|
)
|
Other, net
|
|
|
|
|
|
9
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,412
|
)
|
|
(5,096
|
)
|
|
(330
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds from common stock offering, net of underwriter discounts
|
|
|
|
|
|
98,009
|
|
|
|
|
Payment of common stock offering costs
|
|
|
(176
|
)
|
|
(2,110
|
)
|
|
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
29,250
|
|
|
24,142
|
|
Payment of preferred stock issuance costs
|
|
|
|
|
|
(22
|
)
|
|
(193
|
)
|
Proceeds from issuance of convertible notes with stockholders
|
|
|
|
|
|
|
|
|
5,000
|
|
Proceeds from disgorgement of stockholder's short-swing profits
|
|
|
670
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
266
|
|
|
109
|
|
|
84
|
|
Other, net
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
760
|
|
|
125,236
|
|
|
29,028
|
|
Net change in cash, cash equivalents and restricted cash
|
|
|
(47,431
|
)
|
|
98,297
|
|
|
16,681
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
|
|
119,146
|
|
|
20,849
|
|
|
4,168
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
71,715
|
|
$
|
119,146
|
|
$
|
20,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock into common stock
|
|
$
|
|
|
$
|
86,483
|
|
$
|
|
|
Reclassification of Series B-2 tranche right liability to the balance of Series B-2 redeemable convertible preferred stock
|
|
$
|
|
|
$
|
3,580
|
|
$
|
|
|
Conversion of convertible notes with stockholders into Series B-1 redeemable convertible preferred stock
|
|
$
|
|
|
$
|
|
|
$
|
5,109
|
|
Gain on extinguishment of Series A redeemable convertible preferred stock
|
|
$
|
|
|
$
|
|
|
$
|
1,673
|
|
Common stock offering costs incurred but unpaid at period end
|
|
$
|
139
|
|
$
|
232
|
|
$
|
|
|
Changes in liabilities and prepaid expenses related to fixed asset additions
|
|
$
|
124
|
|
$
|
127
|
|
$
|
484
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
The Company is a clinical-stage biopharmaceutical company using its proprietary peptide chemistry platform to create novel therapeutics to treat life-threatening diseases that are caused
by excessive or uncontrolled activation of the complement system, an essential component of the body's innate immune system. The Company's lead product candidate, RA101495 SC, is being developed as a
convenient self-administered subcutaneous ("SC") injection, which is an injection into the tissue under the skin, for the treatment of paroxysmal nocturnal hemoglobinuria ("PNH"), a rare, chronic,
life-threatening, blood disorder where red blood cells are mistakenly attacked and destroyed by the complement system. The Company is also developing RA101495 SC, administered SC, to treat other
debilitating complement-mediated diseases such as generalized myasthenia gravis ("gMG"), atypical hemolytic uremic syndrome ("aHUS"), and lupus nephritis ("LN"). Additionally, the Company is pursuing
discovery and preclinical programs targeting selective inhibition of other uncontrolled complement pathway factors to treat a variety of ocular, renal and inflammatory diseases. In addition to its
focus on developing novel therapeutics to treat complement-mediated diseases, the Company has validated its Extreme Diversity platform by successfully identifying and delivering orally-available
cyclic peptides for a non-complement cardiovascular target with a large market opportunity in a collaboration with Merck & Co., Inc. ("Merck").
The
Company was incorporated in Delaware on June 27, 2008 and is located in Cambridge, Massachusetts. During 2011, the Company acquired Cosmix Verwaltungs GmbH ("Cosmix"),
organized in Germany. In January 2016, the Company formed a wholly-owned subsidiary organized in the United
Kingdom ("UK"), Ra Europe Limited, for the purpose of conducting clinical trials in Europe and the UK.
The
Company is subject to risks common to other life science companies in the development stage including, but not limited to, uncertainty of product development and commercialization,
lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of
proprietary technology, ability to raise additional financing, and compliance with Food and Drug Administration and other government regulations. If the Company does not successfully commercialize any
of its product candidates, it will be unable to generate recurring product revenue or achieve profitability. If the Company is unable to raise capital when needed or on attractive terms, it would be
forced to delay, reduce, eliminate or out-license certain of its research and development programs or future commercialization efforts.
Since
inception, the Company has incurred net losses and negative cash flows from operations, and has an accumulated deficit of $123.2 million and $68.8 million as of
December 31, 2017 and 2016, respectively. The Company has financed its operations to date through the public offering and the private placement of its securities and funding from its
collaboration and license agreement with Merck (the "Merck Agreement").
Public Offerings
On October 31, 2016, the Company completed an initial public offering ("IPO"), in which the Company issued and sold 7,049,230 shares of
common stock at a public offering price of $13.00 per share, resulting in net proceeds of $82.8 million after deducting $6.4 million of underwriting discounts and commissions and
offering costs of $2.4 million. On November 29, 2016, the Company completed the sale of an additional 1,057,385 shares of common stock to the underwriters under the underwriters'
F-7
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Nature of Business (Continued)
option
in the IPO to purchase additional shares at the public offering price of $13.00 per share, resulting in net proceeds of $12.8 million after deducting underwriting discounts and
commissions of $1.0 million. The shares began trading on the Nasdaq Global Market on October 26, 2016.
In
February 2018, the Company completed a follow-on public offering of 9,660,000 shares of common stock, including the full exercise of the underwriter's over-allotment of 1,260,000
shares, at $6.00 per share and received aggregate net proceeds of $54.1 million, after deducting $3.5 million of underwriting discounts and commissions and approximately
$0.4 million of offering expenses.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The Company's consolidated financial statements reflect its financial statements and those of its subsidiaries in which the Company holds a
controlling financial interest, including Cosmix and Ra Europe Limited. Intercompany balances and transactions are eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These reclassifications have no
impact on the Company's net loss or cash flows.
Segment Information
Operating segments are defined as components of an enterprise for which separate financial information is available for evaluation by the chief
operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates in one operating segment, the business of developing peptide-based drugs for a variety
of therapeutic uses.
Use of Estimates
The preparation of consolidated financial statements requires that the Company make estimates and judgments that may affect the reported amounts
of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, judgments and methodologies. The
Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying
values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are reflected in reported results in the period in
which they become known.
Cash Equivalents
The Company considers all highly liquid investments with a maturity when purchased of three months or less to be cash equivalents. As of
December 31, 2017 and 2016, cash equivalents were comprised of money market funds.
F-8
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Fair Value Measurements
The accounting standard for fair value measurements defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP"), and requires certain disclosures about fair value measurements. Under this standard, fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company has certain financial assets and
liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy:
-
-
Level 1Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access.
-
-
Level 2Fair values are determined by utilizing quoted prices for identical or similar assets and liabilities in active
markets or other market observable inputs such as interest rates, yield curves, and foreign currency spot rates.
-
-
Level 3Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The
fair value hierarchy level is determined by asset and liability class based on the lowest level of significant input. The observability of inputs may change for certain assets or
liabilities. This condition could cause an asset or liability to be reclassified between levels. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of
each reporting period.
Valuation
methodologies used for assets measured or disclosed at fair value are as follows:
-
-
Cash equivalentsValued at market prices determined through third-party pricing services.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents
and restricted cash. The Company places these investments in highly rated financial institutions and limits the amounts of credit exposure to any one financial institution.
Concentrations of Suppliers
The Company currently engages third-party manufacturers to provide clinical supplies, nonclinical supplies and fill-finish services for RA101495
SC.
If
any of the Company's suppliers were to limit or terminate production or otherwise fail to meet the quality or delivery requirements needed to satisfy the supply commitments, the
process of locating and qualifying alternate sources could require up to several months, during which time the Company's production could be delayed. Such delays could have a material adverse effect
on the Company's business and ongoing clinical and nonclinical studies.
F-9
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Property and Equipment
Property and equipment, including leasehold improvements, are recorded at cost, and are depreciated when placed into service using the
straight-line method based on their estimated useful lives as follows:
|
|
|
Asset
|
|
Estimated useful life
|
Computer equipment and software
|
|
3 years
|
Furniture, fixtures, and other
|
|
5 years
|
Laboratory equipment
|
|
5 years
|
Leasehold improvements
|
|
Shorter of useful life or term of lease
|
Costs
for assets not yet placed into service is capitalized as construction in progress. Maintenance and repair costs are expensed as incurred.
Impairment of Long-lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets or asset group may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual
disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, the assets are
written-down to their fair values. Long-lived assets to be disposed of are carried at fair value less costs to sell.
Operating Leases
The Company leases office and laboratory facilities under a non-cancelable operating lease agreement. The Company recognizes rent expense under
such leases on a straight-line basis over the term of the lease with the difference between the expense and the payments recorded as deferred rent on the consolidated balance sheets. Any
reimbursements by the landlord for tenant improvements are considered lease incentives, the balance of which is recorded as a lease incentive obligation within deferred rent on the consolidated
balance sheets, and are amortized over the life of the lease. Lease renewal periods are considered on a lease-by-lease basis in determining the lease term.
Revenue Recognition
The Company has derived all of its revenue to date from the Merck Agreement. Refer to Note 9, "
Revenue
Recognition
." The terms of the Merck Agreement contain multiple deliverables, which include licenses, research and development activities and participation on the joint
steering committee. Payments under the agreement include: (i) an upfront nonrefundable license fee; (ii) payments for research and development services performed by the Company,
including reimbursement for certain lab supplies and reagents; (iii) payments based upon the achievement of certain development (pre-clinical and clinical), regulatory and commercial
milestones; and (iv) royalties on net product sales, if any.
In
order to account for multiple element arrangements, such as the Merck Agreement, the Company identifies the deliverables and evaluates which deliverables represent separate units of
F-10
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
accounting.
The Company accounts for those components as separate elements when the following criteria are met:
-
-
the delivered items have value to the customer on a stand-alone basis; and
-
-
if there is a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable
and within the Company's control.
This
evaluation requires subjective determinations and requires the Company to make judgments about the individual deliverables and whether such deliverables are separable from the other
aspects of the contractual relationship. In determining the units of accounting, the Company evaluates certain criteria, including whether the deliverables have standalone value, based on
consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research, manufacturing and commercialization capabilities of the
partner and the availability of research and manufacturing expertise in the general marketplace. In addition, the Company considers whether the collaborator can use the license or other deliverables
for their intended purpose without the receipt of the remaining elements, and whether the value of the deliverable is dependent on the undelivered items and whether there are other vendors that can
provide the undelivered items.
The
consideration received is allocated among the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria are applied to
each of the separate units.
The
Company determines the estimated selling price for deliverables using vendor-specific objective evidence ("VSOE") of selling price, if available, third-party evidence ("TPE") of
selling price if VSOE is not available, or best estimate of selling price ("BESP") if neither VSOE nor TPE is available. Determining the BESP for a deliverable requires significant judgment. The
Company uses BESP to estimate the selling price for licenses to its proprietary technology, since it often does not have VSOE or TPE of selling price for these deliverables. In those circumstances
where the Company utilizes BESP to determine the estimated selling price of a license to its proprietary technology, it considers market conditions as well as entity-specific factors, including those
factors contemplated in negotiating the agreements as well as internally developed models that include assumptions related to the market opportunity, estimated development costs, probability of
success and the time needed to commercialize a product candidate pursuant to the license. In validating our BESP, the Company evaluates whether changes in the key assumptions used to determine the
BESP will have a significant effect on the allocation of arrangement consideration between multiple deliverables.
The
Company recognizes revenue when there is persuasive evidence that an arrangement exists, services have been rendered or delivery has occurred, the price is fixed or determinable, and
collection is reasonably assured.
The
Company recognizes revenue allocated to the license upon delivery, when it believes the license to its intellectual property has standalone value. When the Company recognizes revenue
allocated to the license upon delivery, it may experience significant fluctuations in its collaborative arrangements revenues from quarter to quarter and year to year depending on the timing of
transactions. When the Company believes the license to its intellectual property does not have standalone value from the other deliverables to be provided in the arrangement, such as research and
development activities in the Merck Agreement, the license is combined with other deliverables and the
F-11
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
revenue
of the combined unit of accounting is recorded based on the method appropriate for the last delivered item.
At
the inception of each arrangement that includes precommercial milestone payments, the Company evaluates whether each precommercial milestone is substantive, in accordance with
ASU 2010-17, "
Revenue RecognitionMilestone Method
." This evaluation includes an assessment of whether (a) the consideration
is commensurate with either (1) the entity's performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome
resulting from the entity's performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the
deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the
respective milestone, the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this
assessment. If a substantive pre-commercial milestone were achieved and collection of the related receivable was reasonably assured, the Company would recognize revenue related to the milestone in its
entirety in the period in which the milestone was achieved. If the Company achieves milestones that it considers substantive, it may experience significant fluctuations in its collaborative
arrangements revenue from quarter to quarter and year to year depending on the timing of achieving such substantive milestones. In those circumstances where a pre-commercial milestone is not
substantive, the Company recognizes as revenue on the date the milestone is achieved an amount equal to the applicable percentage of the performance period that had elapsed as of the date the
milestone was achieved, with the balance being deferred and recognized over the remaining period of performance. Commercial milestones are accounted for as royalties and are recorded as revenue upon
achievement of the milestone, assuming all other revenue recognition criteria are met.
The
Company may receive royalty revenues under its current or future multiple element arrangements. If the Company does not have any future performance obligations under these
agreements, such as under the Merck Agreement, it records these revenues as earned.
Research and Development Expenses
The Company expenses research and development costs to operations as incurred. The Company defers and capitalizes nonrefundable advance payments
made by the Company for research and development activities until the related goods are received or the related services are performed.
Research
and development expenses comprise costs incurred in performing research and development activities, including salaries, benefits and other employee-related expenses, share-based
compensation expense, laboratory supplies and other direct expenses, facilities cost, overhead costs, third-party contract costs relating to pre-clinical studies and clinical trial activities and
related contract manufacturing expenses, and other outside costs.
Stock-Based Compensation
The Company's share-based compensation programs grant awards which may include stock options, restricted stock awards (RSAs), restricted stock
units (RSUs), and other stock-based awards.
F-12
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Share-based
compensation is recognized as an expense in the financial statements based on the grant date fair value over the requisite service period. For awards granted to employees and
directors that vest based on service conditions, the Company uses the straight-line method to allocate compensation expense to reporting periods.
The
fair value of the RSUs and RSAs is based on the market value of the Company's common stock on the date of grant. The fair value of options is calculated using the Black-Scholes
option-pricing model, which requires the use of subjective assumptions, including volatility and expected term.
Due
to the lack of a public market for the trading of its common stock prior to the IPO in October 2016 and a lack of Company-specific historical and implied volatility data, the Company
has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The Company selected companies with comparable characteristics to
it, including enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected term of the stock-based awards. The Company will
continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Due to the lack of Company specific historical
option activity, the Company estimates the expected term using the "simplified" method.
Income Taxes
The Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect when the differences are expected to reverse. Deferred tax assets are reduced
by a valuation allowance to reflect the uncertainty associated with their ultimate realization.
When
uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to
whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company's
practice is to recognize interest and/or penalties related to uncertain tax positions in income tax expense.
Net Loss Per Share Attributable to Common Stockholders
The Company calculates basic net income (loss) per share attributable to common stockholders and diluted net loss per share attributable to
common stockholders by dividing the net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share
attributable to common stockholders is computed by dividing net income attributable to common stockholders by the diluted number of shares outstanding during the period.
Except
where the result would be antidilutive to net income, diluted net income per share attributable to common stockholders is computed assuming the conversion of redeemable
convertible preferred
stock, the exercise of warrants, the exercise of common stock options and the vesting of RSUs and RSAs (using the treasury stock method), as well as their related income tax effects.
During
periods of income, the Company allocates participating securities a proportional share of income determined by dividing total weighted average participating securities by the sum
of the total
F-13
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
weighted
average common shares and participating securities (the "two class method"). Prior to converting into common shares, shares of the Company's redeemable convertible preferred stock were
entitled to participate in any dividends declared by the Company and were therefore considered to be participating securities. During periods of loss, the Company allocates no loss to participating
securities because they have no contractual obligation to share in the losses of the Company.
Newly Adopted Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17,
"
Balance Sheet Classification of Deferred Taxes
," that requires companies to classify all deferred tax assets and liabilities, along with any valuation
allowance, as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The guidance does not change the existing requirement that only permits
offsetting within a jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of ASU 2015-17 during the
quarter ended March 31, 2017 did not have a significant impact on the Company's consolidated financial statements and related disclosures.
In
March 2016, the FASB issued ASU 2016-09, "
Improvements to Employee Share-Based Payment Accounting
." The standard reduces complexity in
several aspects of the accounting for employee share-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of ASU 2016-09 during the
quarter ended March 31, 2017 did not have a significant impact on the Company's consolidated financial statements and related disclosures. Upon adoption, the Company elected to account for
forfeitures when they occur and recorded a cumulative effect adjustment of $11,200 to accumulated deficit.
In
August 2016, the FASB issued ASU 2016-15, "
Classification of Certain Cash Receipts and Cash Payments
." The standard addresses the
classification of certain transactions within the statement of cash flows, including cash payments for debt prepayment or debt extinguishment costs, contingent consideration payments made after a
business combination, and distributions received from equity method investments. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal
years. Early adoption is permitted. The adoption of this standard during the quarter ended December 31, 2017 did not have a significant impact on the Company's consolidated financial statements
and related disclosures.
In
November 2016, the FASB issued ASU 2016-18, "
Restricted Cash
." The standard addresses the classification and presentation of restricted
cash and restricted cash equivalents within the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
Early adoption is permitted. The Company adopted this standard during the quarter ended December 31, 2017. The Company historically excluded the restricted cash balance from cash and cash
equivalents within the consolidated statements of cash flows, reflecting transfers between cash and cash equivalents and restricted cash within cash flows from investing activities. As a result of the
adoption of this standard, the Company combined restricted cash balances of $1.3 million, $1.5 million and $0.1 million as of December 31, 2016, 2015 and 2014,
respectively, with
F-14
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
cash
and cash equivalents when reconciling the beginning and ending balances within the consolidated statements of cash flows for the fiscal years ended December 31, 2016 and 2015.
As
of December 31, 2017, cash, cash equivalents and restricted cash of $71.7 million, as reported within the consolidated statement of cash flows, included
$70.4 million of cash and cash equivalents and $1.3 million of restricted cash, as reported within the consolidated balance sheets. As of December 31, 2016, cash, cash equivalents
and restricted cash of $119.1 million, as reported within the consolidated statement of cash flows, included $117.8 million of cash and cash equivalents and $1.3 million of
restricted cash, as reported within the consolidated balance sheets.
In
January 2017, the FASB issued ASU 2017-04, "
Simplifying the Test for Goodwill Impairment
." The standard simplifies the accounting for
goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The ASU is effective for annual or interim goodwill impairment tests in
fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. The adoption of this standard during the quarter ended December 31, 2017 did not have a significant impact on the Company's consolidated financial statements
and related disclosures.
In
May 2017, the FASB issued ASU 2017-09, "
Scope of Modification Accounting
." The standard clarifies when changes to the terms or
conditions of a share-based payment award must be accounted for as modifications. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those
fiscal years. Early adoption is permitted. The adoption of this standard during the quarter ended December 31, 2017 did not have a significant impact on the Company's consolidated financial
statements and related disclosures.
Newly Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, "
Revenue from Contracts with Customers
." The standard,
including subsequently issued amendments, will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or
cumulative effect transition method. The standard will require an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to
customers. The standard will be effective for annual and interim periods beginning after December 15, 2017. The Company has one contract subject to the new standard, the Merck Agreement, and
all performance obligations were completed upon the expiration of the research term in April 2016. See Note 9
"Revenue Recognition."
The new
standard will be adopted on January 1, 2018 using the retrospective method. The Company concluded that the adoption of ASU 2014-09 will not have a significant impact on its consolidated
financial statements for the years ended December 31, 2017, 2016, 2015, 2014 and 2013.
In
February 2016, the FASB issued ASU 2016-02, "
Leases
." The standard established the principles that lessees and lessors will apply to
report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. The ASU is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is still evaluating the full impact this standard will have on its consolidated
financial statements and related disclosures but expects to recognize substantially all of its leases on the balance sheet by recording a right-to-use asset and a corresponding lease liability.
F-15
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fair Value Measurements
Assets measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
Cash equivalentsmoney market funds
|
|
$
|
70,449
|
|
$
|
|
|
$
|
|
|
$
|
70,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
70,449
|
|
$
|
|
|
$
|
|
|
$
|
70,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
Cash equivalentsmoney market funds
|
|
$
|
117,708
|
|
$
|
|
|
$
|
|
|
$
|
117,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
117,708
|
|
$
|
|
|
$
|
|
|
$
|
117,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
were no transfers between fair value levels during the years ended December 31, 2017 and 2016.
4. Supplemental Balance Sheet Information
Property and equipment, net
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
Computer equipment and software
|
|
$
|
20
|
|
$
|
|
|
Furniture, fixtures and other
|
|
|
378
|
|
|
365
|
|
Laboratory equipment
|
|
|
5,116
|
|
|
3,642
|
|
Leasehold improvements
|
|
|
3,753
|
|
|
3,732
|
|
|
|
|
|
|
|
|
|
|
|
|
9,267
|
|
|
7,739
|
|
Accumulated depreciation
|
|
|
(3,661
|
)
|
|
(2,202
|
)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
5,606
|
|
$
|
5,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense was $1.5 million, $1.2 million and $0.8 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Restricted Cash
The Company is contingently liable under an unused letter of credit with a bank, related to the Company's facility leases. Refer to
Note 7, "
Commitments and Contingencies
." As a result,
as of December 31, 2017, 2016 and 2015, the Company had restricted cash as presented in the table below,
F-16
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Supplemental Balance Sheet Information (Continued)
securing
the letters of credit. The cash will be restricted until the termination or modification of the lease arrangement.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Restricted cash
|
|
$
|
1,334
|
|
$
|
1,334
|
|
$
|
1,463
|
|
Accrued expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
Payroll and employee-related costs
|
|
$
|
2,063
|
|
$
|
1,451
|
|
Research and development costs
|
|
|
1,464
|
|
|
1,326
|
|
Other
|
|
|
410
|
|
|
405
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,937
|
|
$
|
3,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Goodwill and Other Intangible Assets
In February 2011, the Company recorded goodwill of $0.2 million and intangible assets of $0.7 million upon the acquisition of Cosmix. Based on the Company's step zero of
the goodwill impairment test, completed as of October 31, 2017, 2016 and 2015, goodwill was not impaired.
Intangible
assets are amortized over the pattern in which the economic benefits of the intangible assets are utilized, over an estimated useful life of approximately nine years.
Intangible
assets were $0.2 million and $0.3 million as of December 31, 2017 and 2016, respectively. Amortization expense of intangible assets for each of the years
ended December 31, 2017, 2016 and 2015 was approximately $0.1 million and was recorded as a component of research and development expense in the Company's consolidated statements of
operations.
Estimated
amortization expense for intangible assets for the remaining three years is as follows:
|
|
|
|
|
Year Ended December 31,
|
|
Amortization
Expense
|
|
|
|
(in thousands)
|
|
2018
|
|
$
|
66
|
|
2019
|
|
|
66
|
|
2020
|
|
|
65
|
|
6. Convertible Notes
On April 1, 2015, the Company entered into a Convertible Note Purchase Agreement (the "Note Agreement") with the holders of its existing Series A Preferred Stock and issued
Convertible Notes and warrants to purchase 221,521 shares of the Company's common stock. In connection with the issuance, the Company received gross proceeds of $5.0 million and incurred
insignificant issuance costs. The Convertible Notes bore interest at a rate of 8% per annum and were payable in full at the earliest of March 2018 ("Maturity Date"), an event of default as defined in
the Note Agreement, or the sale of the Company.
F-17
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Convertible Notes (Continued)
The Convertible Notes included certain features resulting in automatic conversion or possible early redemption. In the event the Company sold or issued shares ("Equity Securities")
resulting in cash proceeds to the Company of no less than $5.0 million ("Qualified Financing"), the Convertible Notes would automatically convert into the Equity Securities at a conversion
price equal to the price per share paid by the investors purchasing the Equity Securities. In the event of the Company undergoing a change in control prior to the Maturity Date, the Convertible Notes
would automatically convert into the right to receive 3 times the outstanding principal, plus accrued interest. Lastly, the Convertible
Notes included a put feature, at the option of the holders, whereby upon an event of default, repayment of the Convertible Notes could be accelerated in the amount of outstanding principal, plus
accrued interest. Each of these three features were embedded derivatives that required bifurcation.
The
embedded derivatives were valued upon issuance using a "with and without" income valuation approach. The Company recorded approximately $0.1 million as the fair value of the
combined embedded derivative liability on April 1, 2015, resulting in a debt discount. The debt discount was amortized as interest expense over the life of the Convertible Notes under the
effective interest method. Changes in the estimated fair value of the embedded features were recorded as a component of other income (expense), net in the consolidated statement of operations.
On
July 10, 2015, the Company completed a Series B-1 preferred stock financing, which resulted in the automatic conversion of the Convertible Notes into 5,512,743 shares of
Series B-1 preferred stock at a conversion price of $0.92667 per share. Upon conversion, the Company recorded the difference between the fair value of the Series B-1 preferred stock
issued and the carrying value of the Convertible Notes plus accrued interest as a $0.6 million loss on debt extinguishment in its consolidated statement of operations.
The
Company allocated $0.5 million of the proceeds from the Convertible Notes to the common stock warrants based on a relative fair value basis and recognized this amount as
additional paid-in capital with a corresponding debt discount upon issuance. In October 2016, upon the closing of the IPO, all of the outstanding warrants net exercised, in accordance with their
terms, into shares of common stock.
7. Commitments and Contingencies
License Agreement
In 2010, the Company entered into an exclusive license agreement with an individual. The Company is required to pay an annual license fee of
approximately $15,000 until the first commercial sale of a licensed product. The Company is also obligated to pay royalties of 0.25% on net sales of licensed products sold or transferred by the
Company. The royalty obligations will continue on a country-by-country basis until the expiration of the last valid patent claim in the applicable country. The Company has the right to terminate the
agreement for any reason upon a thirty-day notice.
Lease Commitments
In September 2015, the Company entered into an operating lease for laboratory and office space at its headquarters in Cambridge, Massachusetts.
The lease expires in April 2023 and contains various clauses for renewal at the Company's option and certain rent escalation clauses. Rent expense under the lease was $1.0 million,
$1.1 million and $0.6 million for the years ended December 31, 2017, 2016
F-18
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingencies (Continued)
and
2015, respectively. The Company is also obligated to pay operating costs, including property taxes, insurance, maintenance and other operating expenses. In connection with the lease, the Company
was provided tenant improvements allowance totaling approximately $2.7 million by the landlord as reimbursement for capital improvements to the facility. As of December 31, 2017, the
Company had an unamortized lease incentive obligation of $1.9 million recorded in deferred rent in the consolidated balance sheet.
Future
minimum commitments due under this operating lease agreement are as follows:
|
|
|
|
|
Year Ended December 31,
|
|
Minimum Lease
Payments
|
|
|
|
(in thousands)
|
|
2018
|
|
$
|
1,254
|
|
2019
|
|
|
1,403
|
|
2020
|
|
|
1,442
|
|
2021
|
|
|
1,483
|
|
2022
|
|
|
1,524
|
|
Thereafter
|
|
|
513
|
|
|
|
|
|
|
Total
|
|
$
|
7,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company is contractually obligated to return leased office and laboratory space in good order, repair and condition excluding ordinary wear and tear upon termination of the lease
agreement. The Company's asset retirement obligations were not significant as of December 31, 2017 and 2016.
Other Funding Commitments
As of December 31, 2017, the Company had several ongoing clinical and nonclinical studies for its various pipeline programs. The Company
enters into contracts in the normal course of business with contract research organizations and clinical sites for the conduct of clinical trials, professional consultants for expert advice and other
vendors for clinical supply manufacturing or other services. These contracts are not included in the table above as generally they are cancellable, with notice, at the Company's option and do not have
significant cancellation penalties.
Guarantees
The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions. These
typically include agreements with directors and officers, business partners, contractors, landlords and clinical sites. Under these provisions, the Company generally indemnifies and holds harmless the
indemnified party for losses suffered or incurred by the indemnified party as a result of the Company's activities. These indemnification provisions generally survive termination of the underlying
agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. However, to date the Company has not incurred
material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these obligations is minimal.
F-19
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingencies (Continued)
Litigation
The Company is not a party to any known litigation and does not have contingency reserves established for any litigation liabilities.
8. Redeemable Convertible Preferred Stock
Series A Preferred Stock
In February 2010, the Company issued 12,887,999 shares of Series A Preferred Stock pursuant to the Series A Preferred Stock
agreement at a price of $0.80176 per share. Additionally, investors were granted the right to purchase up to an additional 21,552,566 shares of the Company's Series A Preferred Stock at a price
of $0.80176 per share, in two subsequent closings upon the Company meeting certain milestone criteria. In February 2012 and March 2014, the board of directors waived certain milestone events provided
for in the Series A Preferred Stock agreement and the Company issued 10,776,283 and 10,776,283 shares, respectively, of Series A Preferred Stock at a price of $0.80176 per share. In
October 2016, upon the closing of the Company's IPO, all outstanding shares of Series A Preferred Stock converted into 4,920,074 shares of the Company's common stock.
Series B Preferred Stock
In July 2015, the Company issued 31,564,630 shares of Series B-1 Preferred Stock pursuant to the Series B Preferred Stock
agreement at a price of $0.92667 per share. Additionally, investors were granted the right to purchase up to an additional 29,362,452 shares of the Company's Series B-2 Preferred Stock at a
price of $0.99617, in any number of subsequent closings upon the request of each investor or in a mandatory closing upon the Company meeting certain milestone criteria. In June 2016, the board of
directors and required certain investors waived certain milestone events provided for in the Series B Preferred Stock agreement and the Company issued 29,362,452 shares of Series B-2
Preferred Stock at a price of $0.99617 per share. In October 2016, upon the closing of the Company's IPO, all outstanding shares of Series B-1 and B-2 Preferred Stock converted into 8,703,859
shares of the Company's common stock.
Series A and Series B-2 Preferred Stock Tranche Rights
The Company determined that the rights of the investors to purchase additional shares of Series A and Series B-2 Preferred Stock
met the definition of a freestanding financial instrument and were recognized as a liability at fair value upon the initial issuance of Series A and Series B-1 Preferred Stock in
February 2010 and July 2015, respectively. The Company adjusted the carrying value of the Series A and Series B-2 Preferred Stock Tranche Rights liability to its estimated fair value at
each subsequent reporting date and immediately prior to the subsequent issuances through charges to other income (expense), net in the condensed consolidated statement of operations. The
Series A Preferred Stock Tranche Rights liability was extinguished in March 2014 and the Series B-2 Preferred Stock Tranche Rights liability was extinguished in June 2016. During the
years ended December 31, 2016 and 2015, the Company adjusted the Series B-2 Preferred Stock Tranche Rights liability to its fair value and recorded other expense of $1.0 million
and other income of $0.1 million, respectively.
F-20
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Revenue Recognition
In April 2013, the Company entered into a multi-target collaboration and license agreement with Merck to use its proprietary drug discovery technology platform to identify orally
available cyclic peptides for non-complement program targets nominated by Merck and provide specific research and development services. Under the agreement, the Company granted Merck licenses under
certain of its intellectual property rights to manufacture, develop and commercialize compounds and products directed to selected program targets. The agreement consists of a research phase, where the
Company and Merck collaborated on identifying and pre-clinically developing orally available cyclic peptides suitable for further development by Merck, and a development and commercialization phase
pursuant to which Merck has sole discretion and responsibility, including financial responsibility, for further development and commercialization of these peptides, on a program-by-program basis, from
the collaboration. The research term ended in April 2016.
At
the signing of the Merck Agreement, Merck made an upfront nonrefundable, technology license fee of $4.5 million. In addition, the Merck Agreement provides for reimbursement of
research and development services provided by the Company and includes milestone payments that could total up to $65.0 million.
The
Company has identified two deliverables in connection with the Merck Agreement: (1) rights to access the Company's technology platform for each program target, and
(2) the research and development services provided during the research term. The Company has determined that none of the deliverables have standalone value. Since the separability criteria have
not been met for any of the deliverables, the deliverables were accounted for as a single combined unit of accounting. The Company has recognized revenue in connection with the upfront non-refundable
license fee ratably over the research term. Payments for research and development services and reimbursement for certain lab supplies and reagents have been recognized as services are performed. The
research term ended in April 2016.
The
Company has determined that the $3.5 million in milestone payments received was substantive in nature as they were commensurate with the enhancement of value resulting from
the Company's
performance under the Merck Agreement, related solely to past performance and were reasonable relative to all of the deliverables and payment terms within the arrangement. Accordingly, the Company has
accounted for these milestone payments under the milestone method. The Company is entitled to receive future aggregate milestone payments of up to $61.5 million for the non-complement
cardiovascular target selected, consisting of remaining preclinical and clinical milestones of $16.5 million, regulatory milestones of $19.0 million, and commercial milestones of
$26.0 million, and low-to-mid single digit percentage royalties on future sales, if any. Following the end of the research term, any future milestone payments will be recognized as revenue upon
achievement, assuming all other revenue recognition criteria are met, as no further performance obligations exist for the Company under the Merck Agreement. As of December 31, 2017, the Company
had no remaining precommercial milestones that were deemed substantive.
During
the years ended December 31, 2016 and 2015, the Company recognized revenue of $4.2 million and $1.0 million related to upfront, non-refundable payments,
respectively, and revenue of approximately $0.7 million and $3.1 million related to research and development services and reimbursable expenses, respectively. No revenue was recognized
during the year ended December 31, 2017.
F-21
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock Incentive Plans
In February 2010, the Company adopted the 2010 Stock Incentive Plan (the "2010 Plan") under which it was able to grant stock options and restricted stock grants to employees, consultants
and directors. The Company had reserved 2,495,607 shares of common stock under the 2010 Plan, prior to the establishment of the 2016 Stock Award and Incentive Plan (the "2016 Plan"), as described
below. As of December 31, 2017, options to purchase 1,870,783 shares of common stock were outstanding under the 2010 Plan.
In
October 2016, the Company's stockholders approved the 2016 Plan under which stock options, RSAs, RSUs, and other stock-based awards may be granted to employees, officers, directors,
or consultants of the Company. There were 1,401,109 shares of common stock reserved for issuance under the 2016 Plan at the time of approval, including 1,300,000 shares initially reserved plus the
101,109 shares available for issuance under the 2010 Plan. The number of shares available for future grant will automatically increase on the first day of each fiscal year by an amount equal to the
lesser of: (i) 2,000,000; (ii) 4% of the number of outstanding shares of common stock on immediately preceding December 31; and (iii) an amount determined by the
administrator appointed by the board of directors. Awards that are returned to the Company's equity plans as a result of their expiration, cancellation, termination or repurchase are automatically
made available for issuance under the 2016 Plan. As of December 31, 2017, there were 847,866 shares available for future grant under the 2016 Plan and on January 1, 2018, this number
increased by 905,067 shares.
Stock Options
Stock options granted to employees and directors under the Company's equity plans generally have a ten-year term and vest over a period of four
years, provided the individual continues to serve at the Company through the vesting dates. Options granted under all equity plans are exercisable at a price per share not less than the fair market
value of the underlying common stock on the date of grant and not less than 110% of the fair market value for participants who own more than 10% of the Company's voting power.
The
weighted average assumptions used to estimate the grant date fair value of the stock options using the Black-Scholes option pricing model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Expected life (in years)
|
|
|
6.0
|
|
|
6.1
|
|
|
6.1
|
|
Expected volatility
|
|
|
77.5
|
%
|
|
82.9
|
%
|
|
74.5
|
%
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
1.3
|
%
|
|
1.9
|
%
|
Expected dividend yield
|
|
|
|
%
|
|
|
%
|
|
|
%
|
F-22
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock Incentive Plans (Continued)
The
following table summarizes the stock option activity of the Company's share-based plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted
Average
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
|
|
(in thousands)
|
|
|
|
(in years)
|
|
(in thousands)
|
|
Options outstanding as of December 31, 2016
|
|
|
2,168
|
|
$
|
4.27
|
|
|
|
|
|
|
|
Granted
|
|
|
1,656
|
|
$
|
17.16
|
|
|
|
|
|
|
|
Exercised
|
|
|
(81
|
)
|
$
|
3.31
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(273
|
)
|
$
|
10.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of December 31, 2017
|
|
|
3,470
|
|
$
|
9.99
|
|
|
8.5
|
|
$
|
8,529
|
|
Options exercisable as of December 31, 2017
|
|
|
1,031
|
|
$
|
6.11
|
|
|
8.0
|
|
$
|
4,056
|
|
Options vested and expected to vest as of December 31, 2017
|
|
|
3,283
|
|
$
|
9.87
|
|
|
8.5
|
|
$
|
8,236
|
|
The
total intrinsic values of options exercised totaled $1.4 million, $0.1 million and $0.1 million the years ended December 31, 2017, 2016 and 2015,
respectively. The intrinsic value was calculated as the difference between the fair value of the Company's common stock and the exercise price of the option. The weighted-average grant date fair value
of stock options granted was $11.57, $3.74 and $1.89 for years ending December 31, 2017, 2016 and 2015, respectively.
Stock-Based Compensation
The following table provides stock-based compensation by the financial statement line item in which it is presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Research and development
|
|
$
|
3,081
|
|
$
|
361
|
|
$
|
58
|
|
General and administrative
|
|
|
2,492
|
|
|
665
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,573
|
|
$
|
1,026
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2017, there was approximately $17.5 million of unrecognized share-based compensation, which is expected to be recognized over a weighted average period
of approximately 2.7 years.
2016 ESPP
In October 2016, the Company's stockholders approved the 2016 Employee Stock Purchase Plan (the "2016 ESPP"), which gives eligible employees the
right to purchase shares of common stock at the lower of 85% of the fair market value on the first or last day of an offering period. There were 175,000 shares of common stock initially reserved for
issuance pursuant to the 2016 ESPP. The number of shares of common stock that may be issued under the 2016 ESPP will automatically increase on each
F-23
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock Incentive Plans (Continued)
January 1
equal to the lesser of: (i) 300,000, (ii) 1% of the Company's shares of common stock outstanding on the immediately preceding December 31 or (iii) an
amount determined by the administrator of the 2016 ESPP appointed by the Company's board of directors. As of December 31, 2017, there were 400,461 shares available for future grant under the
2016 ESPP and on January 1, 2018, this number increased by 226,266 shares.
11. 401(k) Savings Plan
In 2010, the Company adopted a tax-qualified employee savings and retirement 401(k) Plan, covering all qualified employees. Eligible employees may make pretax contributions to the 401(k)
Plan up to statutory limits. At the election of its board of directors, the Company may elect to match employee contributions. Currently, the Company makes matching contributions at a rate of 50% of
the first 6% of employee contributions. The Company recorded $0.2 million, $0.1 million and less than $0.1 million of expenses related to its 401(k) match for the years ended
December 31, 2017, 2016 and 2015, respectively.
12. Income Taxes
The following table presents domestic and foreign components of loss from operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Domestic
|
|
$
|
(54,452
|
)
|
$
|
(28,886
|
)
|
$
|
(13,961
|
)
|
Foreign
|
|
|
(6
|
)
|
|
4
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(54,458
|
)
|
$
|
(28,882
|
)
|
$
|
(13,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company recorded no current or deferred tax expense for federal and state purposes and no current foreign tax expense for the years ended December 31, 2017, 2016 and 2015. A
foreign deferred tax benefit of approximately $19,000, $18,000 and $19,000 has been recorded for the years ended December 31, 2017, 2016, and 2015, respectively.
F-24
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes (Continued)
A
reconciliation setting forth the differences between the effective tax rate of the Company for the periods ended December 31, 2017, 2016 and 2015 and the U.S. federal statutory
tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Income tax benefit at U.S. federal statutory rate
|
|
$
|
(18,515
|
)
|
$
|
(9,820
|
)
|
$
|
(4,749
|
)
|
State income taxes, net of federal tax benefit
|
|
|
(2,644
|
)
|
|
(1,525
|
)
|
|
(737
|
)
|
Nondeductible / nontaxable permanent items
|
|
|
1,297
|
|
|
256
|
|
|
272
|
|
Tax credits
|
|
|
(2,283
|
)
|
|
(1,261
|
)
|
|
(857
|
)
|
Change in U.S. federal tax rate
|
|
|
13,645
|
|
|
|
|
|
|
|
Other
|
|
|
289
|
|
|
125
|
|
|
7
|
|
Change in valuation allowance
|
|
|
8,192
|
|
|
12,207
|
|
|
6,045
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
$
|
(19
|
)
|
$
|
(18
|
)
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
0.04
|
%
|
|
0.06
|
%
|
|
0.14
|
%
|
The
significant components of the Company's deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
2017
|
|
December 31,
2016
|
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
14,956
|
|
$
|
17,501
|
|
R&D credits
|
|
|
5,747
|
|
|
3,498
|
|
Accrued expenses
|
|
|
545
|
|
|
80
|
|
Deferred rent
|
|
|
734
|
|
|
1,100
|
|
Equity compensation
|
|
|
934
|
|
|
218
|
|
Capitalized R&D costs
|
|
|
13,961
|
|
|
6,316
|
|
Other deferred tax assets
|
|
|
189
|
|
|
270
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
37,066
|
|
|
28,983
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
Depreciation related
|
|
|
(33
|
)
|
|
(145
|
)
|
Purchased intangibles
|
|
|
(57
|
)
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(90
|
)
|
|
(221
|
)
|
Valuation allowance
|
|
|
(37,016
|
)
|
|
(28,821
|
)
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(40
|
)
|
$
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
December 2017, the U.S. government enacted comprehensive tax legislation ("Tax Reform Act") that includes significant changes to the taxation of business entities. These changes
include, among others, (1) a permanent reduction to the corporate income tax rate from 34% to 21%, (2) limiting interest deductions, (3) adopting elements of a territorial tax
system and (4) introducing certain anti-base erosion provisions. In addition, under the Tax Reform Act, federal net operating losses generated after December 31, 2017 will not be subject
to expiration. In December 2017, the SEC issued guidance, which directs taxpayers to consider the impact of the U.S. legislation as "provisional" when it does not have the necessary information
available, prepared or analyzed (including computations) in
F-25
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes (Continued)
reasonable
detail to complete its accounting for the change in tax law. As of December 31, 2017, the Company recognized a provisional amount of $0 for the transition tax. The Company
re-measured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. The provisional amount recorded related to
the re-measurement of the deferred tax balance was a tax expense of $13.6 million, which was fully offset by an adjustment to the valuation allowance.
Management
of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Management has considered the Company's history of
operating losses and concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company will not realize the benefit of its deferred tax assets.
Accordingly, with the
exception of the deferred tax assets recorded at Cosmix, a full valuation allowance for the net deferred tax asset was recorded as of December 31, 2017 and 2016. Management reevaluates the
positive and negative evidence on a quarterly basis.
The
valuation allowance increased by $8.2 million during the year ended December 31, 2017, primarily due to an increase in capitalized research and development costs,
research and development credits and stock-based compensation expense; partially offset by a decrease in net operating losses and a lower U.S. federal tax rate due to the Tax Reform Act. The valuation
allowance increased by $12.2 million during the year ended December 31, 2016, primarily due to an increase net operating losses, research and development credits and stock-based
compensation expense.
Subject
to the limitations described below, as of December 31, 2017 and 2016, the Company had federal net operating loss carryforwards of $55.7 million and
$45.1 million, respectively, and state net operating loss carryforwards of $51.2 million and $40.9 million, respectively. The net operating loss carryforwards expire at various
dates beginning in 2028 through 2037 for U.S. federal and state purposes. As of both December 31, 2017 and 2016, the Company has trade net operating loss carryforwards of less than
$0.1 million at its German subsidiary. There is no expiration of the German net operating loss carryforwards.
As
of December 31, 2017 and 2016, the Company had research and development credits for federal income tax purposes of $4.4 million and $2.5 million, respectively,
and research and development credits for state income tax purposes of $1.7 million and $1.5 million, respectively. If not utilized, the available research and development credits for
federal and state income tax purposes expire at various dates through 2037 and 2032, respectively.
Utilization
of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations
that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 ("IRC Section 382") and with Section 383 of the Internal Revenue Code of 1986,
as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to
offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders
or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has completed several financings since its inception which may result in a
change in control as defined by IRC Section 382 or could result in a change in control in the future.
F-26
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes (Continued)
As
of December 31, 2017 and 2016, the Company had no unrecognized tax benefits and no accrued interest or penalties related to uncertain tax positions.
The
Company files income tax returns in the U.S. federal, Massachusetts and foreign jurisdictions. The statute of limitations for assessment by the Internal Revenue Service and state tax
authorities remains open for all years since the Company's inception. There are currently no federal or state income tax audits in progress.
13. Net Loss Per Share Attributable to Common Stockholders
Basic and diluted net loss per share attributable to common stockholders are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(54,439
|
)
|
$
|
(28,864
|
)
|
$
|
(13,943
|
)
|
Gain on extinguishment of redeemable convertible preferred shares
|
|
|
|
|
|
|
|
|
1,673
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(54,439
|
)
|
$
|
(28,864
|
)
|
$
|
(12,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstandingbasic and diluted
|
|
|
22,591
|
|
|
4,135
|
|
|
497
|
|
The
following common stock equivalents were excluded from the calculation of net loss per share attributable to common stockholders due to their anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(in thousands)
|
|
Convertible preferred stock
|
|
|
|
|
|
|
|
|
9,429
|
|
Common stock warrants
|
|
|
|
|
|
|
|
|
223
|
|
Outstanding stock options
|
|
|
3,470
|
|
|
2,168
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,470
|
|
|
2,168
|
|
|
10,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Table of Contents
RA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Quarterly Financial Data (unaudited)
The following table contains selected quarterly financial information for the years ended December 31, 2017 and 2016. The Company believes that the following information reflects
all normal recurring adjustments necessary for a fair statement of the information for the periods presented.
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First
Quarter
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Second
Quarter
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Third
Quarter
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Fourth
Quarter
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(in thousands, except per share data)
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|
Year Ended December 31, 2017
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Revenue
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$
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|
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$
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|
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$
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|
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$
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|
|
Operating expenses
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|
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11,481
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12,812
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15,414
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15,322
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Net loss attributable to common stockholders
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|
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(11,360
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)
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(12,663
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)
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(15,275
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)
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(15,141
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)
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Net loss per share attributable to common stockholdersbasic and diluted
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$
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(0.50
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)
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$
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(0.56
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)
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$
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(0.68
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)
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$
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(0.67
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)
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Weighted average number of common shares outstandingbasic and diluted
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|
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22,549
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22,575
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22,614
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22,626
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Year Ended December 31, 2016
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Revenue
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$
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1,884
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$
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3,044
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$
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$
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Operating expenses
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6,248
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7,590
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8,121
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10,993
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Net loss attributable to common stockholders
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(5,056
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)
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(4,806
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)
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(8,114
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)
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(10,888
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)
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Net loss per share attributable to common stockholdersbasic and diluted
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$
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(9.42
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)
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$
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(8.90
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)
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$
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(14.22
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)
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$
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(0.73
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)
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Weighted average number of common shares outstandingbasic and diluted
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|
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537
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540
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571
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14,816
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(a)
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-
(a)
-
During
the fourth quarter 2016, the Company completed an IPO, which resulted in the issuance of 8,106,615 shares of common stock. Upon the closing of the IPO, all of
the outstanding shares of convertible preferred stock automatically converted into 13,623,933 shares of common stock and outstanding warrants net exercised into 221,573 shares of common stock.
15. Subsequent Events
In February 2018, the Company completed a follow-on equity offering. See Note 1,
"Nature of Business."
F-28
EXHIBIT INDEX
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Exhibit No.
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Exhibit Index
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3.1
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Third Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by reference
to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q (File No. 333-213917) filed November 29, 2016)
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3.2
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Amended and Restated By-laws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.2 to the
Registrant's Quarterly Report on Form 10-Q (File No. 333-213917) filed November 29, 2016)
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4.1
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Investors' Rights Agreement among the Registrant and certain of its stockholders, dated July 10, 2015 (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (File No. 333-213917) filed September 30, 2016)
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4.2
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Specimen Stock Certificate evidencing shares of common stock (incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17, 2016)
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10.1
|
#
|
2010 Stock Option and Grant Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.1 to
the Registrant's Registration Statement on Form S-1 (File No. 333-213917) filed September 30, 2016)
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|
|
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|
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10.2
|
#
|
2016 Stock Award and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
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10.3
|
#
|
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
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|
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10.4
|
#
|
Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on
Form S-1/A (File No. 333-213917) filed October 13, 2016)
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|
|
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10.5
|
#
|
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1/A (File No. 333-213917) filed October 13, 2016)
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10.6
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Collaboration and License Agreement, dated as of April 1, 2013, by and between the Registrant and Merck
Sharp & Dohme Corp., as amended on November 25, 2013, October 3, 2014, October 24, 2014 and April 21, 2015 (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on Form S-1/A
(File No. 333-213917) filed October 13, 2016)
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10.7
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Indenture of Lease, dated as of September 15, 2015, between the Registrant and King 87 CPD LLC, as amended on
March 29, 2016 (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File No. 333-213917) filed September 30, 2016)
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10.8
|
#
|
Employment Agreement, by and between the Registrant and Douglas A. Treco (incorporated by reference to Exhibit 10.8 to
the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17, 2016)
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|
|
|
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10.9
|
#
|
Employment Agreement, by and between the Registrant and David C. Lubner (incorporated by reference to Exhibit 10.9 to
the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17, 2016)
|
124
|
|
|
|
Exhibit No.
|
|
Exhibit Index
|
|
|
|
|
|
10.10
|
#
|
Employment Agreement, by and between the Registrant and Simon Read (incorporated by reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17, 2016)
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10.11
|
#
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Employment Agreement, by and between the Registrant and Ramin Farzaneh-Far (incorporated by reference to Exhibit 10.11
to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 17, 2016)
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10.12
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Exclusive License Agreement, effective as of November 29, 2010, between the Registrant and Anthony C. Forster, M.D.,
Ph.D. (incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
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10.13
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Research and Development Collaboration and License Agreement, dated as of August 28, 2003 between Gryphon
Therapeutics Inc. and Phylos, Inc. (incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-1/A (File No. 333-213917) filed October 13, 2016)
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21.1
|
|
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant's Registration Statement on
Form S-1 (File No. 333-213917) filed September 30, 2016)
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23.1
|
*
|
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
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31.1
|
*
|
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31.2
|
*
|
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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|
|
|
|
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32.1
|
**
|
Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
|
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|
|
101.INS
|
*
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
|
*
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL
|
*
|
XBRL Taxonomy Extension Calculation Document
|
|
|
|
|
|
101.DEF
|
*
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB
|
*
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
|
|
|
|
101.PRE
|
*
|
XBRL Taxonomy Extension Presentation Link Document.
|
-
*
-
Filed
herewith.
-
**
-
Furnished
herewith.
-
-
An
order for confidential treatment of certain provisions has been granted by the Securities and Exchange Commission. Omitted material for which
confidential treatment has been granted has been filed separately with the Securities and Exchange Commission.
-
#
-
Indicates
a management contract or any compensatory plan, contract or arrangement.
125
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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|
RA PHARMACEUTICALS, INC.
|
Date: March 14, 2018
|
|
By:
|
|
/s/ DOUGLAS A. TRECO
Douglas A. Treco, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
|
Date: March 14, 2018
|
|
By:
|
|
/s/ DAVID C. LUBNER
David C. Lubner
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.
|
|
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|
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Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ DOUGLAS A. TRECO
Douglas A. Treco, Ph.D.
|
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
March 14, 2018
|
/s/ DAVID C. LUBNER
David C. Lubner
|
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
March 14, 2018
|
/s/ EDWARD T. MATHERS
Edward T. Mathers
|
|
Director
|
|
March 14, 2018
|
/s/ ROBERT HEFT
Robert Heft
|
|
Director
|
|
March 14, 2018
|
/s/ JASON LETTMANN
Jason Lettmann
|
|
Director
|
|
March 14, 2018
|
126
Table of Contents
|
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Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ RAJEEV SHAH
Rajeev Shah
|
|
Director
|
|
March 14, 2018
|
/s/ TIMOTHY PEARSON
Timothy Pearson
|
|
Director
|
|
March 14, 2018
|
/s/ PETER TUXEN BISGAARD
Peter Tuxen Bisgaard
|
|
Director
|
|
March 14, 2018
|
127
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