ITEM 1. Business
Overview
We are a pharmaceutical company focused on developing, manufacturing and commercializing products utilizing our proprietary modified-release
drug delivery technology platform, which we have already used to develop Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER oral suspension ("Adzenys ER"), for the treatment of attention deficit
hyperactivity disorder ("ADHD"). Our products are extended-release ("XR"), medications in patient-friendly, orally disintegrating tablets ("ODT") or liquid suspension dosage forms. Our proprietary
modified-release drug delivery platform has enabled us to create novel, extended-release ODT and liquid suspension dosage forms. We received approval from the U.S. Food and Drug Administration
("FDA"), for Adzenys XR-ODT, our amphetamine XR-ODT, on January 27, 2016 and launched the commercialization of this product on May 16, 2016. We received approval from the FDA for
Cotempla XR-ODT, our methylphenidate XR-ODT for the treatment of ADHD in patients 6 to 17 years old, on June 19, 2017. We initiated an early experience program with limited product
availability on September 5, 2017 before launching this product nationwide on October 2, 2017. Also, we received approval from the FDA for Adzenys ER, our amphetamine extended-release
liquid suspension, on September 15, 2017, and launched the commercialization of this product on February 26, 2018. We believe Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER will address
an unmet need by providing more patient- and caregiver-friendly dosing options not previously available to patients in the $9.4 billion market for ADHD-indicated medications.
Our
branded products incorporate two of the most commonly prescribed medications for the treatment of ADHD, methylphenidate and amphetamine. Our proprietary modified-release drug
delivery platform has enabled us to create novel, extended-release ODT and liquid suspension dosage forms of these medications. We believe Adzenys XR-ODT and Cotempla XR-ODT are the first amphetamine
XR-ODT and the first methylphenidate XR-ODT, respectively, for the treatment of ADHD on the market. We expect our patent estate, which we developed internally and which includes composition-of-matter,
method-of-manufacture and method-of-use patents and patent applications, some of which are not scheduled to expire until 2032, will provide additional protection for our branded products.
In
2017, 72.7 million prescriptions for medications with ADHD labeling, and principally in extended-release formulations, were written in the United States. The vast majority of
currently available dosage forms for ADHD are tablets and capsules. Despite once-daily dosing of these extended-release formulations, we believe there is a significant opportunity to improve
compliance rates. Up to 54% of the pediatric population and 40% of the adult population have reported difficulties with swallowing tablets and capsules. We believe that the inability, difficulty or
reluctance of many patients to swallow intact tablets and capsules contributes to diminished compliance rates. Such limitations highlight the need for more convenient dosing options such as ODT or
liquids. To our knowledge, we are the only company that has succeeded to date in commercializing an XR-ODT formulation of any ADHD medication, even though ODT are among the most preferred dosage forms
of pharmaceutical products. We believe, therefore, there is a significant market opportunity to provide two of the most prescribed medications for ADHD, methylphenidate and amphetamine, in two more
convenient and patient-friendly dosage forms, ODT and liquid suspension, which we developed using our proprietary technology platform.
We
are focusing on commercialization in the United States using our own commercial infrastructure. We currently have a specialty sales force of approximately 125 representatives
targeting the highest-volume prescribers of ADHD medication. We manufacture Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER in our current Good Manufacturing Practice ("cGMP") and U.S. Drug Enforcement
Administration ("DEA") -registered manufacturing facilities, thereby obtaining our
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products
at cost without manufacturer's margins and better controlling supply, quality and timing. We also currently use these facilities to manufacture our generic equivalent to the branded product,
Tussionex, an XR liquid suspension of hydrocodone and chlorpheniramine indicated for the relief of cough and upper respiratory symptoms of cold.
We
believe we can apply our XR-ODT and XR liquid suspension technologies that underlie our branded products and our generic Tussionex to other active pharmaceutical ingredients ("APIs")
as well. Our longer-term strategy is to utilize these technologies for the development and approval of additional XR-ODT or XR liquid suspension drug candidates, while leveraging our manufacturing and
commercialization experience to reduce costs and effectively reach patients. Patients with central nervous system ("CNS") conditions, such as stroke, Parkinson's disease and Alzheimer's disease often
have difficulty swallowing their medication and would benefit from ODT and liquid suspension dosage forms. We have completed feasibility studies on several potential product candidates thus far. After
completing feasibility work on approximately a dozen potential product candidates by mid-2018, we plan to select two to three candidates for further clinical development. We intend to utilize the
regulatory pathway provided by Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act (the "505(b)(2) regulatory approval pathway"), for our product candidates using only APIs
from approved drug products and incorporating our proprietary drug delivery platform to create branded product candidates. This streamlined development and approval pathway should allow us to initiate
clinical trials in approximately 18 months after drug discovery and submit an NDA in as few as 36 months.
Our
total revenues increased to $25.0 million for the year ended December 31, 2017, from $9.2 million for the year ended December 31, 2016 and
$3.8 million for the year-ended December 31, 2015, all of which was generated in the United States.
OUR STRATEGY
Our goal is to be a leading pharmaceutical company focused on the development, manufacture and commercialization of pharmaceutical products that
utilize our proprietary modified-release drug delivery technology platform. Key elements of our business strategy to achieve this goal are to:
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Leverage our sales force and commercial infrastructure in the United States for Adzenys XR-ODT, Cotempla XR-ODT and
Adzenys ER with any of our other product candidates that we may develop that are FDA approved.
We
believe that we can effectively commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER in the United States with a specialty sales force of approximately 125 representatives. We
intend to target the highest volume prescribers to address the unmet need for more patient- and caregiver-friendly dosage forms of the two most prescribed medications in the $9.4 billion market
for ADHD-indicated medications. We plan to commercialize our products outside of the United States after receiving the required approvals in those countries through partnerships and collaborations.
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Manufacture our proprietary products in our cGMP, FDA-inspected and DEA-registered manufacturing
facilities.
We
believe our manufacturing facilities and years of manufacturing experience are a competitive advantage. We intend to leverage the economic efficiencies afforded by manufacturing our
ADHD products in our cGMP and DEA-registered manufacturing facilities. We believe that we will have sufficient capacity to supply commercial quantities for all of our ADHD products.
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Utilize our proprietary technology platform to develop additional branded product candidates in CNS and other
therapeutic areas with unmet need.
We
intend to expand our branded product portfolio by identifying existing pharmaceutical products that could be improved upon by utilizing our proprietary modified-release drug delivery
technology platform. We plan to focus our development efforts on approved drug products for which we believe we can secure composition-of-matter patent protection and utilize the 505(b)(2) regulatory
approval pathway. We plan to explore product opportunities in several therapeutic areas, including CNS and gastrointestinal indications.
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Continue to expand our robust intellectual property portfolio covering our novel modified-release drug delivery
technology platform and innovative products.
We
have built a three-tier patent estate consisting of composition-of-matter, method-of-manufacture and method-of-use patents and patent applications. We intend to extend our patent
portfolio as we continue to expand upon our drug delivery technologies and identify and develop additional branded product candidates. If issued and listed in the FDA's publication of approved drug
products with therapeutic equivalence evaluations (the "Orange Book"), we believe that these patents will provide additional market protection for our FDA-approved products.
ADHD
Market and current treatment options
ADHD is a neurobehavioral disorder characterized by a persistent pattern of inattention and/or hyperactivity/impulsivity that interferes with
functioning and/or development. ADHD can have a profound impact on an individual's life, causing disruption at school, work, and home and in
relationships. It is one of the most common developmental disorders in children and often persists into adulthood. In 2011, an estimated 11% of children in the United States ages 4 to 17 had
previously received an ADHD diagnosis. A 2006 study estimated 4.4% of adults in the United States experience ADHD symptoms. Current ADHD treatment guidelines recommend a multi-faceted approach that
uses medications in conjunction with behavioral interventions.
In
2017, 72.7 million prescriptions for medications with ADHD labeling were written in the United States and generated $9.4 billion in sales. Approximately 92% of these
prescriptions were for stimulant medications, such as methylphenidate and amphetamine, which have been the standard of care for several decades. Methylphenidate and amphetamine prescriptions generated
$3.2 billion and $5.4 billion in sales, respectively, in 2017 in the United States. A few non-stimulant medications are also available, but evidence of their efficacy for treating ADHD
symptoms is less compelling. The market for ADHD medications outside of the United States is less developed, but we believe it will continue to grow as recognition and awareness of the disorder
increase.
Limitations of existing treatment options
Extended-release, or long acting, dosage forms of stimulant medications are the standard of care for treating ADHD, making up approximately 55%
of ADHD prescriptions. Most of these extended-release dosage forms allow for once-daily dosing in the morning, which eliminates the need to re-dose during the day. However, even with once-daily
dosing, there is great potential for improvement. The vast majority of currently available dosage forms for ADHD are tablets and capsules. We believe that the inability, difficulty or reluctance of
many patients to swallow intact tablets and capsules contributes to diminished compliance rates.
Up
to 54% of the pediatric population has difficulty swallowing tablets and capsules, and this can be especially problematic in children with ADHD. For many of these patients, swallowing
difficulties can persist into adolescence and adulthood, with 40% of adults reporting pill-swallowing difficulties that
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result
in skipping doses or discontinuing their medication altogether. In addition, ADHD medications are typically administered in the morning, which is often the busiest and most chaotic period for
families.
Some
extended-release products do offer alternative dosing options, such as opening the capsule to sprinkle contents over food, but labeling for these products generally includes a
caveat that such manipulation may impair the efficacy and/or safety of the product. These alternatives may also be difficult or inconvenient for the caregiver and disruptive to an already difficult
and chaotic morning routine. Thus, a significant need remains for more patient- and caregiver-friendly dosage forms of ADHD medications in once-daily dosing forms.
Market receptivity to novel dosage forms for the treatment of ADHD
The most prescribed extended-release medications for ADHD, Concerta® and Adderall XR® (and each of their generic
equivalents), are long-acting versions of previously short-acting methylphenidate and amphetamine medications, respectively. While these products address the need for once-daily dosing, Concerta and
Adderall XR are only available as tablets and capsules, respectively, and may be difficult for some patients to swallow.
This
limitation led to the development of a transdermal methylphenidate patch, Daytrana®. While the methylphenidate transdermal patch offered a non-oral delivery method, it
created additional issues related to dose variability, patch placement and premature patch removal. Adverse events such as skin irritation and accidental exposure from discarded patches also deterred
Daytrana's utilization. Despite these shortcomings, Daytrana achieved approximately a 3% share of the overall methylphenidate extended-release market in 2014.
In
January 2013, an extended-release liquid formulation of methylphenidate, Quillivant XR
TM
, was launched by Pfizer, providing a new dosing option. In April 2016, Pfizer
launched Quillichew ER
TM
, an extended-release chewable formulation of methylphenidate and Tris Pharmaceuticals launched an extended-release liquid formulation of amphetamine, Dyanavel
XR
TM
. In 2017, Quillivant XR had approximately 627,000 prescriptions and gross sales of approximately $193.3 million. Quillivant XR had captured a 0.9% share of the ADHD market in
the fourth quarter of 2017 prior to a drug shortage issue at the end of year.
We
launched commercialization of our amphetamine extended-release ODT, Adzenys XR-ODT, on May 16, 2016 and initiated an early experience program with Cotempla XR-ODT with limited
product availability on September 5, 2017 and launched this product nationwide on October 2, 2017. We had 187,685 and 12,721 total equivalent unit prescriptions for Adzenys XR-ODT and
Cotempla XR-ODT, respectively, generating $55.2 million and $4.1 million in gross sales, respectively, in 2017, including Adzenys XR-ODT gross sales of $18.5 million in the fourth
quarter of 2017. From the launch of Adzenys XR-ODT in May 2016 through December 31, 2016, we had 30,339 equivalent unit prescriptions, generating $8.2 million in gross sales. Adzenys
XR-ODT captured a 0.3% share of the ADHD market in the fourth quarter of 2017.
The
market acceptance of these novel formulations, despite their limitations, further demonstrates the significant unmet need and opportunity for novel, patient- and caregiver-friendly
dosage forms in the treatment of ADHD. We believe that XR-ODT and XR liquid suspension would be preferred and clinically beneficial dosage forms for the treatment of ADHD patients with swallowing
aversion. In a survey commissioned by us, when asked to project their next 100 dextroamphetamine/amphetamine prescriptions, a sample of 51 pediatricians and psychiatrists said they would prescribe a
once-daily controlled-release ODT dextroamphetamine/amphetamine four times as often as they would prescribe a once-daily controlled-release liquid dextroamphetamine/amphetamine (13.3 vs. 3.4 out of
their next 100 ADHD patients receiving dextroamphetamine/amphetamine). In a study of adult patients with a CNS disorder, 61% of patients chose an ODT, in comparison with 27% who chose a
conventional
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tablet
and 12% who were indifferent. However, to our knowledge, we are the first company to date to commercialize an XR-ODT formulation of any ADHD medication. We believe there is a significant market
opportunity to provide the two most prescribed medications for ADHD, methylphenidate and amphetamine, in two patient-friendly dosage forms, ODT and liquid suspension.
Our product and product candidates address an unmet need for ADHD patients
Our proprietary modified-release drug delivery technology platform has enabled us to create XR-ODT and XR liquid suspension formulations of
methylphenidate and amphetamine. We have achieved this by combining two key drug delivery attributes in each of our products:
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An extended-release profile, which allows for once daily dosing; and
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An ODT or liquid suspension dosage form, which allows for easier administration and ingestion.
We
have developed two XR-ODT products and an XR liquid suspension product, each of which addresses an unmet need. Adzenys XR-ODT and Cotempla XR-ODT are the first XR-ODT products for the
treatment of ADHD. We believe that our XR-ODT products have unique attributes to improve compliance and could offer significant advantages over other solid oral dosage forms that can help simplify the
morning routine in households with ADHD-diagnosed children. These advantages include:
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Ease of administration and ingestion because they disintegrate rapidly in the mouth and may be taken without water;
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Taste-masking of bitter ADHD medications, with flavoring options;
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Prevention of "cheeking", the practice of hiding medication in the mouth and later spitting it out rather than swallowing it; and
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Convenient single-unit blister-packaging, which is both portable and discrete.
Adzenys
ER is a ready-to-use, XR liquid suspension that does not require reconstitution or refrigeration, and offers an attractive dosing option for younger children who prefer to ingest
liquid medicine.
We
believe that an XR-ODT, such as Adzenys XR-ODT and Cotempla XR-ODT, and an XR liquid suspension, such as Adzenys ER, may solve the swallowing issue that undermines compliance with
tablet and capsule medication regimens.
OUR CURRENTLY MARKETED PRODUCTS
Utilizing our proprietary modified-release drug delivery technology platform, we currently manufacture and market our Adzenys XR-ODT, Cotempla
XR-ODT, Adzenys ER and our generic Tussionex. We are in the early stages of discovering and developing future product candidates for which we intend to seek FDA approval in accordance with
Section 505(b)(2). The table below summarizes our pipeline of currently marketed products.
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Product
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Active Drug and Indication
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Formulation
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Status
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Adzenys XR-ODT
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Amphetamine for ADHD
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XR-ODT
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Approved and marketed
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Cotempla XR-ODT
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Methylphenidate for ADHD
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XR-ODT
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Approved and marketed
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Adzenys ER
|
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Amphetamine for ADHD
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XR Liquid Suspension
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Approved and marketed
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Generic Tussionex
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Hydrocodone and chlorpheniramine for cough and upper respiratory symptoms of a cold
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XR Liquid Suspension
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Approved and marketed
|
The
505(b)(2) regulatory approval pathway allows for a potentially streamlined and targeted clinical development program. During the development process, we communicated with the FDA on
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several
occasions and received feedback on our clinical development plans for our currently marketed products. In general, our clinical development program for our branded products comprised
single-dose clinical pharmacology studies, each designed to evaluate the bioequivalence and bioavailability of these dosage forms under different test conditions. Each product was studied in adult
volunteers and children with ADHD. In addition, a clinical efficacy and safety trial in children with ADHD was conducted for Cotempla XR-ODT, our methylphenidate XR-ODT. During each phase of the
clinical trials, safety and tolerability were systematically assessed. A summary of each program is presented below. For the purposes of our clinical trials, unless otherwise indicated, we refer to
children as individuals ages 6 to 12, adolescents as individuals ages 13 to 17, and adults as individuals 18 and older.
Adzenys XR-ODT: Amphetamine XR-ODT for the treatment of ADHD
We received approval from the FDA for Adzenys XR-ODT, our amphetamine XR-ODT, on January 27, 2016. We believe Adzenys XR-ODT is the first
amphetamine XR-ODT for the treatment of ADHD. Our NDA for Adzenys XR-ODT relies on the efficacy and safety data that formed the basis of FDA approval for the listed drug, Adderall XR, 30 mg, together
with bioequivalence, bioavailability and aggregate safety data from our Adzenys XR-ODT clinical program.
Adzenys
XR-ODT contains amphetamine loaded onto a mixture of immediate-release and polymer-coated delayed-release resin particles, which are formulated and compressed into an ODT along
with other typical tableting excipients using our patented RDIM technology. The result is amphetamine with an
in vivo
extended-release profile delivered
through a tablet that quickly disintegrates in the mouth without the need for water. We offer Adzenys XR-ODT in 30-day supply, child-resistant blister packs. We have composition-of-matter patents for
Adzenys XR-ODT that are scheduled to expire in 2026 and 2032. These patents are listed in the Orange Book, which we believe will provide additional protection for Adzenys XR-ODT. In addition, we
entered into a Settlement Agreement and a Licensing Agreement (collectively, the "Agreement") with Actavis Laboratories FL, Inc. ("Actavis") which resolves all ongoing litigation involving our
Adzenys XR-ODT patents and Actavis's Abbreviated New Drug Application ("ANDA") with the FDA for a generic version of Adzenys XR-ODT. Under the Agreement, we granted Actavis the right to manufacture
and market its generic version of Adzenys XR-ODT under the ANDA beginning on September 1, 2025, or earlier under certain circumstances.
Adzenys XR-ODT commercialization
We launched the commercialization of Adzenys XR-ODT on May 16, 2016 and are commercializing this product in the United States with our
own infrastructure. We are using a dedicated contract specialty sales force in approximately 125 territories targeting approximately 12,500 physicians who prescribe approximately 40% of all ADHD
prescriptions. Through December 2017, we had 218,024 total prescriptions, including 187,685 prescriptions in 2017. The number of prescribers of Adzenys XR-ODT continues to grow, and as of
December 31, 2017, 10,870 health care providers had written prescriptions for the product.
Adzenys XR-ODT clinical program
The clinical program for Adzenys XR-ODT consisted of five Phase 1 single-dose human pharmacokinetic studies under fasted and/or fed
conditions. Four of the five single-dose clinical studies were submitted to the FDA with the original NDA in December 2012. The fifth study was conducted using commercial-scale material, and was
included in our resubmission to the FDA. The four original studies were a Phase 1 bioequivalence study versus Adderall XR, 30 mg, in healthy adult volunteers under fasted conditions; a
Phase 1 bioavailability study in healthy adult volunteers under both fed and fasted conditions; a Phase 1 study to determine the impact of alcohol on the bioavailability of Adzenys
XR-ODT; and a bioavailability study in children with ADHD under fasted conditions.
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The
data from the pilot-scale bioequivalence study versus Adderall XR, 30 mg, is shown in Figure 1 and shows that Adzenys XR-ODT is bioequivalent to the listed drug, Adderall XR,
30 mg, under fasted conditions.
Figure 1: Bioequivalence Study of Adzenys XR-ODT versus Adderall XR, 30 mg,
in Healthy Adult Volunteers under Fasted Conditions
Other
key observations from our original clinical program for Adzenys XR-ODT included:
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No alcohol dose-dumping:
The extended-release properties of Adzenys XR-ODT
were maintained in the presence of varying concentrations of alcohol, indicating that Adzenys XR-ODT is a "rugged" formulation that does not cause premature and intentional release of the drug
product, or dose-dump, in the presence of alcohol.
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Similar exposure rate:
Consistent with the listed drug, there was a higher
mean amphetamine exposure in children, which decreased with increasing age.
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Safety and Tolerability:
There were no unexpected adverse events, serious
adverse events, deaths or other safety signals. The aggregate data suggested that Adzenys XR-ODT has a similar safety profile to that of the listed drug and is well-tolerated.
Following
the receipt of a Complete Response Letter, we received feedback from the FDA on the design of an additional bioequivalence and bioavailability study of Adzenys XR-ODT produced
at commercial scale to support the NDA resubmission. This study was designed to compare the pharmacokinetic profile of the commercial-scale product to the listed drug in adult volunteers under fasted
conditions; compare the pilot-scale manufacturing batches to the commercial-scale batches; and evaluate the oral bioavailability of Adzenys XR-ODT under fed and fasted conditions in adult volunteers.
The
bioequivalence data for the commercial-scale product demonstrated that Adzenys XR-ODT has a similar pharmacokinetic profile to the listed drug under fasted conditions, meeting
bioequivalence criteria for key exposure parameters (AUC
5[ib]-t,
C
max
, AUC
last
, and AUC
inf
). The lower 90% confidence interval for early exposure
(AUC
0[ib]-5
) of Adzenys XR-ODT produced at commercial scale fell just below the 80% lower criterion when compared to the listed drug. However, the concentration-time profiles for Adzenys
XR-ODT produced at commercial scale and pilot scale are virtually identical, as shown in Figure 2, indicating that scale-up of the Adzenys XR-ODT process did not affect the rate and extent of
absorption of amphetamine.
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Figure 2: Comparison of Adzenys XR-ODT Pilot Scale versus Adzenys XR-ODT Commercial Scale
Our
settlement agreement with Shire Pharmaceuticals ("Shire"), the producer of Adderall XR, precluded the possibility of a 30-month stay of approval under the Drug Price Competition and
Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Amendments.
We
have committed to the FDA to conduct the following three trials as a post-marketing requirement after approval of the Adzenys XR-ODT NDA: 1) a single-dose, open-label,
randomized pharmacokinetic study of Adzenys XR-ODT (amphetamine extended-release orally disintegrating tablets), in male and female children (4 to less than 6 years of age) with ADHD;
2) a randomized, double-blind, placebo-controlled, flexible-dose titration study of Adzenys XR-ODT (amphetamine extended-release orally disintegrating tablets), in children ages 4 to
5 years diagnosed with ADHD; and 3) a one year Pediatric Open-Label Safety Study of patients age 4 to 5 years (at the time of entry into the second study, or at the time of
enrollment if directly enrolled into this study) diagnosed with ADHD treated with Adzenys XR-ODT (amphetamine extended-release orally disintegrating tablets). We met with FDA officials in January 2017
to further clarify the design of the protocols required to conduct these studies. We commenced the program beginning with the pharmacokinetics trial in 2017.
Cotempla XR-ODT: Methylphenidate XR-ODT for the treatment of ADHD
We received approval from the FDA for Cotempla XR-ODT, our methylphenidate XR-ODT for the treatment of ADHD in patients 6 to 17 years
old, on June 19, 2017. We believe Cotempla XR-ODT is the first methylphenidate XR-ODT for the treatment of ADHD, providing onset-of-effect within one hour and a 12-hour duration. Our Cotempla
XR-ODT NDA relies on the efficacy and safety data that formed the basis of FDA approval for the listed drug, Metadate CD®, together with bioavailability/bioequivalence data and
efficacy/safety data from our Cotempla XR-ODT clinical program.
Cotempla
XR-ODT contains methylphenidate loaded onto a mixture of immediate-release and polymer-coated delayed-release resin particles, which are formulated and compressed into an ODT
along with other typical tableting excipients using our patented rapidly disintegrating ionic masking, or RDIM, technology. The result is methylphenidate with an
in
vivo
extended-release profile delivered through a tablet that quickly disintegrates in the mouth. We offer Cotempla XR-ODT in 30-day supply, child-resistant blister packs. We
have composition-of-matter patents in the U.S. which we expect will
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provide
Cotempla XR-ODT intellectual property protection until 2032. These patents are listed in the Orange Book, which we believe will provide additional market protection for Cotempla XR-ODT. In
addition, Cotempla XR-ODT has an FDA marketing exclusivity period of three years which bars approval of an ANDA.
Cotempla XR-ODT commercialization
We initiated an early experience program with limited product availability for Cotempla XR-ODT on September 5, 2017 before launching this
product nationwide on October 2, 2017 and are commercializing this product in the United States with our own infrastructure. We are using the same dedicated contract specialty sales force that
we are using for our commercialization of Adzenys XR-ODT, and have sales professionals in approximately 125 territories targeting approximately 12,500 physicians who prescribe approximately 40% of all
ADHD prescriptions. Through December 2017, we had 12,721 total prescriptions. The number of prescribers of Cotempla XR-ODT continues to grow, and as of December 31, 2017, 1,949 health care
providers had written prescriptions for the product.
Cotempla XR-ODT Clinical Program
The clinical program for Cotempla XR-ODT consists of four Phase 1 clinical pharmacology studies and a Phase 3 clinical efficacy
and safety trial. Three of the clinical pharmacology studies were previously completed. They were single-dose pharmacokinetic studies conducted under fasted and/or fed conditions: a Phase 1
bioequivalence study versus Metadate CD in healthy adult volunteers under fasted conditions; a Phase 1 bioavailability study in healthy adult volunteers under both fed and fasted conditions;
and a Phase 1 bioavailability study in children and adolescents with ADHD under fasted conditions. A fourth clinical pharmacology study, which was designed to be a Phase 1 bioequivalence
study, demonstrated equivalence between our clinical trial formulation and our to-be-marketed formulation in healthy adult volunteers under fed and fasted conditions and was completed in July 2016. On
July 28, 2016, we announced that we had completed the bridging study demonstrating that the Cotempla XR-ODT to-be-marketed drug product met all of the primary and secondary endpoints for
establishing bioequivalence under fasted conditions. The NDA includes results from our Phase 3 clinical efficacy and safety study that showed a statistically significant improvement in ADHD
symptom control compared to placebo across the classroom day. Onset of effect was observed within one hour post-dose and persisted through 12 hours. No serious adverse events were reported
during the study and the adverse event profile was consistent with the drug's mechanism of action. In addition, data from a pharmacokinetic study in children with ADHD was submitted.
The
data from our bioequivalence study versus Metadate CD is presented in Figure 3, and shows that Cotempla XR-ODT has a similar plasma concentration-time profile to the listed
product, Metadate CD, with a peak exposure that is about 25% higher. The potential efficacy benefits of this increased
maximum exposure, as well as any impact on safety parameters, were evaluated in a clinical efficacy and safety trial.
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Figure 3: Bioequivalence Study of Cotempla XR-ODT versus Metadate CD, 60 mg, in Healthy Adult
Volunteers under Fasted Conditions
Other
key observations from the Cotempla XR-ODT clinical pharmacology program included:
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No formulation-related food effect:
The pharmacokinetic profile of Cotempla
XR-ODT was similar under fed and fasted conditions.
-
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Similar exposure rate:
There was higher mean methylphenidate exposure in
children, which decreased with increasing age.
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Safety and tolerability:
There were no unexpected adverse events, serious
adverse events, deaths or other safety signals. The aggregate data suggested that Cotempla XR-ODT has a similar safety profile to that of the listed drug and is well-tolerated.
Cotempla XR-ODT Phase 3 classroom efficacy and safety trial
The efficacy, safety and tolerability of Cotempla XR-ODT were evaluated in a multicenter, double-blind, placebo-controlled laboratory classroom
trial in 87 children with ADHD. The laboratory classroom was a controlled study environment designed to model the community school classroom setting while allowing detailed assessments of behavior
over time by trained observers. The primary efficacy variable was the Swanson, Kotkin, Agler, M-Flynn and Pelham, or SKAMP, Combined Score, a validated rating of attention and behavior, averaged over
the test day, with higher scores indicating a higher degree of functional impairment. Time to onset and duration of effect were also evaluated as key secondary endpoints. Additional secondary efficacy
endpoints included the Permanent Product Measure of Performance, or PERMP, a ten-minute, level-adjusted math test that measures the child's ability to focus on written schoolwork by determining the
number of problems attempted and the number answered correctly.
Cotempla
XR-ODT met the primary and key secondary efficacy endpoints, showing statistically significant improvement versus placebo on the SKAMP (p<0.0001). Statistical
significance expresses the probability that the results of a particular study could have occurred purely by chance. Results are said to be statistically significant when the p-value obtained is less
than the pre-established significance level,
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which
in this case was p<0.05 for the primary efficacy endpoint. The SKAMP-Combined score averaged over the classroom testing day was 25.3 for the placebo group and 14.3 in the Cotempla
XR-ODT group indicating greater symptom severity in the placebo group. The least squares mean difference was 11.04. Figure 4 shows SKAMP-Combined Scores for Cotempla XR-ODT
versus placebo over the classroom day from our Phase 3 efficacy trial. Time to onset was observed within one hour, with a 12-hour duration of effect.
Figure 4: Change from Baseline in Mean SKAMP Score During the Test Day
Statistically
significant improvement versus placebo was also observed on both attempted and correct PERMP scales (p<0.0001). Figure 5 shows PERMP scores for
Cotempla XR-ODT versus placebo from our Phase 3 classroom efficacy trial. Taken together, the data demonstrate clinically meaningful differences on both the rater-evaluated assessment of
attentiveness and behavior and the objective measure of sustained attention.
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Figure 5: Mean Profiles for PERMP Measurements During the Test Day
All
of the other secondary endpoints were also statistically significant, indicating a robust effect of the drug, as well as internal consistency in the study results. There was no
impact on safety parameters as Cotempla XR-ODT was well-tolerated with no unexpected adverse events, serious adverse events, deaths or other safety signals.
Bridging Study: Bioequivalence Between Clinical Trial Formulation and Commercial Formulation
The objective of this study was to compare the rate of absorption and oral bioavailability of the previously studied clinical trial formulation
of Cotempla XR-ODT 60 mg (2 × 30 mg) under fasted conditions to the commercial scale formulation of Cotempla XR-ODT 60 mg (2 × 30 mg) under fasted conditions. Additionally, the
rate of absorption and oral bioavailability of the commercial scale formulation of Cotempla XR-ODT 60 mg (2 × 30 mg) under fed and fasted conditions was compared.
The
results from the bioequivalence study bridging the clinical trial lot used in the Cotempla XR-ODT clinical trial program and the commercial lot are presented in Figure 6
below. Key findings from this study are:
-
-
The clinical trial formulation of Cotempla XR-ODT is bioequivalent to the commercial formulation of Cotempla XR-ODT under fasted conditions.
-
-
Peak exposure is decreased slightly (approximately 23%) in the presence of a high-fat meal; however, overall systemic.
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Fig. 6 Bioequivalence Study of Cotempla XR-ODT Clinical vs. Commercial Scale Lot in
Healthy Adult Volunteers
Analyte=DMETH+LMETH
Treatment A = Cotempla XR-ODT Commercial Scale Lot (Fed); Treatment B = Cotempla XR-ODT Commercial Scale Lot (Fasted); Treatment C = Cotempla XR-ODT
Clinical Scale Lot (Fasted)
Our
505(b)(2) application for Cotempla XR-ODT referenced the FDA's previous findings of safety and effectiveness for Metadate CD. The NDA submission included a Paragraph IV
certification notification to UCB, Inc., or UCB, the NDA holder of Metadate CD, in accordance with the Hatch-Waxman Amendments. UCB has acknowledged that they will not initiate a suit against
us, and the 45-day period following Paragraph IV notification has since passed which precluded the possibility of a 30-month stay of approval under the Hatch-Waxman Amendments.
We
have committed to the FDA to conduct the following three trials as a post-marketing requirement after approval of the Cotempla XR-ODT NDA: 1) a single-dose, open-label,
randomized pharmacokinetic study of Cotempla XR-ODT (methylphenidate extended-release orally disintegrating tablets), in male and female children (4 to less than 6 years of age) with ADHD;
2) a randomized, double-blind, placebo-controlled, flexible-dose titration study of Cotempla XR-ODT (methylphenidate extended-release orally disintegrating tablets), in children ages 4 to
5 years diagnosed with ADHD; and 3) a 6-month Pediatric Open-Label Safety Study of patients age 4 to 5 years (at the time of entry into the second study, or at the time of
enrollment if directly enrolled into this study) diagnosed with ADHD treated with Cotempla XR-ODT (methylphenidate extended-release orally disintegrating tablets). We expect to commence with the
pharmacokinetics trial in 2018.
Adzenys ER: Amphetamine XR liquid suspension for the treatment of ADHD
We received approval from the FDA for Adzenys ER, our amphetamine extended-release liquid suspension, on September 15, 2017. There are no
post-marketing requirements for this product.
In
addition to the clinical trial program outlined below, we conducted two additional bioequivalence studies for Adzenys ER, in support of the NDA: a bridging study of our clinical trial
material and our to-be-marketed drug material, which examined the effect of a high-fat meal on the commercial formulation, and a bioequivalence study of the commercial formulation versus Adderall XR
30 mg.
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Adzenys
ER contains amphetamine loaded onto a mixture of immediate-release and polymer coated delayed-release resin particles, and using our patented dynamic time release suspension, or
DTRS, technology, we are able to create an amphetamine XR liquid suspension. Adzenys ER is designed to be shelf stable for 24 months, without requiring refrigeration or reconstitution. We have
composition-of-matter patents for Adzenys ER that are scheduled to expire in 2032. These patents are listed in the Orange Book, which we believe will provide additional market protection for Adzenys
ER.
Adzenys ER commercialization
We launched the commercialization of Adzenys ER on February 26, 2018 and are commercializing this product in the United States with our
own infrastructure. We are using the same dedicated contract specialty sales force that we are using for our commercialization of Adzenys XR-ODT and Cotempla XR-ODT, and have sales professionals in
approximately 125 territories targeting approximately 12,500 physicians who prescribe approximately 40% of all ADHD prescriptions.
Adzenys ER clinical program
The bioavailability/bioequivalence of Adzenys ER has been characterized in five Phase 1 clinical studies: a Phase 1 study
investigating the bioavailability and bioequivalence of three test formulations of Adzenys ER in healthy adults; a Phase 1 study comparing the pharmacokinetic, or PK, profile of the commercial
scale formulation of Adzenys ER to Adderall XR 30 mg capsules; a Phase 1 food effect study of Adzenys ER in healthy adults; a Phase 1 study comparing the commercial scale and clinical
trial formulations of Adzenys ER under fasted conditions, as well as the effect of food on the PK profile of the commercial scale formulation of Adzenys ER; and a Phase 1 PK study of
Adzenys ER in children with ADHD.
The
data from our most recent bioequivalence study versus Adderall XR is shown in Figure 7 and shows that the commercial scale formulation of Adzenys ER is bioequivalent to the
listed drug, Adderall XR, 30 mg, under fasted conditions.
Figure 7: Mean
d
-amphetamine Concentration-Time Profiles after Administration of AMP XR OS (Treatment A) and Adderall XR 30 mg (Treatment B)
Analyte=DAMPH
Treatment A = Adzenys ER (30 mg/15 mL); Treatment B = Adderall XR 30 mg capsule
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Other
key observations from our clinical program for Adzenys ER included:
-
-
No significant food effects:
When administered under fasted and fed
conditions, no significant food effects were observed for Adzenys ER, and the observed food effects of Adzenys ER were less than those for the listed drug.
-
-
Similar exposure rate:
Consistent with the listed drug, there was a higher
mean amphetamine exposure in children, which decreased with increasing age.
-
-
Safety and Tolerability:
There were no unexpected adverse events, serious
adverse events, deaths or other safety signals. The aggregate data suggested that Adzenys ER has a similar safety profile to that of the listed drug and is well-tolerated.
We
included a Paragraph IV certification in the NDA submission, which required a Paragraph IV certification notification to the producer of Adderall XR, Shire
Pharmaceuticals, in accordance with the Hatch-Waxman Amendments. On March 6, 2017, we entered into a license agreement with Shire, pursuant to which Shire granted us a non-exclusive license to
certain patents owned by Shire for certain activities with respect to Adzenys ER. Under the terms of the agreement, we paid a lump sum, non-refundable license fee of an amount less than
$1.0 million due no later than thirty days after receiving regulatory approval by the FDA of our NDA for Adzenys ER. We will also pay a single digit royalty on net sales of the Adzenys ER
during the life of the relevant Shire patents. Additionally, the
license agreement contains a covenant from Shire not to file a patent infringement suit against us alleging that Adzenys ER infringes the Shire patents.
Generic Tussionex
We manufacture and market a generic equivalent to the branded product Tussionex. Our generic Tussionex is a hydrocodone polistirex and
chlorpheniramine polistirex XR liquid suspension that is a Schedule II narcotic, antitussive and antihistamine combination. This product is indicated for the relief of cough and upper
respiratory symptoms associated with allergies or colds in adults and children six years of age and older.
Since
its launch in September 2013, we have manufactured and utilized our DTRS technology in the production of our generic Tussionex at our facilities in Grand Prairie, Texas. In August
2014, we acquired all commercialization and profit rights to this formulation of the generic Tussionex product from Cornerstone BioPharma, Inc. and Coating Place, Inc. We have an
exclusive supply agreement (the "Supply Agreement"), with Coating Place, Inc., or CPI, which expires in August 2021, pursuant to which CPI (i) is the exclusive supplier of the active
ingredient complexes in our generic Tussionex and (ii) has agreed to not supply anyone else engaged in the production of generic Tussionex with such active ingredient complexes. Under the terms
of the Supply Agreement, we must deliver a 24-month rolling forecast, or Forecast, of our expected product requirements to CPI on a quarterly basis; however, only the first calendar quarter commencing
on or after the 90
th
day after the delivery of a Forecast constitutes a binding purchase commitment with respect to the products listed in such Forecast. In October 2014, we
re-launched the product under our own label. We sell our product to drug wholesalers in the United States. We have also established indirect contracts with drug, food and mass retailers that order and
receive our product through wholesalers. We have obtained required state licenses, set up distribution channels and established trade relations in order to commercialize our generic Tussionex.
Commercialization
We are commercializing Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, in the United States using our existing commercial infrastructure. We
sell our Adzenys XR-ODT, Cotempla XR-ODT
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and
Adzenys ER products to drug wholesalers in the United States, and we have obtained required state licenses and set up distribution channels.
In
the United States, approximately 12,500 physicians prescribe approximately 40% of all ADHD prescriptions. We are using a specialty sales force of approximately 125 sales
representatives primarily targeting the highest-volume prescribers of ADHD medication. The sales force is divided into 13 regions, each managed by a regional sales manager. Furthermore, since our
target physicians tend to prescribe both methylphenidate and amphetamine, we leverage our sales force by promoting all three of our ADHD products to the same audience.
Our
commercialization efforts are focused on delivering the right message for each of our three ADHD products. Data indicates that ADHD-indicated extended-release methylphenidate and
extended-release amphetamine products are widely prescribed. Based on this, our messaging can focus on anticipated benefits of our XR-ODT and ER liquid suspension dosage forms. We use multi-channel
tactics to reach physicians, payers, patients and patient caregivers with the right frequency to drive behavior. In addition to personal promotion, we intend to reach physicians through medical
education, direct marketing, journal advertising and electronic health record communication.
Advocacy
groups, patients and caregivers are extremely active and vocal in the ADHD space. The period from initial diagnosis to symptom control is difficult, and caregivers actively seek
and pass on useful information. Our direct-to-patient and direct-to-consumer plan is designed to provide useful educational materials and tools to help caregivers and patients successfully manage ADHD
treatment.
We
launched Adzenys XR-ODT, our amphetamine XR-ODT, on May 16, 2016. We initiated an early experience program with limited product availability for Cotempla XR-ODT, our
methylphenidate XR-ODT, on September 5, 2017 before launching this product nationwide on October 2, 2017. We launched Adzenys ER, our amphetamine extended-release liquid suspension, on
February 26, 2018.
Our proprietary technology platform
We believe that we can apply the XR-ODT and XR liquid suspension technologies that underlie Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and
generic Tussionex to other active pharmaceutical ingredients, or APIs. This would allow us to offer more patient- and caregiver-friendly dosage forms, potentially improving compliance rates due to
difficulty swallowing and
providing other clinical advantages. We have the ability to produce drug-loaded micro-particles with complex release profiles, which allows us to develop ODT or liquid suspension formulations that
mimic or improve existing therapies not otherwise available in XR-ODT or XR liquid suspension form.
Our
proprietary modified-release drug delivery technology platform, as illustrated below in Figure 8, allows us to produce drug-loaded micro-particles through an ion exchange
process that creates new salt forms of existing drug compounds that have been proven safe and effective. By applying a uniform modified-release coating to these drug-loaded micro-particles and
avoiding agglomeration, or clumping, we are able to create particle structures that can withstand compression and osmotic forces without rupturing, sloughing or leaking. This allows us to compress the
modified-release micro-particles into ODT or suspend them in a liquid formulation without destroying their integrity or causing dose-dumping. By applying different types of coatings, we can modify the
drug release characteristics of a micro-particle. Additionally, by mixing combinations of these micro-particles, each of which has its own release profile, we are able to produce complex drug release
profiles. These micro-particles are further blended with excipients to form a final drug product, which we incorporate into a patient-friendly dosage form such as an ODT or liquid suspension.
We are also able to utilize this technology to achieve tamper-resistant formulations and taste-masking.
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Figure 8: Our Proprietary Modified-Release Drug Delivery Technology Platform
We
believe our technology platform is able to deliver a proprietary portfolio of commercially available drugs in highly desirable dosage forms.
Our XR-ODT Technology: Rapidly Disintegrating Ionic Masking
Our Rapidly Disintegrating Ionic Masking ("RDIM") technology utilizes an orally disintegrating, modified-release, taste-masked pharmaceutical
composition that can withstand compression forces associated with standard tableting technology, allowing for a drug to be incorporated into the ODT dosage form using ion resin technology. This
technology not only provides extended-release and controlled-release properties, it masks the unpleasant taste of the active drug. Flavor and coloring can also be added to the compression blend to
further enhance the pharmaceutical elegance of the finished XR-ODT. The finished product is then packaged in blister packs making them extremely portable, child resistant and stable for
24 months. Our RDIM technology is protected by a U.S. patent that is scheduled to expire in 2026.
ODT
are one of the most preferred solid oral dosage forms in the market. We believe Adzenys XR-ODT and Cotempla XR-ODT, using our patented XR-ODT technology, are the first amphetamine
XR-ODT and the first methylphenidate XR-ODT, respectively, for the treatment of ADHD on the market.
Our XR Liquid Suspension Technology: Dynamic Time Release Suspension
Our Dynamic Time Release Suspension ("DTRS") technology encompasses a set of process technologies and know-how to manufacture and test
modified-release liquid suspension products that are shelf-stable. By matching the specific gravity, osmotic and ionic characteristics of the drug resin particle to that of the suspension, we are able
to obtain shelf-stable liquids with a 24-month shelf life that do not require reconstitution or refrigeration.
XR
liquid suspension provides a patient-friendly dosage form for patients who find swallowing an intact tablet or capsule to be difficult, or for whom more precise dose-titration may be
preferred or required. Our DTRS technology not only provides for an extended-release, ready-to-use Liquid Suspension but also provides excellent taste-masking of the drug itself. Our DTRS technology
is protected by a series of patents and patent applications.
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Our Tamper Resistant Technology: Kinetically Controlled Tamper Protection
Ion resin drug products inherently deter some forms of abuse, such as inhalation, smoking and injection; however, the most common form of abuse
for many drugs is to induce dose-dumping by crushing, chewing or extraction. Our Kinetically Controlled Tamper Protection ("KCTP") technology is designed to prevent abuse by altering the kinetics of
the drug product and can be used in conjunction with both our XR-ODT and XR liquid suspension dosage forms. KCTP is designed to discourage common methods of tampering associated with certain classes
of medications which can be abused and misused. KCTP utilizes an additional ion resin particle with an aversive agent bound to it. The aversive resin complex is then coated so that it passes through
the body without material release. If an attempt is made to tamper with the XR-ODT or XR liquid suspension to cause dose-dumping, the aversive agent will also be released and block or disrupt the
properties of the active drug product.
We
believe that our KCTP technology may be especially useful for opioid-based pain products or other DEA scheduled drug products for which abuse and dose dumping are known problems. Our
KCTP technology is the subject of a patent application and, if granted, this patent will provide protection until 2032.
Our product pipeline potential
Beyond our initial focus on ADHD, our strategy is to apply our proprietary drug delivery technology platform for the development of additional
drug candidates where patients may benefit from either XR-ODT or XR liquid suspension dosage forms of existing extended-release medications. Difficulty and inability to swallow tablets and capsules
are not limited to ADHD medications. Patients with CNS conditions, such as stroke, Parkinson's disease and Alzheimer's, and gastrointestinal conditions, such as nausea and vomiting, often have
difficulty swallowing their medication and would benefit from ODT and liquid suspension dosage forms.
In
addition, our technology can be applied to existing drugs that are currently not optimized for their kinetic delivery. We believe that our technology is capable of overcoming some of
the common issues in oral drug delivery, such as high peak to trough ratios, blood level spikes that induce unwanted side effects, wide variations in fed-fasted effect, suboptimal onset of action,
suboptimal duration of effect, dose-dumping and single point failures of the delivery system, while providing an oral dosage form that is preferred by patients, caregivers and physicians.
We
have an active development pipeline that includes product candidates in complementary therapeutic areas such as psychiatry and neurology, along with additional novel treatment options
for ADHD. We have completed feasibility studies on several of these potential product candidates thus far. We believe several of these potential product candidates will be synergistic to our existing
commercial infrastructure and the others would allow us to expand into adjacent therapeutic categories. After completing feasibility work on several potential product candidates by mid-2018, we plan
to select two to three candidates for further clinical development.
Our
screening criteria for future potential product candidates to initially assess technical feasibility include whether the target drug compound can be ionized and bound to a resin
micro-particle. We are assessing drug loading efficiency and coating polymers and conducting initial coating work to determine whether the desired release profile can be achieved for a particular drug
resin micro-particle.
We
are also assessing regulatory criteria to minimize regulatory approval risk. We intend to continue to use the 505(b)(2) regulatory approval pathway in an effort to mitigate approval
risk, and also simplify the clinical development program. We intend to address clinical study design, study endpoints and labeling advantages early in the development process so that we can tailor a
given clinical program that
produces a product candidate with attributes that allow for the optimal strategic positioning, if approved.
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Finally,
we are evaluating criteria when systematically choosing a potential product candidate for our pipeline. We have looked for product candidates that we believe have a market
potential in excess of $50.0 million, a concentrated specialty physician prescribing base, in the case of complementary candidates, and a patent landscape that can be navigated and protected
through the lifespan of our potential product candidate.
We
have designed our development process to be targeted and relatively efficient. If we are able to effectively execute our development process, we may be able to initiate clinical
trials in approximately 18 months, and submit our NDA in as few as 36 months, after identifying a potential product candidate. We believe we have identified several potential product
candidates that fit our screening criteria and that are attractive candidates for our branded product portfolio.
OUR MANUFACTURING CAPABILITIES
Overview
We lease one manufacturing site in Grand Prairie, Texas that handles the development, production, quality control testing and packaging of our
products. This facility has 77,112 square feet of manufacturing and laboratory space, and contains dedicated cGMP manufacturing suites for both XR-ODT and XR liquid suspension. We hold DEA
manufacturing and analytical licenses, and maintain storage and use of Schedule II through IV controlled substances. The manufacture of our products is subject to extensive cGMP regulations,
which impose various procedural and documentation requirements and govern all areas of record keeping, production processes and controls, personnel and quality control. We have operated and maintained
these facilities dating back to when we operated as a contract manufacturer by our predecessor corporation, PharmaFab, Inc., or PharmaFab.
In
April 2007, the FDA announced entry of a Consent Decree of Permanent Injunction, or the Consent Decree, against PharmaFab, one of its subsidiaries and two of its officials, including
Mark Tengler, our former Chief Technology Officer, who was, at the time, PharmaFab's president and Russ McMahen, our Senior Vice President of Scientific Affairs, who held a similar position at the
time with PharmaFab, or jointly, the Defendants. The Consent Decree arose out of several perceived cGMP deficiencies related to the manufacture of unapproved drugs or Drug Efficacy Study
Implementation, or DESI, drugs that we no longer manufacture. Pursuant to the Consent Decree, the Defendants were permanently restrained and enjoined from directly or indirectly manufacturing,
processing, packing, labeling, holding or distributing any prescription drugs that are not the subject of an NDA or an abbreviated NDA. Among other things, the Consent Decree also granted the FDA the
ability to, without prior notice, inspect PharmaFab's place of business and take any other measures necessary to monitor and ensure continuing compliance with the terms of the Consent Decree. The FDA
has inspected the Grand Prairie facility several times since the Consent Decree was entered, and we have been able to manufacture and ship our generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT,
Adzenys ER for commercial distribution and drug products for our clinical trials. We have also concluded the required annual audit program as prescribed by the Consent Decree. For our most recent
annual audit by a cGMP expert in November 2014, the cGMP expert concluded our corrective actions satisfactorily addressed the observations noted by the cGMP expert in its audit report. However, on
May 22, 2015, the FDA's Dallas District Office identified three ongoing cGMP deviations based on our response to the audit report related to batch failure investigations, quality control unit
procedures, and in-process specifications. We implemented corrective actions and submitted additional information in our response to the FDA pursuant to the Consent Decree and the FDA closed the
matter. To date, the consent decree has had no material impact on our current business operations or our ability to pursue approval of our product candidates.
We
are currently producing Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our generic Tussionex for commercial distribution. We believe that our current facilities have the
manufacturing
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capacity
for commercial production of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and generic Tussionex in quantities sufficient to meet what we believe will be our commercial needs, and to
accommodate the manufacturing of materials for future clinical trials of other potential product candidates that we may identify for our product pipeline. We believe that maintaining our internal
manufacturing capabilities enables us to obtain our products at-cost without manufacturer's margins and to better control supply quality and timing.
Drug substances
We currently purchase the APIs used in Adzenys XR-ODT and Adzenys ER (amphetamine), and Cotempla XR-ODT (methylphenidate), anionic resins,
excipients and other materials from third-party providers, on a purchase order basis from manufacturers based outside and within the United States. We have entered into commercial supply agreements,
with several of these manufacturers, and anticipate entering into commercial supply agreements with additional manufacturers at a later date.
Both
amphetamine and methylphenidate are classified as controlled substances under U.S. federal law. Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER are classified by the DEA as
Schedule II controlled substances, meaning that these drug products have a high potential for abuse and dependence among drugs that are recognized as having an accepted medical use.
Consequently, the procurement, manufacturing, shipping, dispensing and storing of our products and product candidates will be subject to a high degree of regulation, as described in more detail under
the caption "Governmental RegulationDEA Regulation" included elsewhere in this Annual Report on Form 10-K.
INTELLECTUAL PROPERTY
Proprietary protection
Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, manufacturing and
process discoveries and other know-how, to operate without infringing the proprietary rights of others, and to prevent others from infringing on our proprietary rights. We have been building and
continue to build our intellectual property portfolio relating to our ADHD products, our generic Tussionex and our technology platform. Our policy is to seek to protect our proprietary position by,
among other methods, filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of
our business. We also intend to rely on trade secrets, know-how, continuing technological innovation, and potential in-licensing opportunities to develop and maintain our proprietary position. We
cannot be sure that patents will be granted with
respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be
granted to us in the future will be commercially useful in protecting our technology.
Patent rights
Our intellectual property portfolio consists of 13 patents and 8 patent applications in the United States, including 1 provisional application,
and 4 patents and 2 patent applications in foreign countries and regions, and 1 international (PCT) patent application. Our intellectual property strategy emphasizes specific drug products, product
groups, and technology platforms. Our patents and patent applications covering specific drug products include claims to the drug products and to methods of using those products. Our patents and patent
applications covering technology platforms include claims to methods of making products as well as claims to the products made by those methods. Certain of these patents and patent applications cover
more than one product.
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Our
XR-ODT product Adzenys XR-ODT patent portfolio includes five granted U.S. patents and three pending U.S. non-provisional applications. The issued patents contain pharmaceutical
composition-of-matter claims covering controlled-release direct compression ODT with drug-resin particles and, among other things, composition of matter for Adzenys XR-ODT. The composition-of-matter
patents are scheduled to expire in 2026 and 2032.
Our
XR-ODT product Cotempla XR-ODT patent portfolio includes three granted U.S. patents, including pharmaceutical composition-of-matter claims covering controlled-release direct
compression ODT with drug-resin particles and, among other things, composition of matter for Cotempla XR-ODT. These patents are scheduled to expire in 2026 and 2032, respectively. This portfolio also
includes four other pending U.S. non-provisional applications and one international (PCT) patent application.
Our
XR liquid suspension product Adzenys ER patent portfolio contains nine granted U.S. patents and three other pending U.S. non-provisional applications. These patents contain claims
directed to, among other things, compositions of matter, as well as methods of preparing liquid controlled-release formulations and for predicting bioequivalence for liquid suspension. The
longest-term composition-of-matter patent is scheduled to expire in 2032, and the method patents are scheduled to expire in 2025, 2029 and 2031, respectively.
Our
generic Tussionex is covered by six of our granted U.S. patents which include claims directed to, among other things, a composition-of-matter, as well as methods-of-making, and for
predicting bioequivalence for liquid suspension. Our generic Tussionex is also covered by one other pending non-provisional applications. The composition-of-matter patent is scheduled to expire in
2031. We expect protection under certain other granted patents and/or a patent granted on the pending application to also extend until 2031.
Both
applicable platform patents and relevant specific drug patents for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER are listed in the Orange Book. We own all of the above patents and
pending applications.
On
July 25, 2016, we received a Paragraph IV certification from Actavis advising us that Actavis has filed an ANDA with the FDA for a generic version of Adzenys XR-ODT. The
certification notice alleges that the four U.S. patents listed in the FDA's Orange Book for Adzenys XR-ODT, one with an expiration date in April 2026 and three with expiration dates in June 2032, will
not be infringed by Actavis's proposed product, are invalid and/or are unenforceable. On September 1, 2016, we filed a patent infringement lawsuit in federal district court in the District of
Delaware against Actavis that automatically stayed, or barred, the FDA from approving Actavis's ANDA for 30 months or until a district court decision that is adverse to the asserted patents is
rendered, whichever is earlier. On October 17, 2017, we entered into the Agreement with Actavis, which resolves all ongoing litigation involving our Adzenys XR-ODT patents and Actavis's ANDA.
Under the Agreement, we have granted Actavis the right to manufacture and market its generic version of Adzenys XR-ODT under the ANDA beginning on September 1, 2025, or earlier under certain
circumstances. A stipulation and order of dismissal was entered by the U.S. District Court for the District of Delaware. The Agreement has been submitted to the applicable governmental agencies.
On
October 31, 2017, we received a paragraph IV certification from Teva Pharmaceuticals USA, Inc. ("Teva") advising us that Teva has filed an ANDA with the FDA for a
generic version of Cotempla XR-ODT, in connection with seeking to market its product prior to the expiration of patents covering Cotempla XR-ODT. On December 13, 2017, we filed a patent
infringement lawsuit in federal district court in the District of Delaware against Teva. This case alleged that Teva infringed our Cotempla XR-ODT patents by submitting to the FDA an ANDA seeking to
market a generic version of Cotempla XR-ODT prior to the expiration of our patents. This lawsuit automatically stayed, or barred, the FDA from approving Teva's ANDA for 30 months or until a
district court decision that is adverse to the asserted patents is rendered, whichever is earlier.
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Adzenys
XR-ODT and Cotempla XR-ODT are not currently protected by patents outside of the United States and our generic Tussionex and Adzenys ER are currently protected by method patents
only in the United States, Australia, Canada and Mexico. As such, competitors may be free to sell products that incorporate the same or similar technologies that are used in our products in countries
in which the relevant product does not have patent protection.
Patent
life determination depends on the date of filing of the application and other factors as promulgated under the patent laws. In most countries, including the United States, the
patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country.
Trade secret and other protection
In addition to patented intellectual property, we also rely on trade secrets and proprietary know-how to protect our technology and maintain our
competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. Our policy is to require each of our employees, consultants and advisors to execute a
confidentiality and inventions assignment agreement before beginning their employment, consulting or advisory relationship with us. The agreements generally provide that the individual must keep
confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual's relationship with us except in limited
circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us.
Other intellectual property rights
We seek trademark protection in the United States when appropriate. We have filed for trademark protection for the Neos Therapeutics mark, which
we use with our pharmaceutical research and development as well as products, as well as trade names that could be used with our potential products. We currently have registered trademarks for Neos
Therapeutics, Adzenys and Adzenys XR-ODT in the United States as well as for our DTRS technology.
From
time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 2017, December 31, 2016 and December 31, 2015, our research and development expenses were
$9.0 million, $12.2 million and $11.7 million, respectively.
COMPETITION
Our industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face
competition and potential competition from a number of sources, including pharmaceutical and biotechnology companies, generic drug companies, drug delivery companies and academic and research
institutions. We believe the key competitive factors that will affect the development and commercial success of our product candidates include ease of administration and convenience of dosing,
therapeutic efficacy, safety and tolerability profiles and cost. Many of our potential competitors have substantially greater financial, technical and human resources than we do, as well as more
experience in the development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Consequently, our competitors may develop
modified-release products for the treatment of ADHD or for other indications we may pursue in the future, and such competitors' products may be more effective, better tolerated and less costly than
our product candidates. Our competitors may also be more successful in manufacturing and marketing their products than we are. We will also face competition in recruiting
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and
retaining qualified personnel and establishing clinical trial sites and patient enrollment in clinical trials.
Adzenys
XR-ODT, Cotempla XR-ODT and Adzenys ER also face competition from commercially available generic and branded medications currently produced by companies that are promoting
products in the ADHD market, including Shire (Vyvanse, Adderall XR, Mydayis), Janssen (Concerta), Pfizer (Quillivant XR and QuilliChew ER), Novartis (Focalin XR and Ritalin LA), Tris Pharmaceuticals
(Dyanavel XR), Rhodes Pharmaceuticals (Aptensio XR) and related generics. We are also aware of efforts by several pharmaceutical companies with ADHD medications in clinical
development, including Sunovion, Kem Pharm and Neurovance. Tris Pharmaceuticals is also working in this space to reformulate existing methylphenidate and amphetamine medications.
The
FDA recently issued revised guidance for bioequivalence testing of extended-release methylphenidate, which makes it more difficult to seek approval on the basis of bioequivalence for
new generic products. We believe this will result in limited competition for the generic Concerta market and a new branded, extended-release methylphenidate drug with 12-hour duration of effect, such
as Cotempla XR-ODT would benefit from the lack of competition. In light of these developments, we believe that along with Concerta and Aptensio XR, Cotempla XR-ODT is positioned to be one of only
three branded solid oral dosage formulations of extended-release methylphenidate with 12-hour coverage, and its ODT formulation would offer a unique and patient- and caregiver-friendly dosage form.
While several generic versions of Concerta have recently been approved by the FDA, two additional generic manufacturers launched generic versions of Concerta, Mallinckrodt in 2011 and KUDCO in 2013,
both have lost their AB-rating, are now BX-rated, and may no longer be substituted for Concerta. This results in a market with a higher barrier to entry.
GOVERNMENT REGULATION
Government authorities in the United States at the federal, state and local levels and in other countries regulate, among other things, the
research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting,
marketing and export and import of drug products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a
format specific for each regulatory authority, submitted for review and ultimately approved by the applicable regulatory authority.
U.S. drug development
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its' implementing regulations. Drugs
are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approval and maintaining subsequent compliance with applicable federal, state and local
statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during product development, the
approval process or after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA's refusal to approve pending
applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls or market withdrawals, product seizures, total or partial suspension of production or
distribution injunctions, fines, consent decrees, refusals of
government contracts, restitution, disgorgement or civil and criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. For a description of a consent
decree our predecessor corporation entered into with the FDA and to which we remain subject, see "Our manufacturing capabilitiesOverview" and "Risk factorsRisks related to
commercialization."
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If
we fail to manufacture Adzenys XR-ODT, Cotempla XR-ODT or Adzenys ER in sufficient quantities and at acceptable quality and pricing levels, or fail to obtain adequate DEA quotas for
controlled substances, or to fully comply with cGMP regulations, we may face delays in the commercialization of this product candidate or be unable to meet market demand, and may be unable to generate
potential revenues.
Our
product candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United States. We intend to submit our NDAs under the 505(b)(2)
regulatory approval pathway. Development and approval of drugs generally involves the following:
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Submission to the FDA of an IND, which must become effective before clinical trials involving humans may begin;
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Approval by an independent institutional review board, or IRB, or ethics committee at each clinical trial site before a trial may be initiated
at that site;
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Performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations and other good clinical
practices, or GCPs;
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Submission of an NDA to the FDA;
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The FDA's decision within 60 days of its receipt of an NDA to accept it for filing and review;
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Satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess
compliance with cGMPs and assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity;
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Possible FDA audit of the clinical trial sites that generated the data in support of the NDA; and
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FDA review and approval of the NDA.
The
nonclinical testing, clinical trials and review process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product
candidates will be granted on a timely basis, if at all. The data required to support an NDA are generated in two distinct developmental stages: nonclinical and clinical. The nonclinical development
stage generally involves synthesizing the active component, developing the formulation and control procedures and determining the manufacturing process, as well as carrying out non-human toxicology,
pharmacology and drug metabolism studies in the laboratory, which may support subsequent clinical testing in humans. In the case of documentation to support a 505(b)(2) NDA, this nonclinical data may
be referenced in literature or the FDA's previous findings of safety and efficacy for a listed drug. The sponsor must submit the results of the nonclinical studies, together with manufacturing
information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to
administer an investigational drug product to humans, and must become effective before clinical trials may begin. An IND automatically becomes effective 30 days after receipt by the FDA, unless
before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
The
clinical stage of development involves the administration of the product candidate to healthy volunteers and patients under the supervision of qualified investigators, generally
physicians not employed by or under the sponsor's control, in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in
any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial,
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dosing
procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol,
must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent IRB for each institution where the trial will be conducted to ensure that
the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be
provided to each subject or his or her legal representative and must monitor the clinical trial until completed.
Clinical trials
Clinical trials are generally conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.
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Phase 1 clinical trials generally involve a small number of healthy volunteers who are initially exposed to a single dose and then
multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacology, side effect tolerability and safety of the drug.
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Phase 2 clinical trials typically involve studies in disease-affected patients to determine the dose required to produce the desired
benefits. At the same time, safety and further pharmacokinetic and pharmacodynamics information is collected, possible adverse effects and safety risks are identified and a preliminary evaluation of
efficacy is conducted.
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Phase 3 clinical trials generally involve large numbers of patients at multiple sites and are designed to provide the data necessary to
demonstrate the product candidate's safety and effectiveness for its intended use, establish its overall benefit/risk relationship, and provide an adequate basis for approval.
By
following the 505(b)(2) regulatory approval pathway, the applicant may reduce some of the burdens of developing a full clinical program by relying on investigations not conducted by
the applicant and for which the applicant has not obtained a right of reference, such as prior investigations involving the listed drug. In such cases, some clinical trials may not be required or may
be otherwise limited.
Post-approval
trials, sometimes referred to as Phase 4, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment
of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
Before
approval, progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA, and written IND safety reports
must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar
drugs, findings from animal or
in vitro
testing suggesting a significant risk to humans, and any clinically important rate increase of a serious
suspected adverse reaction compared to that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within
any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an
unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the trial is not being conducted in accordance with the IRB's requirements or
the use of the drug raises any safety concerns. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring
board or committee. Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial.
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There are also requirements governing the reporting of ongoing clinical trials and completed trial results to public registries. Sponsors of certain clinical
trials of FDA-regulated products are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product,
patient population, phase of investigation, study sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to
discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.
However, there are evolving rules and increasing requirements for publication of all trial-related information, and it is possible that data and other information from trials involving drugs that
never garner approval could require disclosure in the future.
Concurrent
with clinical trials, companies usually develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for
manufacturing it in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate, and, among
other things, a drug manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug product. Appropriate packaging must be selected and tested, and
stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
NDA and FDA review process
The results of nonclinical studies and clinical trials, together with other detailed information, including extensive information on
manufacturing and drug composition and proposed labeling, are submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more specified indications. The FDA reviews
an NDA to determine, among other things, whether a drug is safe and effective for its intended use and whether the product is being manufactured in accordance with cGMPs to assure and preserve the
product's identity, strength, quality and purity. FDA approval of an NDA must be obtained before a drug may be legally marketed in the United States.
Under
the Prescription Drug User Fee Act, as amended (the "PDUFA"), each NDA must be accompanied by a user fee. The FDA adjusts the PDUFA user fees on an annual basis. According to the
FDA's fee schedule, effective through September 30, 2018, the user fee for an application requiring clinical data, such as an NDA, is $2,421,495. Clinical data, as interpreted by the FDA to
assess fees under PDUFA, include (1) study reports or literature reports of what are explicitly or implicitly represented by the applicant to be adequate and well-controlled trials for safety
or effectiveness or (2) reports of comparative activity (other than bioequivalence and bioavailability studies), immunogenicity, or efficacy, where those reports are necessary to support a
claim of comparable clinical effect. The term does not include bioequivalence and bioavailability studies submitted in support of an NDA. NDAs for which clinical data are not required to demonstrate
safety and effectiveness are reduced to half of the amount of the prescribed user fee, or $1,210,748 for 2018. PDUFA also imposes an annual program fee for human drugs ($304,162 per product up to a
maximum of five fees for a fiscal year for prescription drug products identified in a single approved application). Fee waivers or reductions are available in certain circumstances, including waiver
of the application fee for the first application filed by a small business.
The
FDA reviews submitted NDAs before it accepts them for filing, and may request additional information rather than accepting the applications. The FDA must make a decision on accepting
an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under
PDUFA, the FDA has ten months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant, and six months from the filing date for an NDA designated for
priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs, and the
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review
process is often significantly extended by FDA requests for additional information or clarification.
Before
approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMPs. The FDA will not
approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product to
specifications. The FDA may also audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which
present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation regarding whether
the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers them carefully when making decisions. NDAs
submitted under Section 505(b)(2) are typically not referred to an Advisory Panel for consideration unless new safety information is revealed in the review cycle. The FDA likely will re-analyze
the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. The review and evaluation of an NDA by the FDA is extensive and time
consuming and may take longer than originally planned to complete, and we may not receive a timely approval, if at all.
After
the FDA evaluates an NDA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing
information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete
Response Letter usually describes the specific deficiencies in the NDA identified by the FDA, and may require additional clinical data, such as an additional pivotal Phase 3 clinical trial, and
other significant and time-consuming requirements related to clinical trials, nonclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may resubmit the NDA,
addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does not satisfy the criteria
for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than the sponsor interprets the same data.
There
is no assurance that the FDA will approve a product candidate for marketing, and the sponsor may encounter significant difficulties or costs during the review process. If a product
receives marketing approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value
of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling, or it may condition approval on changes to the proposed
labeling. The FDA also may condition approval on the development of adequate controls and specifications for manufacturing and a commitment to conduct post-marketing testing and surveillance to
monitor the potential effects of approved products. For example, the FDA may require Phase 4 trials designed to further assess a drug's safety and efficacy.
The
FDA may also place other conditions on approval including the requirement for a risk evaluation and mitigation strategy, or REMS, to assure the safe use of the drug. If the FDA
concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if required. A REMS could include medication guides,
physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or
marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Marketing approval may be withdrawn for non-compliance with regulatory requirements or if
problems occur following initial marketing.
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Section 505(b)(2) regulatory approval pathway
Section 505(b)(2) of the FDCA provides an alternate regulatory pathway for approval of a new drug by allowing the FDA to rely on data not
developed by the applicant. Specifically, Section 505(b)(2) permits the submission of an NDA where one or more of the investigations relied upon by the applicant for approval was not conducted
by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may rely upon published literature and/or the FDA's findings of safety and effectiveness for an
approved drug already on the market. Approval or submission of a 505(b)(2) application, like those for abbreviated new drugs, or ANDAs, may be delayed because of patent and/or exclusivity rights that
apply to the previously approved drug.
A
505(b)(2) application may be submitted for a new chemical entity, or NCE, when some part of the data necessary for approval is derived from studies not conducted by or for the
applicant and when the applicant has not obtained a right of reference. Such data are typically derived from published studies, rather than FDA's previous findings of safety and effectiveness of a
previously approved drug. For changes to a previously approved drug however, an applicant may rely on the FDA's finding of safety and effectiveness of the approved drug, coupled with information
needed to support the change from the approved drug, such as new studies conducted by the applicant or published data. When based on an approved drug, the 505(b)(2) drug may be approved for all of the
indications permitted for the approved drug, as well as any other indication supported by additional data.
Section 505(b)(2)
applications also may be entitled to marketing exclusivity if supported by appropriate data and information. As discussed in more detail below, three-year new
data exclusivity may be
granted to the 505(b)(2) application if one or more clinical investigations conducted in support of the application, other than bioavailability/bioequivalence studies, were essential to the approval
and conducted or sponsored by the applicant. Five years of marketing exclusivity may be granted if the application is for an NCE, and pediatric exclusivity is likewise available.
Orange Book listing and Paragraph IV certification
For NDA submissions, including those under Section 505(b)(2), applicants are required to list with the FDA certain patents with claims
that cover the applicant's product. Upon approval, each of the patents listed in the application is published in
Approved Drug Products with Therapeutic Equivalence
Evaluations
, commonly referred to as the Orange Book. Any applicant who subsequently files an ANDA or 505(b)(2) NDA that references a drug listed in the Orange Book must
certify to the FDA that (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the
date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. This
last certification is known as a Paragraph IV certification.
If
an applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the holder of the NDA for the
approved drug and the patent owner once the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringement lawsuit in response to notice of
the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification prevents the FDA from approving the ANDA
or 505(b)(2) application until the earlier of 30 months from the date of the lawsuit, the applicant's successful defense of the suit, or expiration of the patent.
Pursuant
to our settlement agreements with Shire, we stipulated that Shire's two Orange Book-listed patents covering Adderall XR were valid, enforceable and infringed by our 505(b)(2)
NDAs covering Adzenys XR-ODT and Adzenys ER. The agreements with Shire applies solely with respect to Adzenys XR-ODT and Adzenys ER.
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Pediatric information
Under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and efficacy of the drug
for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation in which the product is safe and effective. The FDA may
grant deferrals for submission of pediatric data or full or partial waivers.
The
Food and Drug Administration Safety and Innovation Act, or FDASIA, which was signed into law on July 9, 2012, amended the FDCA to require that a sponsor who is planning to
submit an NDA for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within 60 days of
an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation of the Phase 3 or Phase 2/3 trial. The initial PSP must include an outline
of the pediatric trial(s) that the sponsor plans to conduct, including objectives and design, age groups, relevant endpoints and statistical approach, or a justification for not including such
information and any request for a deferral of pediatric assessments or a full or partial waiver of the requirement to provide data from pediatric trials. The FDA and the sponsor must reach an
agreement on the PSP, but the sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from nonclinical
studies, early phase clinical trials and other clinical development programs.
Post-marketing requirements
Following approval, the company and the new product are subject to continuing regulation by the FDA, which include monitoring and recordkeeping
activities, reporting of adverse experiences and complying with promotion and advertising requirements, which include prohibitions on the promotion of the drugs for unapproved, or "off-label" uses.
Although physicians may prescribe legally available drugs for off-label treatments, manufacturers may not promote such non-FDA approved uses. Prescription drug promotional materials must be submitted
to the FDA in conjunction with their first use on an on-going basis. Further, if there are any modifications to the drug, including changes to indications, labeling, or manufacturing processes or
facilities, the applicant may be required to submit and obtain FDA approval of a supplemental NDA or new NDA, which may require the applicant to develop additional data or conduct additional
nonclinical studies or clinical trials.
The
FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. These regulations require, among other things, quality control and
quality assurance, the maintenance of records and documentation and the obligation to investigate and correct
any deviations from cGMPs. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain
state agencies, and are subject to periodic, unannounced inspections by the FDA and certain state agencies for compliance with cGMPs and other laws. Accordingly, manufacturers must continue to expend
time, money and effort in the area of production and quality control to maintain compliance with cGMPs. The discovery of violative conditions, including failure to conform to cGMPs, could result in
enforcement actions, and the discovery of problems with a product after approval may result in restrictions on a product, manufacturer or holder of an approved NDA, including voluntary recalls and
product seizures.
Discovery
of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or
administrative enforcement, untitled or warning letters from the FDA, mandated corrections to advertising or communications to doctors and civil or criminal penalties, among others. Newly discovered
or developed safety or effectiveness data may require changes to a product's approved
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labeling,
including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. New government requirements, including those
resulting from new legislation, may be established, or the FDA's policies may change, which could delay or prevent regulatory approval of our products under development.
As
a condition of approval for Adzenys XR-ODT and Cotempla XR-ODT, we committed to three post-marketing requirements to evaluate the pharmacokinetic, efficacy and safety of the product
in children ages 4 to 5 years of age. We met with FDA officials in January 2017 to further clarify the design of the protocols required to conduct these studies for Adzenys XR-ODT. We commenced
with the pharmacokinetic trial for Adzenys XR-ODT in 2017. We expect to commence with the pharmacokinetic trial for Cotempla XR-ODT in 2018.
U.S. marketing exclusivity
The FDCA provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, for a drug product that contains a
previously approved NCE if new clinical investigations, other than bioavailability/bioequivalence studies, were essential to the application's approval
(
e.g.
, for new indications, dosages or strengths of an existing drug). This three-year exclusivity for new data covers only the modification for which
the drug received approval on
the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication. Furthermore, this exclusivity will
not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and
adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.
Pediatric
exclusivity is another type of regulatory market exclusivity in the United States, which, if granted, adds six months to existing exclusivity periods and patent terms. This
six-month exclusivity, which runs from the end of other exclusivity protections or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with a FDA-issued
"Written Request." The FDA issues a written request for pediatric clinical trials before approval of an NDA only where it determines that information relating to the use of a drug in a pediatric
population, or part of the pediatric population, may produce health benefits in that population.
DEA regulation
Because our products and product candidates are subject to the Controlled Substances Act, or CSA, we must comply with various requirements set
forth by that legislation, as amended, its implementing regulations and as enforced by the DEA. The CSA imposes various registration, record-keeping and reporting requirements, procurement and
manufacturing quotas, labeling and packaging requirements, security controls, prescription and order form requirements and restrictions on prescription refills for certain kinds of pharmaceutical
products. A principal factor for determining the particular requirements of the CSA applicable to a product, if any, is its actual or potential abuse profile. A product may be listed as a
Schedule I, II, III, IV or V controlled substance, with Schedule I presenting the highest perceived risk of abuse and Schedule V presenting the least. For example,
Schedule I controlled substances have no currently accepted medical use in treatment in the United States and a lack of accepted safety for use under medical supervision. The active ingredients
in our products, hydrocodone, amphetamine and methylphenidate, are Schedule II controlled substances and under various restrictions, including, but not limited to, mandatory written
prescriptions and the prohibition of refills.
Annual
registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular
location, activity and controlled substance schedule. For example, separate registrations are needed for import and
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manufacturing,
and each registration will specify which schedules of controlled substances are authorized. Similarly, separate registrations are also required for separate facilities.
The
DEA typically inspects a facility to review its security measures prior to issuing a registration and on a periodic basis. Security requirements vary by controlled substance
schedule, with the most stringent requirements applying to Schedule I and Schedule II controlled substances. Required security measures include background checks on employees and
physical control of inventory through measures such as vaults and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the
DEA, for example distribution reports for Schedule I and II controlled substances. Reports must also be made for thefts or losses of any controlled substance, and to obtain authorization to
destroy any controlled substance.
In
addition, a DEA quota system controls and limits the availability and production of controlled substances in Schedule I or II. Distributions of any Schedule I or II
controlled substance must also be accompanied by special order forms, with copies provided to the DEA. Because our products are, and our product candidates are expected to be, regulated as
Schedule II controlled substances, they will be subject to the DEA's production and procurement quota scheme. The DEA establishes annually an aggregate quota for how much of a controlled
substance may be produced in total in the United States based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. The limited aggregate amount that the DEA
allows to be produced in the United States each year is allocated among individual companies, which must submit applications annually to the DEA for individual production and procurement quotas. We
must receive an annual quota from the DEA in order to produce or procure any Schedule I or Schedule II controlled substance for use in manufacturing of our product and product
candidates. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or
not to make such adjustments.
To
enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable
requirements, particularly as manifested in loss or diversion, can result in administrative, civil or criminal enforcement action. The DEA may seek civil penalties, refuse to renew necessary
registrations or initiate administrative proceedings to revoke those registrations. In some circumstances, violations could result in criminal proceedings.
In
addition to federal scheduling, some drugs may be subject to state-controlled substance regulation and thus more extensive requirements than those determined by the DEA and FDA.
Pharmaceutical coverage, pricing and reimbursement
Sales of our products will depend, in part, on the extent to which our products will be covered by third-party payors, such as government health
programs, commercial insurance and managed healthcare organizations. In the United States no uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the
extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor by payor basis. 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 product candidates to each payor separately, with no assurance that coverage and adequate
reimbursement will be obtained.
Third-party
payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and
efficacy. In order to obtain coverage and reimbursement for any product that might be approved, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity
and cost-effectiveness of any products, in addition to the costs required to obtain regulatory approvals. Our product candidates may not be considered medically necessary or cost-effective. If
third-party payors do
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not
consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may
not be sufficient to allow a company to sell its products at a profit.
The
U.S. government and state legislatures have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including
price controls, restrictions on reimbursement and requirements for substitution of generic products for brand-named prescription drugs. For example, the Patient Protection and Affordable Care Act, as
amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, contains provisions that may reduce the profitability of drug products, including, for example, increased
rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees
based on pharmaceutical companies' share of sales to federal health care programs. Adoption of government controls and measures, and tightening of restrictive policies in jurisdictions with existing
controls and measures, could limit payments for pharmaceuticals.
As
noted above, even if we are able to secure regulatory approval, sales of any of our products may suffer if the government and third-party payors fail to provide adequate coverage and
reimbursement. An increasing emphasis on cost containment measures in the United States has increased, and we expect this sentiment will continue to increase the pressure on drug pricing. Coverage
policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval,
less favorable coverage policies and reimbursement rates may be implemented in the future.
Other healthcare laws and compliance requirements
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory
authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the Department of Health and Human Services, the U.S. Department of Justice, the
DEA, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.
We
also are subject to various federal and state laws targeting fraud and abuse in the healthcare industry. These laws may impact, among other things, our proposed sales, marketing and
educational programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability
to operate include:
-
-
The federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or
paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either (1) the referral of an individual to a person for furnishing any item or service
for which payment is available under a federal health care program, or (2) the purchase, lease, order or recommendation thereof of any good, facility, service or item for which payment is
available under a federal health care program;
-
-
The False Claims Act and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or
causing to be presented, false or fraudulent claims for payment from the federal government or making or using, or causing to be made or used, a false record or statement material to a false or
fraudulent claim;
-
-
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit
executing a scheme to defraud any healthcare
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benefit
program, obtaining money or property of the health care benefit program through false representations or knowingly and willingly falsifying, concealing or covering up a material fact, making
false statements or using or making any false or fraudulent document in connection with the delivery of, or payment for, health care benefits or services;
-
-
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, which
imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
-
-
The provision under the ACA commonly referred to as the Sunshine Act, which requires applicable manufacturers of covered drugs, devices,
biologics and medical supplies to track and annually report to CMS payments and other transfers of value provided to physicians and teaching hospitals and certain ownership and investment interests
held by physicians or their immediate family members in applicable manufacturers and group purchasing organizations; and
-
-
State law equivalents of each of the above federal laws, such as the Anti-Kickback Statute and False Claims Act, and state laws concerning
security and privacy of health care information, which may differ in substance and application from state-to-state thereby complicating compliance efforts.
The
ACA broadened the reach of the fraud and abuse laws by, among other things, amending the intent requirement of the federal Anti-Kickback Statute and the applicable criminal
healthcare fraud statutes contained within 42 U.S.C. Section 1320a-7b. Pursuant to the statutory amendment, a person or entity no longer needs to have actual knowledge of this statute or
specific intent to violate it in order to have committed a violation. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation
of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act or the civil monetary penalties statute. Many states have adopted laws similar
to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.
As
noted above, the federal False Claims Act prohibits anyone from, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment from
federal programs, including Medicare and Medicaid. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to "cause" the
submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers. In addition, our future activities relating to the reporting of wholesaler or
estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state, and third-party reimbursement for our
products, and the sale and marketing of our products are subject to scrutiny under this law. For example, pharmaceutical companies have been prosecuted under the federal False Claims Act in connection
with their off-label promotion of drugs. Penalties for such violations could include three times the actual damages sustained by the government, mandatory civil penalties between $5,500 and $11,000
for each separate false claim, exclusion from participation in federal healthcare programs, and the potential implication of various federal criminal statutes. Private individuals also have the
ability to bring actions under the federal False Claims Act, or
qui tam
actions, and certain states have enacted laws based on the federal False Claims
Act.
EMPLOYEES
As of December 31, 2017, we employed 138 full-time employees.
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AVAILABLE INFORMATION
Our website address is www.neostx.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the investor
relations page of our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Alternatively, these
reports may be accessed at the SEC's website at www.sec.gov.
CORPORATE INFORMATION
Our predecessor company was incorporated in Texas on November 30, 1994 as PharmaFab, Inc. and subsequently changed its name to
Neostx, Inc. On June 15, 2009, we completed a reorganization pursuant to which substantially all of the capital stock of Neostx, Inc. was acquired by a newly formed Delaware
corporation, named Neos Therapeutics, Inc. The remaining capital stock of Neostx, Inc. was acquired by us on June 29, 2015, and Neostx, Inc. was merged with and into Neos
Therapeutics, Inc. Our principal executive offices are located at 2940 N. Highway 360, Grand Prairie, Texas, 75050, and our telephone number is (972) 408-1300. We completed our initial
public offering of common stock July 2015 and our common stock is listed on the NASDAQ Global Market under the symbol "NEOS."
Item 1A. Risk factors
We operate in an industry that involves numerous risks and uncertainties. You should carefully consider the risks and
uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes appearing at
the end of this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of the risks actually occur, our business, financial condition, results of operations
and prospects could be harmed. In that event, the trading price of our common stock could decline, and you may lose part or all of your investment.
RISKS RELATED TO COMMERCIALIZATION
We are heavily dependent on the success of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. We have not
generated substantial revenues from the sales of Adzenys XR-ODT and Cotempla XR-ODT, any sales revenues from Adzenys ER or any of our product candidates, and we may never achieve or maintain
profitability.
Our ability to become profitable depends upon our ability to generate revenues from sales of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and, if
approved, any other product candidates that we may develop. We have limited experience in generating revenues from our marketed products, having only generated revenues from the sale of our generic
Tussionex since we acquired it in 2014, and Adzenys XR-ODT, which we commenced commercializing in May 2016, and from which we have not generated substantial product sales revenues. We launched
Cotempla XR-ODT in September 2017, and as a result have generated minimal sales revenue for this product to date. We have not generated any revenues from product sales of Adzenys ER, which we launched
on February 26, 2018, or any other product candidates that we may develop and have incurred significant operating losses.
Our
ability to generate product revenues is dependent on our ability to successfully commercialize Adzenys XR-ODT, our amphetamine extended-release orally disintegrating tablet
("XR-ODT"), Cotempla XR-ODT, our methylphenidate XR-ODT, and Adzenys ER, our amphetamine XR liquid suspension, for the treatment of attention deficit hyperactivity disorder, or ADHD, and any other
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product
candidates that we may identify, develop and obtain approval of. Our ability to successfully commercialize our products and product candidates depends on, among other things, our ability
to:
-
-
manufacture commercial quantities of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and, if approved, any other product candidates that we may
develop at acceptable cost levels; and
-
-
successfully establish and maintain sales and marketing capabilities to commercialize Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and, if
approved, any other product candidates that we may develop.
We
have incurred and anticipate continuing to incur significant costs associated with commercialization of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and, if approved, any other product
candidates that we may develop. It is possible that we will never have sufficient product sales revenues to achieve profitability.
If our sales and marketing efforts for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER are not successful, and
if we are unable to establish and maintain sales and marketing capabilities or enter into agreements with third parties to market and sell our other product candidates, if approved, we may be unable
to generate significant revenue.
We have only recently completed building an organization for the sale, marketing and distribution of Adzenys XR-ODT, Cotempla XR-ODT, and
Adzenys ER, and there is no guarantee that we will be successful in the commercialization of Adzenys XR-ODT, which we launched in May 2016, Cotempla XR-ODT, which was launched in September 2017, and
Adzenys ER, which we launched on February 26, 2018. We currently have a limited sales history for Adzenys XR-ODT and Cotempla XR-ODT and no sales history for Adzenys ER. Additionally, we may
need to expand or build additional sales, marketing and distribution capabilities for our products. Although we have established a focused, specialty sales and marketing organization of approximately
125 representatives to promote our approved products in the United States, these commercialization capabilities have only been recently established, and we may need to expand our sales force if we
decide to undertake additional commercialization activities on our own, which will be costly and time-consuming. We cannot be certain that we will reap the benefits of our commercialization efforts of
Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER compared to the cost of such efforts. Our prior experience in the marketing, sale and distribution of pharmaceutical products is limited to our generic
Tussionex, and, before launching the commercialization of Adzenys XR-ODT, we had no prior experience in marketing, sale and distribution of branded pharmaceutical products. There are significant risks
involved in building and managing a sales organization, including our ability to hire, retain and incentivize qualified individuals and in the appropriate numbers, generate sufficient sales leads,
provide adequate training to sales and marketing personnel, effectively manage a geographically dispersed sales and marketing team and successfully negotiate with managed care and third-party payors.
Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products.
We
also intend to enter into strategic partnerships with third parties to commercialize Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our product candidates, if approved, outside of
the United States and intend to also enter into strategic partnerships with third parties for certain aspects of our commercialization efforts within the United States. We may have difficulty
establishing relationships with third parties on terms that are acceptable to us, or in all of the regions where we wish to commercialize our products, or at all. If we are unable to establish
adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate sufficient product revenue and may not become profitable. We will
be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an
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internal
team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
Our business is subject to extensive regulatory requirements, and our approved products and any product
candidates that obtain approval will be subject to ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize such products.
Even after a product is approved, we will remain subject to ongoing FDA, and other regulatory requirements governing, among other things, the
production, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keeping and reporting of safety and other post-market information. The
holder of an approved new drug application ("NDA") is obligated to monitor and report adverse events, or AEs, and any failure of a product to meet the specifications in the NDA. The holder of an
approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. In addition, the FDA may
impose significant restrictions on the approved indicated uses for which the product may be marketed or on the conditions of approval.
For
example, a product's approval may contain requirements for potentially costly post-approval trials and surveillance to monitor the safety and efficacy of the product or the
imposition of a Risk Evaluation and Mitigation Strategy, or REMS, program.
Prescription
drug advertising, marketing and promotion are subject to federal, state and foreign regulations, which include requirements for direct-to-consumer advertising and
promotional activities involving the Internet and social media. In the United States, prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. The FDA
closely regulates the post-approval marketing and promotion of drugs to ensure they are marketed only for their approved indications and in accordance with the provisions of the approved label. Any
promotion for uses or in patient populations not described in the approved labeling, known as "off-label" promotion, is impermissible and could subject us to enforcement actions and significant
penalties for off-label marketing. The FDA has also provided guidance on industry-sponsored scientific and educational activities to ensure such activities are not promotional.
In
addition, manufacturers and their facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to
current Good Manufacturing Practices ("cGMPs"). These cGMP regulations cover all aspects of manufacturing relating to our generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. As such, we
are subject to continual review and periodic inspections to assess compliance with cGMP and must
continue to expend time, money and resources in all areas of regulatory compliance, including manufacturing, production and quality control. As a result of the Consent Decree entered into by our
predecessor, which is discussed below, we were required to have a cGMP expert conduct an annual audit and submit those audit reports and our responses to the FDA for a period of five years. Although
for our most recent and last annual audit by the cGMP expert in November 2014, the expert concluded that our corrective actions satisfactorily addressed the observations noted in its report, on
May 22, 2015, the FDA's Dallas District Office identified three ongoing cGMP deviations in our response to the audit related to batch failure investigations, quality control unit procedures,
and in-process specifications. We implemented corrective actions and submitted additional information in our response to the FDA pursuant to the Consent Decree and the FDA closed the matter.
The
facilities used by us to manufacture our products and any product candidates that we may develop are subject to inspections, including pre-approval inspections following our
submission of any NDAs to the FDA for any product candidates that we may develop. For example, the FDA conducted a cGMP and pre-approval inspection related to our NDA for Cotempla XR-ODT from
May 27 to June 4, 2015. At the end of the inspection, the agency issued a Form FDA 483 with one observation
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finding
that appropriate controls are not exercised over one of our computer systems in order to assure that changes in records are instituted only by authorized personnel. We implemented corrective
action related to this observation and responded to the FDA, and the FDA closed the inspection. In addition, in connection with a general cGMP and pre-approval inspection for Adzenys ER from
July 11 to July 25, 2017, we received a Form FDA 483 with one observation related to complaint records failing to document the reason and the individual making the decision not to
conduct a complaint investigation. We implemented corrective action related to this observation and responded to the FDA.
If
we cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA, we will not be able to secure and/or maintain
regulatory approval for our product candidates. If the FDA finds deficiencies at our manufacturing facility and does not approve our NDA for any of our future product candidates or if it withdraws any
such approval in the future for our products, our ability to develop or market any of our products or any product candidates that we may develop will be impacted.
Manufacturers
of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and
adherence to commitments made in the NDA. If we or a regulatory agency discovers previously unknown problems with a product, such as AEs of unanticipated severity or frequency, or problems with the
facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including notice to physicians, withdrawal of the
product from the market or suspension of manufacturing. Manufacturers are also subject to annual prescription drug product
program fee. If we are unable to generate sales of our product candidates, the user fee requirements could be difficult to pay.
If
we fail to comply with applicable regulatory requirements, the FDA may, for example:
-
-
issue untitled or warning letters asserting that we are in violation of the Federal Food, Drug and Cosmetic Act (the "FDCA");
-
-
impose restrictions on the marketing or manufacturing of any product or product candidate that we may develop;
-
-
seek an injunction or impose civil, criminal and/or administrative penalties, damages, assess monetary fines, or require disgorgement;
-
-
suspend or withdraw regulatory approval;
-
-
suspend any ongoing clinical trials;
-
-
refuse to approve a pending NDA or supplements to an NDA submitted by us with respect to any product candidate that we may develop; or
-
-
seize the product.
Moreover,
any violation of these and other laws and regulations could result in exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, require
curtailment or restructuring of our operations and prohibit us from entering into government contracts.
Similar
requirements may apply in foreign jurisdictions in which we may seek approval of our products. Any government investigation of alleged violations of law could require us to
expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our products
and generate revenues.
In
addition, the FDA's regulations or policies may change and new or additional statutes or government regulations in the United States and other jurisdictions may be enacted that could
prevent
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or
delay regulatory approval of our product candidates or further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation
that may arise from pending or future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be
permitted to market our products and/or product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
The commercial success of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER depends upon attaining market
acceptance by physicians, patients, third-party payors and the medical community.
To date, we have expended significant time, resources, and effort on the development of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, and a
substantial majority of our resources are now focused on the commercialization in the United States of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. Accordingly, our ability to generate significant
product revenue will depend almost entirely on our ability to successfully commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER.
Our
ability to successfully commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER will depend on, among other things, our ability to:
-
-
establish relationships with third-party suppliers for the active pharmaceutical ingredient ("API"), in Adzenys XR-ODT, Cotempla XR-ODT and
Adzenys ER;
-
-
manufacture and produce, through a validated process, sufficiently large quantities and inventory of Adzenys XR-ODT, Cotempla XR-ODT and
Adzenys ER to permit successful commercialization;
-
-
build and maintain a wide variety of internal sales, distribution and marketing capabilities sufficient to build commercial sales of our
products;
-
-
establish collaborations with third parties for the commercialization of our products in countries outside the United States, and such
collaborators' ability to obtain regulatory and reimbursement approvals in such countries;
-
-
secure widespread acceptance of our products by physicians, health care payors, patients and the medical community;
-
-
properly price and obtain adequate coverage and reimbursement of the product by governmental authorities, private health insurers, managed care
organizations and other third-party payors;
-
-
maintain compliance with ongoing FDA labeling, packaging, storage, advertising, promotion, recordkeeping, safety and other post-market
requirements; and
-
-
manage our growth and spending as costs and expenses increase due to commercialization.
There
are no guarantees that we will be successful in completing these tasks. Successful commercialization will also depend on whether we can adequately protect against and effectively
respond to any claims by holders of patents and other intellectual property rights that our products infringe their rights, whether any unanticipated adverse effects or unfavorable publicity develops
in respect of our products, as well as the emergence of new or existing products as competition, which may be proven to be more clinically effective and cost-effective. If we are unable to
successfully complete these tasks, we may not be able to commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER in a timely manner, or at all, in which case we may be unable to generate
sufficient revenues to sustain and grow our business.
In
addition, we will need to continue investing substantial financial and management resources to build out our commercial infrastructure and to recruit and train sufficient additional
qualified
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marketing,
sales and other personnel to support the commercialization of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. In addition, we have certain revenue expectations with respect to the sale of
Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. If we cannot successfully commercialize and achieve those revenue expectations with respect to Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, our
anticipated revenues and liquidity will be materially adversely impacted.
Moreover,
even if we are able to commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, their continued commercial success may be largely dependent on the capability of
third-party collaborators. Such third-party collaborators may not deploy the resources we would like them to, and our revenue would then suffer. In addition, we could become embroiled in disputes with
these parties regarding the terms of any agreements, their performance or intellectual property rights. Any dispute could disrupt the sales of our products and adversely affect our reputation and
revenue. In addition, if any of our manufacturing or collaboration partners fail to effectively perform under our arrangements for any reason, we may not be able to find a suitable replacement partner
on a timely basis or on acceptable terms.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating
results will suffer if we fail to compete effectively.
The biopharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We expect to have
competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. For
example, amphetamine XR is currently marketed in the United States by Shire under the brand names Adderall XR, Vyvanse and Mydayis and by Tris Pharmaceuticals, or Tris, under the brand name Dyanavel
XR, a liquid suspension, and methylphenidate is marketed in the United States by Janssen under the brand name Concerta, by Pfizer under the brand name Quillivant XR, a reconstituted liquid suspension,
and QuilliChew ER, a chewable formulation, by Rhodes Pharmaceuticals under the brand name Aptensio XR, a capsule, and by Novartis under the brand names Focalin XR and Ritalin LA. Further, makers of
branded drugs could also enhance their own formulations in a manner that competes with our enhancements of these drugs. We are also aware of efforts by several pharmaceutical companies with ADHD
medications in clinical development, including Sunovian, Kem Pharm and Neurovance.
Many
of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and more experienced marketing and
manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a result, these
companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early-stage companies may also prove to be
significant competitors, particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of
technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products or drug
delivery technologies that are more effective or less costly than our XR-ODT or XR liquid suspension, or any product candidate that we are currently developing or that we may develop. In addition, our
competitors may file citizens' petitions with the FDA in an attempt to persuade the FDA that our products, or the nonclinical studies or clinical trials that support their approval, contain
deficiencies or that new regulatory requirements be placed on the product candidate or drug class of the product candidate. Such actions by our competitors could delay or even prevent the FDA from
approving any NDA that we submit under Section 505(b)(2).
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We
believe that our ability to successfully compete will depend on, among other things:
-
-
the ability to commercialize and market any of our products and product candidates that receive regulatory approval;
-
-
the price of our products and product candidates that receive regulatory approval, including in comparison to branded or generic competitors;
-
-
the efficacy and safety of our products and product candidates, including as relative to marketed products and product candidates in
development by third parties;
-
-
the ability to manufacture on a cost-effective basis and sell commercial quantities of our products and product candidates that receive
regulatory approval;
-
-
acceptance of any of our products and product candidates that receive regulatory approval by physicians and other healthcare providers;
-
-
the time it takes for our product candidates to complete clinical development and receive marketing approval;
-
-
the ability to maintain a good relationship with regulatory authorities;
-
-
whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicaid
and Medicare; and
-
-
the ability to protect intellectual property rights related to our product and product candidates.
If
our competitors market products that are more effective, safer or less expensive than our products or that reach the market sooner than our products we may enter the market too late
in the cycle and may not achieve commercial success, or we may have to reduce our price, which would impact our ability to generate revenue and obtain profitability. In addition, the biopharmaceutical
industry is characterized by rapid technological change. Because we have limited research and development capabilities, it may be difficult for us to stay abreast of the rapid changes in each
technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our
technologies or product candidates obsolete, less competitive or not economical.
If we are unable to differentiate our products or product candidates from branded drugs or existing generic
therapies for similar treatments, or if the FDA or other applicable regulatory authorities approve generic products that compete with any of our products or product candidates, our ability to
successfully commercialize such products or product candidates would be adversely affected.
We expect to compete against branded drugs and to compete with their generic counterparts that will be sold for a lower price. Although we
believe that our products and product candidates will be differentiated from branded drugs and their generic counterparts, if any, including through clinical efficacy or through improved patient
compliance and ease of administration, it is possible that such differentiation will not impact our market position. If we are unable to achieve significant differentiation for our products and
product candidates against other drugs, the opportunity for our products and, if approved, product candidates to achieve premium pricing and be commercialized successfully would be adversely affected.
After
an NDA, including a 505(b)(2) application, is approved, the covered product becomes a "listed drug" that, in turn, can be cited by potential competitors in support of approval of
an abbreviated new drug application, or ANDA. The FDCA, implementing regulations and other applicable laws provide incentives to manufacturers to create modified, non-infringing versions of a drug to
facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers might only be required to conduct a relatively inexpensive study to show that their
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product
has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use, or labeling as our product candidate and that the generic product is bioequivalent to
ours, meaning it is absorbed in the body at the same rate and to the same extent as our product candidate. These generic equivalents, which must meet the same quality standards as the listed drugs,
would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices.
Thus,
after the introduction of a generic competitor, a significant percentage of the sales of any branded product, such as Adzenys XR-ODT, Cotempla XR-ODT or Adzenys ER can be lost to
the generic version. Accordingly, competition from generic equivalents to our product candidates would materially adversely impact our revenues, profitability and cash flows and substantially limit
our ability to obtain a return on the investments we have made in our product candidates.
For
example, on July 25, 2016, we received a paragraph IV certification from Actavis Laboratories FL, Inc. ("Actavis") advising us that Actavis had filed an ANDA
with the FDA for a generic version of Adzenys XR-ODT. On September 1, 2016, we filed a patent infringement lawsuit in federal district court in the District of Delaware against
Actavis, Inc. This case alleged that Actavis infringed our Adzenys XR-ODT patents by submitting to the FDA an ANDA seeking to market a generic version of Adzenys XR-ODT prior to the expiration
of our patents. This lawsuit automatically stayed, or barred, the FDA from approving Actavis's ANDA for 30 months or until a district court decision that is adverse to the asserted patents is
rendered, whichever is earlier.
On
October 17, 2017, we entered into a Settlement Agreement and a Licensing Agreement (collectively, the "Agreement") with Actavis. This Agreement resolves all ongoing litigation
involving our Adzenys XR-ODT patents and Actavis's ANDA. Under the Agreement, we have granted Actavis the right to manufacture and market its generic version of Adzenys XR-ODT under the ANDA beginning
on September 1, 2025, or earlier under certain circumstances. A stipulation and order of dismissal was entered by the U.S. District Court for the District of Delaware. The Agreement has been
submitted to the applicable governmental agencies.
On
October 31, 2017, we received a paragraph IV certification from Teva Pharmaceuticals USA, Inc. ("Teva") advising us that Teva has filed an ANDA with the FDA for a
generic version of Cotempla XR-ODT, in connection with seeking to market its product prior to the expiration of patents covering Cotempla XR-ODT. On December 13, 2017, we filed a patent
infringement lawsuit in federal district court in the District of Delaware against Teva. This case alleged that Teva infringed our Cotempla XR-ODT patents by submitting to the FDA an ANDA seeking to
market a generic version of Cotempla XR-ODT prior to the expiration of our patents. This lawsuit automatically stayed, or barred, the FDA from approving Teva's ANDA for 30 months or until a
district court decision that is adverse to
the asserted patents is rendered, whichever is earlier. We intend to vigorously enforce our intellectual property rights relating to Cotempla XR-ODT.
The design, development, manufacture, supply and distribution of our products and product candidates are
highly regulated processes and technically complex.
We are subject to extensive regulation in connection with the preparation and manufacture of our products, product candidates and potential
product candidates for clinical trials and commercial sale. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in
accordance with cGMPs and equivalent foreign standards. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality
systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other
contaminants, or to inadvertent changes in the properties or stability of our products and product candidates that may not be detectable in final product testing.
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The
development, manufacture, supply, and distribution of our generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER as well as any of our future potential product candidates, are highly
regulated processes and technically complex. We, along with our third-party suppliers, must comply with all applicable regulatory requirements of the FDA and foreign authorities. For instance, because
each of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER is a regulated drug product and subject to the U.S. Drug Enforcement Administration ("DEA") regulation, we have had to, and will continue to,
need to secure state licenses from each state in which we intend to sell such product allowing us to distribute a regulated drug product in such state.
We
must supply all necessary documentation in support of our regulatory filings for our product candidates on a timely basis and must adhere to applicable parts of the FDA's Good
Laboratory Practices, or GLP, and cGMP requirements enforced by the FDA through its facilities inspection program, and the equivalent standards of the regulatory authorities in other countries. Any
failure to comply with cGMP requirements or failure to scale-up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to
a delay in, or failure to obtain, regulatory approval of any of our product candidates. Our facilities and quality systems must also pass a pre-approval inspection for compliance with the applicable
regulations as a condition of regulatory approval of our product candidates or any of our other potential products. For example, the FDA conducted a cGMP and pre-approval inspection related to our NDA
for Cotempla XR-ODT from May 27 to June 4, 2015. At the end of the inspection, the agency issued a Form FDA 483 with one observation finding that appropriate controls are not
exercised over one of our computer
systems in order to assure that changes in records are instituted only by authorized personnel. We implemented corrective action related to this observation and responded to the FDA, and the FDA
closed the inspection. Additionally, in connection with a general cGMP and pre-approval inspection for Adzenys ER from July 11, 2017 to July 25, 2017, we received a Form FDA 483 with one
observation related to complaint records failing to document the reason and the individual making the decision not to conduct a complaint investigation. We implemented corrective action related to
this observation and responded to the FDA. In addition, the regulatory authorities in any country may, at any time, audit or inspect a manufacturing facility involved with the preparation of our
product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities and quality
systems do not pass a pre-approval plant inspection, FDA approval of our product candidates, or the equivalent approvals in other jurisdictions, will not be granted.
Regulatory
authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities. If any such inspection or audit identifies a failure to comply
with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may
require remedial measures that may be costly and/or time-consuming for us to implement and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the
temporary or permanent closure of our facility. Any such remedial measures imposed upon us could materially harm our business. If we fail to maintain regulatory compliance, the FDA can impose
regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or revocation of a pre-existing approval. As a result, our business, financial
condition and results of operations may be materially harmed.
For our approved products, we must comply with the requirements of the Drug Supply Chain Security Act, which
outlines critical steps to build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States.
For our approved drugs, we must comply with the requirements of the Drug Supply Chain Security Act, including those related to product tracing,
verification, and authorized trading partners. Signed
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into
law on November 27, 2013, the Drug Supply Chain Security Act amended the FSCA and is being implemented over a ten-year period. The law's requirements include the ability to quarantine and
promptly investigate suspect product, such as potentially counterfeit, diverted or stolen product, to determine if it is illegitimate, and notify our trading partners and the FDA of any illegitimate
product. By November 27, 2017, we were required to place a unique product identifier on prescription drug
packages, and such requirement will be enforced beginning November 2018. This identifier consists of the National Drug Code, serial number, lot number and expiration date, in the form of a
2-dimensional data matrix barcode that can be easily read electronically. If our drug products fail to bear this unique product identifier, they would be misbranded under the FDCA and our drug
products may not be accepted into the supply chain.
We rely on limited sources of supply for Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our generic
Tussionex, and any disruption in the chain of supply may impact production and sales of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our generic Tussionex, and cause delays in developing and
commercializing our product candidates and currently manufactured and commercialized products.
Our approved NDAs for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, include our proposed manufacturing process for each product candidate. Any
change to our manufacturing process, facilities or suppliers could require that we supplement our approved NDA. Also, because of our proprietary processes for manufacturing our product candidates, we
cannot immediately transfer manufacturing activities for Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER or our generic Tussionex to an alternate supplier, and a change of facilities would be a
time-consuming and costly endeavor.
Any
changes to our manufacturing process would involve substantial cost and could result in a delay in our desired clinical and commercial timelines. We are also reliant on a limited
number of suppliers for resin, drug compounds, coating and other component substances of our final product candidates and products. If any of these single-source suppliers were to breach or terminate
its supply agreement, if any, with us or otherwise not supply us, we would need to identify an alternative source for the supply of component substances for our product candidates and products.
Identifying an appropriately qualified source of alternative supply for any one or more of the component substances for our product candidates or products could be time consuming, and we may not be
able to do so without incurring material delays in the development and commercialization of our approved products or product candidates or a decrease in sales of our generic Tussionex, which could
harm our financial position and commercial potential for our product candidates and products. Any alternative vendor would also need to be qualified through an NDA supplement which could result in
further delay, including delays related to additional clinical trials. The FDA, DEA, or other regulatory agencies outside of the United States may also require additional studies if we enter into
agreements with new suppliers for the manufacture of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our generic Tussionex that differ from the suppliers used for clinical development of such product
candidates.
These
factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our products and product candidates, cause us to incur higher
costs and prevent us from commercializing them successfully. Furthermore, if our suppliers fail to deliver the required commercial quantities of components and APIs on a timely basis and at
commercially reasonable prices, including if our suppliers did not receive adequate DEA quotas for the supply of certain scheduled components, and we are unable to secure one or more replacement
suppliers capable of production at a substantially equivalent cost, commercialization of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER, our generic Tussionex and clinical trials of future potential
product candidates,
may be delayed or we could lose potential revenue and our business, financial condition, results of operation and reputation could be adversely affected.
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If we fail to produce our products or product candidates in the volumes that we require on a timely basis, or
fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face penalties from wholesalers and contracted retailers of our products and delays in the development
and commercialization of our product candidates.
We currently depend on third-party suppliers for the supply of the APIs for our products and product candidates, including drug substance for
nonclinical research, clinical trials and commercialization. For Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER and our generic Tussionex, we currently rely on single suppliers for raw materials
including APIs, which we use to manufacture, produce and package final dosage forms. In particular, we have an exclusive supply agreement with Coating Place, Inc. ("CPI"), pursuant to which CPI
(i) is the exclusive supplier of the active ingredient complexes in our generic Tussionex and (ii) has agreed to not supply anyone else engaged in the production of generic Tussionex
with such active ingredient complexes. Any future curtailment in the availability of raw materials could result in production or other delays with consequent adverse effects on us. In addition,
because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.
We are subject to penalties from wholesalers and contracted retailers if we do not
deliver our generic Tussionex in quantities that meet their demand, and in the future we may enter into agreements with similar penalties for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. Any such
delays could trigger these penalty provisions, which would have a negative impact on our business.
The
manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls.
Pharmaceutical companies often encounter difficulties in manufacturing, particularly in scaling up production of their products. These problems include manufacturing difficulties relating to
production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign
regulations. If we are unable to demonstrate stability in accordance with commercial requirements, or if our raw material manufacturers were to encounter difficulties or otherwise fail to comply with
their obligations to us, our ability to obtain FDA approval and market our products and product candidates would be jeopardized. In addition, any delay or interruption in the supply of clinical trial
supplies could delay or prohibit the completion of our bioequivalence and/or clinical trials, increase the costs associated with conducting our bioequivalence and/or clinical trials and, depending
upon the period of delay, require us to commence new trials at significant additional expense or to terminate a trial.
Manufacturers
of pharmaceutical products need to comply with cGMP requirements enforced by the FDA through their facilities inspection programs. These requirements include, among other
things, quality control, quality assurance and the maintenance of records and documentation. We may be unable to comply with these cGMP requirements and with other FDA and foreign regulatory
requirements. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or voluntary
recall, or withdrawal of product approval. If the safety of any of our products or product candidates is compromised due to failure to adhere to applicable laws or for other reasons, we may not be
able to obtain, or to maintain once obtained, regulatory approval for such products or product candidate or successfully commercialize such products or product candidates, and we may be held liable
for any injuries sustained as a result. Any of these factors could cause a delay in clinical development, regulatory submissions, approvals or commercialization of our products or product candidates,
entail higher costs or result in our being unable to effectively commercialize our product candidates. The FDA conducted a cGMP and pre-approval inspection related to our NDA for Cotempla XR-ODT from
May 27 to June 4, 2015. At the end of the inspection, the agency issued a Form FDA 483 with one observation finding that appropriate controls are not exercised over one of our computer
systems in order to assure that changes in records are instituted only by authorized personnel. We implemented
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corrective
action related to this observation and responded to the FDA, and the FDA closed the inspection. In addition, in connection with a general cGMP and pre-approval inspection for Adzenys ER
from July 11 to July 25, 2017, we received a Form FDA 483 with one observation related to complaint records failing to document the reason and the individual making the decision not to
conduct a complaint investigation. We implemented corrective action related to this observation and responded to the FDA.
If we fail to manufacture Adzenys XR-ODT, Cotempla XR-ODT or, Adzenys ER in sufficient quantities and at
acceptable quality and pricing levels, or fail to obtain adequate DEA quotas for controlled substances, or to fully comply with cGMP regulations, we may face delays in the commercialization of these
products or our product candidates, if approved, or be unable to meet market demand, and may be unable to generate potential revenues.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced
manufacturing techniques and process controls, and the use of specialized processing equipment. In order to meet anticipated demand for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER we have installed
specialized processing equipment in our Grand Prairie, Texas facilities, which we believe will produce sufficient quantities of our products for commercialization. We purchase raw materials and
components from various suppliers in order to manufacture Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. If we are unable to source the required raw materials from our suppliers, or if we do not
obtain DEA quotas or receive inadequate DEA quotas, we may experience delays in manufacturing Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, and may not be able to meet our customers' demands for our
products.
In
addition, we must comply with federal, state and foreign regulations, including cGMP requirements enforced by the FDA through its facilities inspection program. Any failure to comply
with applicable regulations may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or voluntary recall, or withdrawal of product
approval, and would limit the availability of our products. Any manufacturing defect or error discovered after products have been produced and distributed could result in even more significant
consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.
Our
Grand Prairie facility was formerly operated by our predecessor, PharmaFab, Inc., or PharmaFab. In April 2007, the FDA announced entry of a Consent Decree of Permanent
Injunction, or the Consent Decree, against PharmaFab, one of its subsidiaries and two of its officials, including Mark Tengler, a former officer of ours who was, at the time, PharmaFab's president,
and Russ McMahen, our Senior Vice President of Scientific Affairs, who held a similar position at the time with PharmaFab, or jointly, the Defendants. The Consent Decree arose out of several perceived
cGMP deficiencies related to the manufacture of unapproved drugs or Drug Efficacy Study Implementation ("DESI"), drugs that we no longer manufacture. Pursuant to the Consent Decree, the Defendants
were permanently restrained and enjoined from directly or indirectly manufacturing, processing, packing, labeling, holding or distributing any prescription drugs that are not the subject of an NDA or
an abbreviated NDA. Among other things, the Consent Decree also granted the FDA the ability to, without prior notice, inspect PharmaFab's place of business and take any other measures necessary to
monitor and ensure continuing compliance with the terms of the Consent Decree. The FDA has inspected the Grand Prairie facility several times since the Consent Decree was entered, and we have been
able to manufacture and ship our generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT, and Adzenys ER for commercial distribution and drug products for our clinical trials. Although we have concluded
the annual audit program prescribed by the Consent Decree entered into by our predecessor, our facilities may be inspected by the FDA at any time as a result of the Consent Decree. Although for our
most recent annual audit by the cGMP expert in November 2014, the expert concluded that our corrective
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actions
satisfactorily addressed the observations noted in its report, on May 22, 2015, the FDA's Dallas District Office identified three ongoing cGMP deviations in our response to the audit
related to batch failure investigations, quality control unit procedures, and in-process specifications. We implemented corrective actions and submitted additional information in our response to the
FDA pursuant to the Consent Decree and the FDA closed the matter. Although we may apply for relief from the Consent Decree in the future, there is no guarantee that such relief will be granted or that
we will be in compliance with the requirements of the Consent Decree.
If
we are unable to produce the required commercial quantities of Adzenys XR-ODT, Cotempla XR-ODT or Adzenys ER to meet market demand for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER
on a timely basis or at all, or if we fail to comply with applicable laws for the manufacturing of Adzenys XR-ODT, Cotempla XR-ODT or Adzenys ER, we will suffer damage to our reputation and commercial
prospects and we will be unable to generate potential revenues.
If we are unable to support demand for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER and any future product
candidates, including ensuring that we have adequate capacity to meet increased demand, or we are unable to successfully manage the evolution of our drug delivery technology platform, our business
could suffer.
As our volume grows, we will need to continue to increase our workflow capacity for customer service, improve our billing and general process,
expand our internal quality assurance program and extend our platform to support product production at a larger scale within expected turnaround times. We may need additional certified laboratory
scientists and other scientific and technical personnel to process higher volumes of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER. Portions of our process are not automated and will require
additional personnel to scale. We may also need to purchase additional equipment, some of which can take several months or more to procure, set up and validate, and increase our software and computing
capacity to meet increased demand. There is no assurance that any of these increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements will be
successfully implemented, or that we will have adequate space in our facilities to accommodate such required expansion.
As
additional products, such as Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, are commercialized, we will need to incorporate new equipment, implement new technology systems and
laboratory processes and hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time delays, higher product costs, declining product
quality, deteriorating customer service and slower responses to competitive challenges. A failure in any one of
these areas could make it difficult for us to meet market expectations for our products and could damage our reputation and the prospects for our business.
If our sole facility becomes damaged or inoperable or we are required to vacate our facility, our ability to
manufacture Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER, our generic Tussionex or future potential product candidates for clinical development, may be jeopardized. Our inability to continue
manufacturing adequate supplies of our products could adversely affect our ability to generate revenues.
All of our manufacturing capabilities are housed in our sole manufacturing facility located in Grand Prairie, Texas. Our facility and equipment
could be harmed or rendered inoperable by natural or man-made disasters, including war, fire, tornado, power loss, communications failure or terrorism, any of which may render it difficult or
impossible for us to operate our drug delivery technology platform and manufacture our product candidates or products for some period of time. The inability to manufacture our products and product
candidates if our facility or our equipment is inoperable, for even a short period of time, may result in the loss of customers or harm to our reputation, and we may be unable to regain those
customers or repair our reputation in the future. Furthermore, our facility and the equipment we use to manufacture our products and product candidates could become damaged
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and
time-consuming to repair or replace. It would be difficult, time-consuming and expensive to rebuild our facility or repair or replace our equipment or license or transfer our proprietary
technology to a third-party, particularly in light of the requirements for a DEA-registered manufacturing and storage facility like ours. If we are required to change or add a new manufacturer or
supplier, the process would likely require prior FDA, DEA and/or equivalent foreign regulatory authority approval, and would be very time consuming. Even in the unlikely event we are able to find a
third party with such qualifications to enable us to manufacture our products or product candidates, we may be unable to negotiate commercially reasonable terms.
We
carry insurance for damage to our property and the disruption of our business, but this insurance may not cover all of the risks associated with damage or disruption to our business,
may not provide coverage in amounts sufficient to cover our potential losses and may not continue to be available to us on acceptable terms, if at all. An inability to continue manufacturing adequate
supplies of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER or our generic Tussionex at our Grand Prairie, Texas facilities could result in a disruption in the supply of Adzenys XR-ODT, Cotempla XR-ODT,
Adzenys ER, or our generic Tussionex to physicians and pharmacies, which would adversely affect our ability to generate revenues.
If other forms of our products and product candidates are approved and successfully commercialized by other
third parties, especially if approved before we can successfully commercialize our products and product candidates, our business would be materially harmed.
Other third parties may seek approval to manufacture and market their own versions of product candidates in our product pipeline in the United
States. If any of these parties obtain FDA approval of such a competitive product before we do, they may be entitled to three years of marketing exclusivity. Such exclusivity would, for example, delay
the commercialization of our product candidates and, as a result, we may never achieve significant market share for these products. Consequently, revenues from product sales of these products would be
similarly delayed and our business, including our development programs, and growth prospects would suffer. Even if any of our product candidates are approved before a competitor's product candidate,
we may not be entitled to any marketing exclusivity and, other than under circumstances in which third parties may infringe or are infringing our patents, we may not be able to prevent the submission
or approval of another full NDA for any competitor's product candidate.
Amphetamine, methylphenidate and hydrocodone are Schedule II controlled substances under the
Controlled Substances Act, and any failure to comply with this Act or its state equivalents would have a negative impact on our business.
Amphetamine, methylphenidate and hydrocodone are listed by the DEA as a Schedule II controlled substance under the Controlled Substances
Act ("CSA"). The DEA classifies substances as Schedule I, II, III, IV or V controlled substances, with Schedule I controlled substances considered to present the highest risk of
substance abuse and Schedule V controlled substances the lowest risk. Scheduled controlled substances are subject to DEA regulations relating to supply, procurement, manufacturing, storage,
distribution and physician prescription procedures. For example, Schedule II controlled substances are subject to various restrictions, including, but not limited to, mandatory written
prescriptions and the prohibition of refills. In addition to federal scheduling, some drugs may be subject to state-controlled substance laws and regulations and more extensive requirements than those
determined by the DEA and FDA. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may schedule products separately. While some states
automatically schedule a drug when the DEA does so, other states require additional state rulemaking or legislative action, which could delay commercialization. Some state and local governments
also
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require
manufacturers to operate a drug stewardship program that collects, secures, transports and safely disposes of unwanted drugs.
Entities
must register annually with the DEA to manufacture, distribute, dispense, import, export and conduct research using controlled substances. In addition, the DEA requires entities
handling controlled substances to maintain records and file reports, including those for thefts or losses of any controlled substances, and to obtain authorization to destroy any controlled
substances.
Registered
entities also must follow specific labeling and packaging requirements, and provide appropriate security measures to control against diversion of controlled substances.
Security requirements vary by controlled substance schedule with the most stringent requirements applying to Schedule I and Schedule II controlled substances. Required security measures
include background checks on employees and physical control of inventory through measures such as vaults and inventory reconciliations. Failure to follow these requirements can lead to significant
civil and/or criminal penalties and possibly even lead to a revocation of a DEA registration. The DEA also has a production and procurement quota system that controls and limits the availability and
production of Schedule I or II controlled substances. If we or any of our suppliers of raw materials that are DEA-classified as Schedule I or II controlled substances are unable to
receive any quota or a sufficient quota to meet demand for our products, if any, our business would be negatively impacted.
Products
containing controlled substances may generate public controversy. As a result, these products may have their marketing approvals withdrawn. Political pressures and adverse
publicity could lead to delays in, and increased expenses for, and limit or restrict, the introduction and marketing of our product or product candidates.
Legislative or regulatory reform of the health care system in the United States may adversely impact our
business, operations or financial results.
Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. In particular, in March
2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "Affordable Care Act"), was signed into law. This
legislation changes the current system of healthcare insurance and benefits intended to broaden coverage and control costs. The law also contains provisions that will affect companies in the
pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the
following:
-
-
mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in
risk-based Medicaid managed care plans.
-
-
the 340B Drug Pricing Program under the Public Health Service Act has been extended to require mandatory discounts for drug products sold to
certain critical access hospitals, cancer hospitals and other covered entities.
-
-
pharmaceutical companies are required to offer discounts on branded drugs to patients who fall within the Medicare Part D coverage gap,
commonly referred to as the "Donut Hole."
-
-
pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company's market share of
prior year total sales of branded drugs to certain federal healthcare programs, such as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense. The aggregated industry-wide fee
is expected to total $28.0 billion through 2019. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal health program pharmaceutical market, we do
not expect this annual assessment to have a material impact on our financial condition.
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Despite
initiatives to invalidate the Affordable Care Act, the U.S. Supreme Court has upheld certain key aspects of the legislation, including a tax-based shared responsibility payment
imposed on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly , referred to as the "individual mandate". However, the new presidential
administration has indicated that enacting changes to the Affordable Care Act is a legislative priority, and has discussed repealing and replacing the Affordable Care Act or amending the Affordable
Care Act. For example, Congress has considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act
of 2017 includes a provision repealing the individual mandate, effective January 1, 2019. In addition, since January 2017, President Trump has signed two Executive Orders designed to delay the
implementation of certain provisions of
the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Further, the Trump administration has concluded that cost-sharing reduction, or CSR, payments to
insurance companies required under the ACA have not received necessary appropriations from Congress and announced that it will discontinue these payments immediately until such appropriations are
made. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments was
introduced in the Senate, but the future of that bill is uncertain. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a
restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting
benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such
marketplaces. In 2018, Congress may consider other legislation to repeal and replace elements of the Affordable Care Act, and litigation and legislation over the Affordable Care Act are likely to
continue, with unpredictable and uncertain results. Changes to the Affordable Care Act or other existing health care regulations could significantly impact our business and the pharmaceutical
industry. Although it is too early to determine the effect of legal challenges, pending legislation, and executive action on the Affordable Care Act, the law appears likely to continue the pressure on
pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
Additionally,
other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted:
-
-
The Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit
Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation's
automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013 and
will remain in effect through 2025 unless additional Congressional action is taken.
-
-
The American Taxpayer Relief Act of 2012, among other things, 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.
-
-
The Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers for Medicare & Medicaid Services reduce the Medicare
clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years. In addition, effective January 1, 2014, CMS also began bundling the Medicare payments for
certain laboratory tests ordered while a patient received services in a hospital outpatient setting.
Further,
there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent
Congressional inquiries
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and
proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program
reimbursement methodologies for products. In addition, the United States government, state legislatures, and foreign governments have shown significant interest in implementing cost containment
programs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government paid health
care costs. Individual states in the United States have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product
pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed
to encourage importation from other countries and bulk purchasing. We anticipate pricing scrutiny will continue and escalate, including on a global basis. As a result, our business and reputation may
be harmed, our stock price may be adversely impacted and experience periods of volatility, and our results of operations may be adversely impacted
In
addition, in September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including the authority to require
post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with REMS approved by the FDA. The FDA's exercise of this authority could result in delays
or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the
sale and/or distribution of approved products.
Moreover,
we cannot predict what healthcare reform initiatives may be adopted in the future. Further federal and state legislative and regulatory developments are likely, and we expect
ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from product candidates that we may successfully
develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
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 have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations. Our operations involve the use of hazardous and flammable
materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes.
We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of 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.
Although
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 or
other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future
environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and
regulations also may result in substantial fines, penalties or other sanctions.
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If we are unable to achieve and maintain adequate levels of coverage and reimbursement for our products or,
if approved, product candidates their commercial success may be severely hindered.
Successful sales of our products and any product candidates that receive regulatory approval depend on the availability of adequate coverage and
reimbursement from third-party payors. Patients who are prescribed medications for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs
associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product
acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or
subsequently become available. Assuming we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find
unacceptably high. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
In
addition, the market for Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER will depend significantly on access to third-party payors' drug formularies, or lists of medications for which
third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also,
third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access through formulary controls or otherwise to a branded drug when a less
costly generic equivalent or other alternative is available.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the
United States, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ
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.
Further,
we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third party coverage
and reimbursement for our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could have a
material adverse effect on our business, results of operations, financial condition and prospects.
Our relationships with customers, healthcare providers and third-party payors are subject to applicable
anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits
and future earnings.
For our product and any product candidates that obtain regulatory approval and are marketed in the United States, our arrangements with
third-party payors, healthcare providers, and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial
arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to health information privacy and
security regulation by U.S. federal and state governments and foreign jurisdictions in which we conduct our business. In the United States, these laws include, without
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limitation,
state and federal anti-kickback, false claims, physician transparency, and patient data privacy and security laws and regulations, including but not limited to those described
below.:
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The federal Anti-Kickback Statute, makes it illegal for any person, including a prescription drug or biologic manufacturer (or a party on its
behalf) to knowingly and willfully solicit, receive, offer or pay remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward referrals, either the referral of an
individual, or the purchase, recommendation, order or prescription of a particular item, drug or service for which payment may be made under a federal healthcare program, such as the Medicare and
Medicaid programs. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare
programs. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it.
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The federal False Claims Act imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities
(including manufacturers) 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. Penalties for a False Claims Act violation include three
times the actual damages sustained by the government, plus mandatory civil penalties of between $11,781and $22,363 for each separate false claim, the potential for exclusion from participation in
federal healthcare programs and the potential implication of various federal criminal statutes. The government may deem manufacturers to have "caused" the submission of false or fraudulent claims by,
for example, providing inaccurate billing or coding information to customers or promoting a product off-label. Claims which include items or services resulting from a violation of the federal
Anti-Kickback Statute are false or fraudulent claims for purposes of the False Claims Act. Our future marketing and activities relating to the reporting of wholesaler or estimated retail prices for
our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and
marketing of our product and any future product candidates, are subject to scrutiny under this law.
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Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), which imposes criminal and civil liability for knowingly and willfully
executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private payors, or falsifying, concealing or covering up a material fact, or making any materially
false statements in connection with the delivery of or payment for healthcare benefits, items, or services.
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 ("HITECH"), and their respective
implementing regulations, which impose, among other things, specified requirements on covered entities and their business associates, relating to the privacy, and security of individually identifiable
health information, including mandatory contractual terms and required implementation of technical safeguards of such information. HITECH also created new tiers of civil monetary penalties, amended
HIPAA to make civil and criminal penalties applicable to business associates, and gave state attorneys general new authority to file civil actions for damage or injunctions in federal courts to
enforce the federal HIPAA laws and seek attorneys' fees and costs associated with pursuing federal civil actions.
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The Physician Payments Sunshine Act, enacted as part of the Affordable Care Act which imposed new annual reporting requirements for certain
manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children's Health Insurance Program for certain payments and other
"transfers of value"
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The
scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable
precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number
of investigations, prosecutions, convictions and settlements in the healthcare industry. It is possible that governmental authorities will conclude that our business practices do 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 related governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines,
imprisonment, disgorgement, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, reputational harm, additional oversight and reporting obligations if
we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. 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 similar actions, penalties and
sanctions. Efforts to ensure that our business arrangements comply with applicable healthcare laws and regulations, as well as responding to possible investigations by government authorities, can be
time- and resource-consuming and can divert a company's attention from the business.
Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the
commercial potential of our products.
The risk that we may be sued on product liability claims is inherent in the development of pharmaceutical products. We face a risk of product
liability exposure related to the testing of our product candidates in clinical trials and face even greater risks upon any commercialization by us of our products and product candidates. These
lawsuits may divert our management from pursuing our business strategy and may be costly to defend. In addition, if we are held liable in any of these lawsuits, we may incur substantial liabilities
and may be forced to limit or forego further commercialization of one or more of our products.
Our product liability insurance coverage may not be adequate to cover any and all liabilities that we may
incur.
We currently have $10.0 million in product liability insurance coverage in the aggregate, which may not be adequate to cover any and all
liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability
that may arise. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series
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of
claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business. In addition, we may not be able to obtain or maintain
sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims, which could prevent or inhibit the commercial production and sale of our
products. For example, we have experienced increasing difficulty in procuring insurance coverage for our products and product candidates due to their status as controlled substances.
RISKS RELATED TO THE CLINICAL DEVELOPMENT, REGULATORY REVIEW AND APPROVAL OF OUR PRODUCT CANDIDATES
Our failure to successfully identify, develop and market additional product candidates could impair our
ability to grow.
As part of our growth strategy, we intend to identify, develop and market additional product candidates. We are exploring various therapeutic
opportunities for our pipeline and proprietary technologies. We may spend several years completing our development of any particular current or future internal product candidates, and failure can
occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent
upon pharmaceutical companies,
academic scientists and other researchers to sell or license product candidates, approved products or the underlying technology to us. The success of this strategy depends partly upon our ability to
identify, select, discover and acquire promising product candidates and products.
The
process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with
substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify
and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential
acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product
candidates on terms that we find acceptable, or at all.
In
addition, future acquisitions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management's time and attention to develop acquired products or technologies;
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incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
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higher than expected acquisition and integration costs;
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difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;
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increased amortization expenses;
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impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership; and
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inability to motivate key employees of any acquired businesses.
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Further,
any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and other
regulatory authorities.
Premarket review of our product candidates by the FDA or other regulatory authorities is a lengthy and
uncertain process and approval may be delayed, limited or denied, any of which would adversely affect our ability to generate operating revenues.
The FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate
for many reasons. For example, the FDA:
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-
could determine that we cannot rely on the 505(b)(2) regulatory approval pathway for any future product candidate that we may identify and
develop;
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could determine that the information provided by us was inadequate, contained clinical deficiencies or otherwise failed to demonstrate safety
and effectiveness of any of our product candidates for any indication;
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-
may not find the data from bioequivalence studies and/or clinical trials sufficient to support the submission of an NDA or to obtain marketing
approval in the United States, including any findings that the safety risks outweigh clinical and other benefits of our product candidates;
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-
may require us to conduct additional bioequivalence studies to demonstrate that the proposed commercial product is bioequivalent to the batch
used in clinical trials;
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-
may disagree with our trial design or our interpretation of data from nonclinical studies, bioequivalence studies and/or clinical trials, or
may change the requirements for approval even after it has reviewed and commented on the design for our trials;
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-
may determine that we inappropriately relied on a certain listed drug or drugs for our 505(b)(2) NDA or that approval of our applications for
any future product candidate is blocked by patent or non-patent exclusivity of the listed drug or drugs;
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may identify deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we enter into agreements for the
supply of the API used in our product candidates;
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may identify deficiencies in our own manufacturing processes or our proposed scale-up of the manufacturing processes or facilities for the
production of our product candidates;
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may approve our product candidates for fewer or more limited indications than we request, or may grant approval contingent on the performance
of costly post-approval clinical trials;
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-
may change its approval policies or adopt new regulations; or
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may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our product candidates.
Notwithstanding
the approval of many products by the FDA pursuant to 505(b)(2), over the last few years, some pharmaceutical companies and others have objected to the FDA's
interpretation of 505(b)(2). If the FDA changes its interpretation of 505(b)(2), or if the FDA's interpretation is successfully challenged in court, this could delay or even prevent the FDA from
approving any 505(b)(2) application that we submit. Any failure to obtain regulatory approval of our product candidates would significantly limit our ability to generate revenues, and any failure to
obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenues.
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If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2)
regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates
will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.
We intend to seek FDA approval through the 505(b)(2) regulatory approval pathway for each of our future product candidates in our product
pipeline. The Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Amendments, added 505(b)(2) to the FDCA. Section 505(b)(2) permits the
submission of an NDA where at least some of the information required for approval comes from trials that were not conducted by or for the applicant and for which the applicant does not have a right of
reference.
If
we cannot pursue the 505(b)(2) regulatory approval pathway for our product candidates as we intend, we may need to conduct additional nonclinical studies or clinical trials, provide
additional data and information and meet additional requirements for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for our product
candidates likely would increase substantially. Moreover, the inability to pursue the 505(b)(2) regulatory approval pathway could result in new competitive products reaching the market before our
product candidates, which could materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the 505(b)(2) regulatory approval pathway for a product candidate,
we cannot assure you that we will receive the requisite or timely approvals for commercialization of such product candidate.
In
addition, our competitors may file citizen petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical trials that support their approval,
contain deficiencies or that new regulatory requirements be placed on the product candidate or drug class of the product candidate. Such actions by our competitors could delay or even prevent the FDA
from approving any NDA that we submit under 505(b)(2).
An NDA submitted under 505(b)(2) may subject us to a patent infringement lawsuit that would delay or prevent
the review or approval of our product candidate.
Our product candidates will be submitted to the FDA for approval under 505(b)(2) of the FDCA. Section 505(b)(2) permits the submission of
an NDA where at least some of the information required for approval comes from trials that were not conducted by, or for, the applicant and for which the applicant has not obtained a right of
reference. An NDA under 505(b)(2) would enable us to reference published literature and/or the FDA's previous findings of safety and effectiveness for the previously approved drug.
For
NDAs submitted under 505(b)(2), the patent certification and related provisions of the Hatch-Waxman Amendments apply. Accordingly, we may be required to include certifications, known
as Paragraph IV certifications, that certify that any patents listed in the Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as "the Orange Book"), with respect
to any product referenced in the 505(b)(2) application, are invalid, unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)(2) NDA.
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Under the Hatch-Waxman Amendments, the holder of patents that the 505(b)(2) application references may file a patent infringement lawsuit after receiving
notice of the Paragraph IV certification. Filing of a patent infringement lawsuit against the filer of the 505(b)(2) applicant within 45 days of the patent owner's receipt of notice
triggers a one-time, automatic, 30-month stay of the FDA's ability to approve the 505(b)(2) NDA, unless patent litigation is resolved in favor of the Paragraph IV filer or the patent expires
before that time. Accordingly, we may invest a significant amount of time and expense in the development of one or more product candidates only to be subject to significant delay and patent litigation
before such product candidates may be commercialized, if at all.
In
addition, a 505(b)(2) application will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, or NCE, listed in the
Orange Book for the listed drug has expired. The FDA also may require us to perform one or more additional clinical trials or measurements to support the change from the listed drug, which could be
time consuming and could substantially delay our achievement of regulatory approval. The FDA also may reject any future 505(b)(2) submissions and require us to submit traditional NDAs under 505(b)(1),
which would require extensive data to establish safety and effectiveness of the drug for the proposed use and could cause delay and additional costs. These factors, among others, may limit our ability
to commercialize our product candidates successfully.
Our approved products and product candidates may cause adverse effects or have other properties that could
delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance, or result in significant negative consequences following marketing approval, if any.
As with many pharmaceutical products, treatment with our products or product candidates may produce undesirable side effects or adverse
reactions or events. Although our products and product candidates contain active ingredients that have already been approved, meaning that the side effects arising from the use of the active
ingredient or class of drug in our product candidates is generally known, our products or product candidates still may cause undesirable side effects. These could be attributed to the active
ingredient or class of drug or to our unique formulation of such products or product candidates, or other potentially harmful characteristics. Such characteristics could cause us, institutional review
boards, or IRBs, clinical trial sites, the FDA or other regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label, if the product candidate is
approved, or the delay, denial or withdrawal of regulatory approval, which may harm our business, financial condition and prospects significantly.
Further,
if any of our products cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result,
including:
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regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution;
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the FDA may require implementation of a REMS;
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-
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
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we may be required to change the way the product is administered or conduct additional clinical trials;
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we may need to voluntarily recall our products
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we could be sued and held liable for harm caused to patients; or
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our reputation may suffer.
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Any
of these events could prevent us from achieving or maintaining market acceptance of the affected product or product candidate and could substantially increase the costs of
commercializing our products and product candidates.
We will need to obtain FDA approval of any proposed names for our product candidates that gain marketing
approval, and any failure or delay associated with such naming approval may adversely impact our business.
Any name we intend to use for our product candidates will require approval from the FDA regardless of whether we have secured a formal trademark
registration from the U.S. Patent and Trademark Office ("USPTO"). The FDA typically conducts a review of proposed product names, including an evaluation of whether proposed names may be confused with
other product names. The FDA may object to any product name we submit if it believes the name inappropriately implies medical claims.
If
the FDA objects to any of our proposed product names, we may be required to adopt an alternative name for our product candidates, which could result in further evaluation of proposed
names with the potential for additional delays and costs.
Obtaining and maintaining regulatory approval of our product candidates in one jurisdiction does not mean
that we will be successful in obtaining regulatory approval of our product candidates in other jurisdictions.
Even if we obtain and maintain regulatory approval of our product candidates in one jurisdiction, such approval does not guarantee that we will
be able to obtain or maintain regulatory approval in any other jurisdiction, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory
approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the
manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods
different from those in the United States, including additional nonclinical studies or clinical trials as investigations conducted in one jurisdiction may not be accepted by regulatory authorities in
other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the
price that we intend to charge for our products is also subject to approval.
Obtaining
foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent
the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or to receive applicable marketing approvals, our target
market will be reduced and our ability to realize the full market potential of our product candidates will be harmed.
We are heavily dependent on the success of our product candidates. We cannot give any assurance that we will
receive regulatory approval for our product candidates, which is necessary before they can be commercialized.
Our business and future success are substantially dependent on our ability to timely obtain regulatory approval for and commercialize any
product candidates that we may identify and pursue. We are not permitted to market any of our product candidates in the United States until we receive approval of an NDA from the FDA, or in any
foreign jurisdiction until we receive the requisite approvals from such jurisdiction. Satisfaction of regulatory requirements can be protracted, is dependent upon the type, complexity and novelty of
the product candidate and requires the expenditure of substantial resources. We cannot predict whether we will obtain regulatory approval to commercialize our product candidates, and we cannot,
therefore, predict the timing of any future revenues from these product candidates, if any. Any delay or setback in the regulatory approval or commercialization of any of these product candidates
could adversely affect our business.
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The commencement and completion of clinical trials can be delayed or prevented for a number of reasons.
We intend to identify, develop and market additional product candidates; however, we may not be able to commence or complete the clinical trials
that would support the submission of an NDA to the FDA. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. Clinical
trials can be delayed or prevented for a number of reasons, including:
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difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority
regarding the scope or term of a clinical trial;
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delays in reaching or failing to reach agreement on acceptable terms with prospective contract research organizations, or CROs, contract
manufacturing organizations, or CMOs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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failure of our third-party contractors, such as CROs and CMOs, or our investigators to comply with regulatory requirements or otherwise meet
their contractual obligations in a timely manner;
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insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials;
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difficulties obtaining IRB approval to conduct a clinical trial at a prospective site;
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the FDA requiring alterations to any of our study designs, our nonclinical strategy or our manufacturing plans;
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challenges recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including size and nature of subject
population, proximity of subjects to clinical sites, eligibility criteria for the trial, nature of trial protocol, the availability of approved effective treatments for the relevant disease and
competition from other clinical trial programs for similar indications;
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difficulties maintaining contact with subjects after treatment, which results in incomplete data;
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receipt by a competitor of marketing approval for a product targeting an indication that our product targets;
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governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and
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varying interpretations of data by the FDA and similar foreign regulatory agencies.
Clinical
trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the
IRBs at the sites where the IRBs are overseeing a trial, or a data safety monitoring board overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors,
including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;
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unforeseen safety issues, including serious adverse events associated with a product candidate, or lack of effectiveness; and
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lack of adequate funding to continue the clinical trial.
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Positive results in previous nonclinical studies and clinical trials of any of our product candidates may not
be replicated in future clinical trials of the same product candidates, which could result in development delays or a failure to obtain marketing approval.
Positive results in nonclinical studies and clinical trials of any of our product candidates may not be predictive of similar results in future
clinical trials. Also, interim results during a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in late-stage clinical trials even after
achieving promising results in early-stage development. Accordingly, the results from any completed nonclinical studies and clinical trials for any of our product candidates may not be predictive of
the results we may obtain in later stage trials. Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical
trials. Moreover, clinical data is often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical
studies and clinical trials have nonetheless failed to obtain FDA approval for their products.
RISKS RELATED TO OUR BUSINESS AND FINANCIAL POSITION
We have incurred significant operating losses since our inception and anticipate that we will continue to
incur losses for the foreseeable future.
Our company has limited operating history commercializing branded products. Adzenys XR-ODT and Cotempla XR-ODT require and Adzenys ER will
require substantial resources as we implement commercialization strategies to seek to begin generating substantial revenue from product sales. In addition, our product candidates will require
substantial additional resources before we will be able to receive regulatory approvals, implement commercialization strategies and begin generating revenue from product sales, if approved. There can
be no assurance that any of our product candidates will ever achieve regulatory approval or generate any substantial revenue or revenue at all. We do not anticipate generating substantial revenue from
sales of Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER, if any, or any of our other product candidates in the near term, if ever. We have incurred significant net losses of $66.2 million,
$83.3 million and $30.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we had an accumulated deficit of
$266.4 million. We have devoted most of our financial resources to implementation of our commercialization strategies, manufacturing operations and product development. To date, we have
financed our operations primarily through the sale of equity and debt securities and payments received under collaborative arrangements. The size of our future net losses will depend, in part, on the
rate of future expenditures and our ability to generate revenue. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to fully predict the
timing or amount of our increased expenses, but we expect to continue to incur substantial expenses, which we expect will increase as we expand our development activities and operate a specialty sales
force and commercialization infrastructure. Our expenses could increase beyond expectations if we are required by the FDA to perform studies in addition to the clinical trials we have already
completed. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future, which may increase compared to past
periods. Even if we are able to generate revenue from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
We may need additional funding and may be unable to raise capital when needed, which would force us to delay,
reduce or eliminate our product development programs or commercialization efforts.
Developing future potential product candidates, conducting clinical trials, establishing raw material supplier relationships and manufacturing
and marketing drugs are expensive and uncertain processes. Although we believe our cash, cash equivalents and marketable securities and anticipated future
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product
revenues will be sufficient to allow us to fund the commercialization of Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, we may need to obtain additional capital through equity offerings, debt
financing, payments under new or existing licensing and research and development collaboration agreements, or any combination thereof, in order to become cash flow positive and to develop and
commercialize additional product candidates. If sufficient funds on acceptable terms are not available when needed, we could be required to significantly reduce operating expenses and delay, reduce
the scope of, or eliminate one or more of our development programs, which may have a material adverse effect on our business, results of operations and financial condition.
In
addition, unforeseen circumstances may arise, or our strategic imperatives could change, causing us to consume capital significantly faster than we currently anticipate, requiring us
to seek to raise additional funds sooner than expected. We have no committed external sources of funds.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
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the costs of establishing and operating sales, marketing, distribution and commercial manufacturing capabilities for Adzenys XR-ODT, Cotempla
XR-ODT, Adzenys ER and any other potential product candidates;
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our ability to successfully commercialize Adzenys XR-ODT, Cotempla XR-ODT and Adzenys ER, and to continue to increase the level of sales in the
marketplace;
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the rate of progress and cost of our trials and other product development programs for our other potential product candidates;
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the costs and timing of in-licensing additional product candidates or acquiring other complementary technologies, assets or companies;
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the actions of our competitors and their success in selling competitive product offerings; and
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the status, terms and timing of any collaborative, licensing, co-promotion or other arrangements.
Additional
financing may not be available when we need it or may not be available on terms that are favorable to us. In addition, we may seek additional capital due to favorable market
conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. If adequate funds are not available to us on a timely basis, or at all,
we may be required to delay, reduce the scope of or eliminate commercialization efforts for one or more of our product candidates or development programs for future potential product candidates.
We may sell additional equity or incur debt to fund our operations, which may result in dilution to our
stockholders and impose restrictions on our business.
In order to raise additional funds to support our operations, we may sell additional equity or incur debt, which could adversely impact our
stockholders, as well as our business. The sale of additional equity or convertible debt securities would result in the issuance of additional
shares of our capital stock and dilution to all of our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive
covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to
repay our indebtedness at the time any such repayment is required (causing a default under such indebtedness), which could have a material adverse effect on our business, financial condition and
results of operations.
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We may not have cash available to us in an amount sufficient to enable us to make interest or principal
payments on our indebtedness when due.
On May 11, 2016, we entered into a $60 million senior secured credit facility with Deerfield as lender. Approximately
$33 million of the proceeds was used to repay the existing senior and subordinated debt that was otherwise payable in 2016 and 2017. Principal on the new debt is due in three equal annual
installments beginning in May 2019 and continuing through May 2022, with a final payment of principal, interest and all other obligations under the facility due on May 11, 2022. Interest is due
quarterly beginning in June 2016, at a rate of 12.95% per year. All obligations under our credit facility are secured by substantially all of our existing property and assets subject to certain
exceptions. This debt financing may create additional financial risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our
outstanding debt obligations at maturity. Since our inception, we have had significant operating losses. As of December 31, 2017, we had an accumulated deficit of $266.4 million. We
expect to continue to incur net losses and have negative cash flow from operating activities for the foreseeable future as we continue to develop and seek marketing approval for our product
candidates. As a result, we may not have sufficient funds, or may be unable to arrange for additional financing, to pay the amounts due on our outstanding indebtedness under our credit facility with
Deerfield. Further, funds from external sources may not be available on economically acceptable terms, if at all. For example, if we raise additional funds through collaboration, licensing or other
similar arrangements, it may be necessary to relinquish potentially valuable rights to our product candidates or technologies, or to grant licenses on terms that are not favorable to us. If adequate
funds are not available when and if needed, our ability to make interest or principal payments on our debt obligations, finance our operations, our research and development efforts and other general
corporate activities would be significantly limited and we may be required to delay, significantly curtail or eliminate one or more of our programs.
Failure
to satisfy our current and future debt obligations under our credit facility with Deerfield could result in an event of default and, as a result, our lenders could accelerate all
of the amounts due. In the event of an acceleration of amounts due under our credit facility as a result of an event of default,
we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness. In addition, our lenders could seek to enforce their security interests in any
collateral securing such indebtedness.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly and annual fluctuations. We expect that any revenues we generate will fluctuate from
quarter to quarter and year to year as a result of the timing of our commercialization efforts and seasonal trends with respect to ADHD diagnosis and use of medicinal products in the management of
this disorder. Our net loss and other operating results will be affected by numerous factors, including:
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our ability to establish and maintain an effective sales and marketing infrastructure;
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variations in the level of expenses related to our commercialization efforts and the development of additional clinical programs;
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competition from existing products or new products that may emerge;
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the level of market acceptance for any approved product candidates and underlying demand for that product, seasonality in the use of that
product by end-users and wholesalers' buying patterns;
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regulatory developments affecting our products and product candidates;
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our dependency on third-party manufacturers to supply components of our product candidates;
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potential side effects of our future products that could delay or prevent commercialization or cause an approved drug to be taken off the
market;
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any delays in regulatory review and approval of our product candidates;
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any intellectual property infringement lawsuit in which we may become involved; and
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our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these
arrangements.
Due
to the various factors mentioned above, and others, the results of any prior quarterly period should not be relied upon as an indication of our future operating performance. If our
quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our
operating results may, in turn, cause the price of our stock to fluctuate substantially.
Our ability to use our net operating loss carry-forwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), if a corporation undergoes an "ownership change,"
generally defined as a greater than 50% change (by value) in its equity ownership over a three year period, the corporation's ability to use its pre-change net operating loss carry-forwards and other
pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. We have in the past and may experience ownership changes in the future as a result of
subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be
subject to limitations, which could potentially result in increased future tax liability to us. In addition, pursuant to the Tax Cuts and Jobs Act of 2017 we may not use net operating loss
carry-forwards to reduce our taxable income in any year by more than 80% and we may not carry back any net operating losses to prior years. These new rules apply regardless of the occurrence of an
"ownership change."
Our future success depends on our ability to retain key executives and to attract, retain and motivate
qualified personnel.
We are highly dependent on the principal members of our executive team, the loss of whose services may adversely impact the achievement of our
objectives. Any of our executive officers could leave our employment at any time, as all of our employees are "at will" employees. Recruiting and retaining other qualified employees for our business,
including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result,
competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous
pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in clinical trials or to receive regulatory approval for our product candidates may make it more
challenging to recruit and retain qualified personnel. The inability to recruit key executives or the loss of the services of any executive or key employee might impede the progress of our development
and commercialization objectives.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able
to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading
price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate
disclosure controls and procedures, are designed to prevent fraud.
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Any
failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. We have established an annual
SOX Risk Assessment and Control Effectiveness Test Cycle that is designed to timely identify deficiencies to management for remediation to comply with Section 404 of the SOX. We may discover
additional deficiencies in our internal controls over financial reporting, including those identified through testing conducted by us in connection with Section 404 of the SOX. Such
deficiencies may be deemed to be significant deficiencies or material weaknesses that may require prospective or retroactive changes to our consolidated financial statements or identify other areas
for further remedial action. Failures of internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price
of our common stock.
Our business and operations would suffer in the event of system failures.
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 and the confidentiality, 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.
Despite
the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from such cyber attacks, including
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Such an event could cause interruption of our operations. For example, the loss
of data from
completed clinical trials for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs. To the extent that any disruption or security
breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential or proprietary information, we could suffer reputational harm or face litigation or adverse
regulatory action and the development of our product candidates could be delayed.
We may rely on third parties to perform many essential services for any products that we commercialize,
including distribution, customer service, accounts receivable management, cash collection and adverse event reporting. If these third parties fail to perform as expected or to comply with legal and
regulatory requirements, our ability to commercialize Adzenys XR-ODT, Cotempla XR-ODT or Adzenys ER will be significantly impacted and we may be subject to regulatory sanctions.
We may retain third-party service providers to perform a variety of functions related to the sale and distribution of Adzenys XR-ODT, Cotempla
XR-ODT and Adzenys ER, key aspects of which will be out of our direct control. These service providers may provide key services related to distribution, customer service, accounts receivable
management and cash collection. We would substantially rely on these third-party providers to perform services for us. If these third-party service providers fail to comply with applicable laws and
regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, our ability to deliver product to meet commercial demand may be significantly impaired. In
addition, we may engage third parties to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests for medical information
regarding our product candidates and related services. If the quality or accuracy of the data maintained by these service providers is insufficient or if they fail to comply with various requirements,
we could be subject to regulatory sanctions.
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RISKS RELATED TO OUR INTELLECTUAL PROPERTY
If our intellectual property related to our products or product candidates is not adequate, we may not be
able to compete effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to
our products, product candidates and technology. Any disclosure to or misappropriation by third parties of our confidential or proprietary information could enable competitors to duplicate or surpass
our technological achievements, thus eroding our competitive position in our market.
Due
to legal standards relating to patentability, validity, enforceability and scope of claim, patents covering pharmaceutical and biotechnology inventions involve complex legal,
scientific and factual questions. Formulation of drug products such as ours with complex release profiles is an area of intense research, publishing and patenting, which limits the scope of any new
patent applications. As a result, our ability to obtain, maintain and enforce patents is uncertain and any rights under any existing patents, or any patents we might obtain or license, may not provide
us with sufficient protection for our products and product candidates to afford a commercial advantage against competitive products or processes. The patent applications that we own may fail to result
in issued patents in the United States or in foreign countries. Even if patents do successfully issue, third parties may challenge their patentability, validity (e.g., by discovering previously
unidentified prior art, or a patent-barring event such as a prior public disclosure, use, sale or offer for sale of the invention), enforceability or scope, which may result in such patents being
narrowed, invalidated or held unenforceable. For example, U.S. patents may be challenged by third parties via
inter partes
review, post grant review,
derivation or interference proceedings at the USPTO, and European patents may be challenged via an opposition proceeding at the European Patent Office. Furthermore, if we were to assert our patent
rights against a competitor, the competitor could challenge the validity and/or enforceability of the asserted patent rights. Although a granted U.S. patent is entitled to a statutory presumption of
validity, its issuance is not conclusive as to its validity or its enforceability, and it may not provide us with adequate proprietary protection or competitive advantages against competitors with
similar products.
If
the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to our products and product candidates is successfully challenged,
we may face unexpected competition that could have a material adverse impact on our business. Even if they are unchallenged, our patents and patent applications may not adequately protect our
intellectual property or prevent others from designing around our claims. For example, a third party may develop a competitive product that provides therapeutic benefits similar to our products or
product candidates, but is sufficiently different to fall outside the scope of our patent protection.
Furthermore,
if we encounter delays in our clinical trials or entry onto the market in a particular jurisdiction, the period of time during which we could market a particular product
under patent protection would be reduced.
Even
where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such
litigation would be uncertain. If we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering a product or our technology, the defendant
could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace.
Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, lack of written description, non-enablement or a
patent-barring event, such as a public disclosure, use or sale of the invention more than a year before the filing date of the application. Grounds for an unenforceability assertion could, for
example, be an allegation that someone connected with prosecution of the patent withheld material information from the USPTO, or made a misleading
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statement,
during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no
invalidating prior art, of which we and the patent examiner were unaware during prosecution, or that a third party challenging one of our patents would not assert that a patent-barring event had
occurred. If a plaintiff or a defendant were to prevail on a legal assertion of invalidity and/or unenforceability against one or more of our patents, we would lose at least part, and perhaps all, of
the patent protection for one or more of our products or product candidates. Such a loss of patent protection could have a material adverse impact on our business.
For
example, on July 25, 2016, we received a paragraph IV certification from Actavis advising us that Actavis has filed an ANDA with the FDA for a generic version of
Adzenys XR-ODT. On September 1, 2016, we filed a patent infringement lawsuit in federal district court in the District of Delaware against Actavis, Inc. This case alleged that Actavis
infringed our Adzenys XR-ODT patents by submitting to the FDA an ANDA seeking to market a generic version of Adzenys XR-ODT prior to the expiration of our patents. This lawsuit automatically stayed,
or barred, the FDA from approving Actavis's ANDA for 30 months or until a district court decision that is adverse to the asserted patents is rendered, whichever is earlier.
On
October 17, 2017, we entered into a Settlement Agreement (the "Agreement") with Actavis. This Agreement resolves all ongoing litigation involving our Adzenys XR-ODT patents and
Actavis's ANDA. Under the Agreement, we have granted Actavis the right to manufacture and market its generic version of Adzenys XR-ODT under the ANDA beginning on September 1, 2025, or earlier
under certain circumstances. A stipulation and order of dismissal was entered by the U.S. District Court for the District of Delaware. The Agreement has been submitted to the applicable governmental
agencies. There can be no assurance that the Agreement will be approved by such agencies. In addition, there can be no assurance that we would not face future litigation regarding Adzenys XR-ODT,
Cotempla XR-ODT, Adzenys ER or any future product candidates.
For
example, on October 31, 2017, we received a paragraph IV certification from Teva advising us that Teva has filed an ANDA with the FDA for a generic version of Cotempla
XR-ODT, in connection with seeking to market its product prior to the expiration of patents covering Cotempla XR-ODT. A paragraph IV certification is a certification by a generic applicant that
in the opinion of that applicant, the patent(s) listed in the Orange Book for a branded product are invalid, unenforceable, and/or will not be infringed by the manufacture, use or sale of the generic
product. On December 13, 2017, we filed a patent infringement lawsuit in federal district court in the District of Delaware against Teva. This case alleged that Teva infringed our Cotempla
XR-ODT patents by submitting to the FDA an ANDA seeking to market a generic version of Cotempla XR-ODT prior to the expiration of our patents. This lawsuit automatically stayed, or barred, the FDA
from approving Teva's ANDA for 30 months or until a district court decision that is adverse to the asserted patents is rendered, whichever is earlier. Such litigation is often time-consuming
and costly and its outcome would be unpredictable, however, we intend to vigorously enforce our intellectual property rights relating to Cotempla XR-ODT. We would expect to face generic competition
for our Cotempla XR-ODT product if such patents are not upheld or if Teva is found not to infringe such patents. The resulting loss of exclusivity would impact pricing and our sales of Cotempla
XR-ODT, which could have a material adverse impact on our business.
Moreover,
we may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in reexamination,
inter
partes
review, or interference proceedings challenging our patent rights. Patents based on applications that we file in the future may also be subject to derivation and/or
post-grant review proceedings. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights and allow third parties to
commercialize our technology or products and compete directly with us. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could
dissuade
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companies
from collaborating with us to license, develop or commercialize current or future product candidates.
We may not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we
may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States are less extensive than in the United States. In addition, the laws of some foreign countries do not protect
intellectual property rights to the same extent as federal and state laws in the United States. Consequently, even where we do elect to pursue
patent rights outside the United States, we may not be able to obtain relevant claims and/or we may not be able to prevent third parties from practicing our inventions in all countries outside the
United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions.
Competitors
may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may possibly export otherwise
infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other
intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other
intellectual property rights may not be effective or sufficient to prevent third parties from competing with us.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems
in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of
patents and other intellectual property protection. This could make it difficult for us to stop the infringement of our patents, if obtained, 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. In addition, many countries limit the enforceability of
patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.
Patent
protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we have, and may in the
future, choose not to seek patent protection in certain countries. Furthermore, while we intend to protect our intellectual property rights in certain 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.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign 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.
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If we are sued for infringing intellectual property rights of third parties, it will be costly and time
consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.
Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our and their
approved products and use our proprietary technologies without infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which we are developing product candidates. As the pharmaceutical industry expands and more patents are issued, the risk increases that our products and
product candidates may give rise to claims of infringement of the patent rights of others. There may, for example, be issued patents of third parties of which we are currently unaware, that may be
infringed by our products or product candidates, which could prevent us from being able to commercialize our products or product candidates, respectively. Because patent applications can take many
years to issue, there may be currently pending applications which may later result in issued patents that our products or product candidates may infringe.
The
pharmaceutical industry is rife with patent litigation between patent holders and producers of follow-on drug products. The possibility of blocking FDA approval of a competitor's
product for up to 30 months provides added incentive to litigate over Orange Book patents, but suits involving non-Orange Book patents are also common in the ADHD space. There have been
multiple patent litigations involving nearly all of the medications for treatment of ADHD. This trend may continue and, as a result, we may become party to legal matters and claims arising in the
ordinary course of business.
We
may be exposed to, or threatened with, future litigation by third parties alleging that our products or product candidates infringe their intellectual property rights. If one of our
products or product candidates is found to infringe the intellectual property rights of a third party, we or our collaborators could be enjoined by a court and required to pay damages and could be
unable to commercialize the applicable approved products and product candidates unless we obtain a license to the patent. A license may not be available to us on acceptable terms, if at all. In
addition, during litigation, the patent holder could obtain a preliminary injunction or other equitable relief which could prohibit us from making, using or selling our approved products, pending a
trial on the merits, which may not occur for several years.
There
is a substantial amount of litigation involving patent and other intellectual property rights in the pharmaceutical industry generally. If a third party claims that we or our
collaborators infringe its intellectual property rights, we may face a number of issues, including, but not limited to:
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infringement and other intellectual property claims which, regardless of merit, may be expensive and time-consuming to litigate and may divert
our management's attention from our core business;
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third parties bringing claims against us may have more resources than us to litigate claims against us;
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substantial damages for infringement, which we may have to pay if a court decides that the product at issue infringes on or violates the third
party's rights, and, if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner's attorneys' fees;
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a court prohibiting us from selling our product or any product candidate approved in the future, if any, unless the third party licenses its
rights to us, which it is not required to do;
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if a license is available from a third party, we may have to pay substantial royalties, fees or grant cross-licenses to our intellectual
property rights; and
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redesigning any of our products and product candidates so they do not infringe, which may not be possible or may require substantial monetary
expenditures and time.
Our drug development strategy relies heavily upon the 505(b)(2) regulatory approval pathway, which requires
us to certify that we do not infringe upon third-party patents covering approved drugs. Such certifications typically result in third-party claims of intellectual property infringement, the defense of
which would be costly and time consuming, and an unfavorable outcome in any litigation may prevent or delay our development and commercialization efforts which would harm our business.
Our commercial success depends in large part on our avoiding infringement of the patents and proprietary rights of third parties for existing
approved drug products. Because we utilize the 505(b)(2) regulatory approval pathway for the approval of our products and product candidates, we rely in whole or in part on studies conducted by third
parties related to those approved drug products. As a result, upon filing with the FDA for approval of our product candidates, we will be required to certify to the FDA that either: (1) there
is no patent information listed in the FDA's Orange Book with respect to our NDA; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but
will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of our proposed
drug product. If we certify to the FDA that a patent is invalid or not infringed, or a Paragraph IV certification, a notice of the Paragraph IV certification must also be sent to the
patent owner once our 505(b)(2) NDA is accepted for filing by the FDA. The third party may then initiate a lawsuit against us asserting infringement of the patents identified in the notice. The filing
of a patent
infringement lawsuit within 45 days of receipt of the notice automatically prevents the FDA from approving our NDA until the earliest of 30 months or the date on which the patent
expires, the lawsuit is settled, or the court reaches a decision in the infringement lawsuit in our favor. If the third party does not file a patent infringement lawsuit within the required
45-day period, our NDA will not be subject to the 30-month stay. However, even if the third party does not sue within the 45-day time limit, thereby invoking the 30-month stay, it may still challenge
our right to market our product upon FDA approval; therefore, some risk of an infringement suit remains even after the expiry of the 45-day limit. By way of example, when we initially submitted our
Adzenys XR-ODT NDA in December 2012 and in response to our Paragraph IV certification, Shire initiated a lawsuit against us claiming patent infringement against certain of Shire's patents. We
settled with Shire in July 2014. As part of our settlement, among other things, we stipulated that the commercial manufacture, use, selling, offering for sale or importing of Adzenys XR-ODT would
infringe on certain Shire patents and that such patent claims are valid and enforceable with respect to our Adzenys XR-ODT NDA, but that such stipulations do not preclude us from filing new regulatory
applications containing a Paragraph IV certification citing such patents. We also entered into a non-exclusive License Agreement (the "2014 License Agreement") with Shire for certain of Shire's
patents with respect to our Adzenys XR-ODT NDA. Under the terms of the 2014 License Agreement, upon obtaining FDA approval of our Adzenys XR-ODT NDA, we were required to pay a lump-sum, non-refundable
license fee no later than thirty days after receiving such approval and are required to pay a single-digit royalty on net sales of Adzenys XR-ODT during the life of Shire's patents. In addition, on
January 26, 2017, we sent a letter to Shire, notifying Shire that we have made a Paragraph IV certification to the FDA that in our opinion and to the best of our knowledge, the patents
owned by Shire that purportedly cover our Adzenys ER are invalid, unenforceable and/or will not be infringed by the commercial manufacture, use or sale of Adzenys ER. On March 6, 2017, we
entered into a License Agreement (the "2017 License Agreement") with Shire, pursuant to which Shire granted us a non-exclusive license to certain patents owned by Shire for certain activities with
respect to Adzenys ER. Under the terms of the 2017 License Agreement, we were required to pay a lump sum, non-refundable license fee no later than thirty days after receiving regulatory approval and
are required to pay a single digit royalty on net sales of the Adzenys ER during the life of the relevant Shire patents. Additionally, each of the 2014 and 2017 License Agreements contains a covenant
from
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Shire
not to file a patent infringement suit against us alleging that Adzenys XR-ODT or Adzenys ER, respectively, infringes the Shire patents.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
We rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is
appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored
researchers and other advisors to protect our
trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete
with our products or cause additional, material adverse effects upon our competitive business position.
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.
Some of our employees were previously employed at other companies, including actual or potential competitors. We may also engage advisors and
consultants who are concurrently employed at other organizations or who perform services for other entities. Although we try to ensure that our employees, advisors and consultants do not use the
proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees, advisors, or consultants have used or disclosed intellectual property,
including trade secrets or other proprietary information, of any such party's former employer or in violation of an agreement with or legal obligation in favor of another party. Litigation may be
necessary to defend against these claims.
In
addition, while we generally require our employees, consultants, advisors 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. Our and their
assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership
of what we regard as our intellectual property. Similarly, we may be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person's obligations to a
third party, such as an employer or former employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be
necessary to defend against these claims.
If
we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful
in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.
RISKS RELATED TO OUR COMMON STOCK
The market price of our common stock may be highly volatile and investors in our common stock could incur
substantial losses.
The trading price of our common stock is likely to be volatile. Since shares of our common stock were sold in our initial public offering
("IPO"), in July 2015 at a price of $15.00 per share, our stock
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price
has ranged from $4.85 to $28.99, through March 12, 2018. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the
following:
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failure to successfully execute our commercialization strategy with respect to Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER, or any other
approved potential product candidate in the future;
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any delay in filing an NDA for any of our product candidates and any adverse development or perceived adverse development with respect to the
FDA's review of that NDA;
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adverse results or delays in clinical trials, if any;
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significant lawsuits, including patent or stockholder litigation;
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inability to obtain additional funding;
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failure to successfully develop and commercialize our product candidates;
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changes in laws or regulations applicable to our product candidates;
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inability to manufacture adequate amounts of product supply or obtain adequate amounts of components of our product supply for our product
candidates, or the inability to do so at acceptable prices;
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unanticipated serious safety concerns related to the use of our generic Tussionex, Adzenys XR-ODT, Cotempla XR-ODT, Adzenys ER or any future
potential product candidates;
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adverse regulatory decisions;
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introduction of new products or technologies by our competitors;
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failure to meet or exceed product development or financial projections we provide to the public;
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failure to meet or exceed the estimates and projections of the investment community;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors, or
perceptions regarding unsolicited public acquisition proposals of our company;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our technologies;
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additions or departures of key scientific or management personnel;
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changes in the market valuations of similar companies;
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sales of our common stock by us or our stockholders in the future; and
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trading volume of our common stock.
In
addition, the stock market in general, and the NASDAQ Global Market ("NASDAQ"), in particular, has experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of these listed companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual
operating performance.
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Our principal stockholders and management own a significant percentage of our shares and will be able to
exert significant control over matters subject to stockholder approval.
As of December 31, 2017, our executive officers, directors, 5% or greater stockholders and their affiliates beneficially owned
approximately 34% of our outstanding voting stock. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders, acting together, may be able
to control elections of directors, amendments of our organizational documents or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that you may believe are in your best interest as one of our stockholders.
Sales of a substantial number of shares of our common stock in the public market by our existing stockholders
could cause our stock price to fall.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market or the perception that these sales
might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that
such sales may have on the prevailing market price of our common stock. Shares held by our affiliates will be subject to volume limitations and other conditions pursuant to Rule 144 of the
Securities Act. Sales of stock by these stockholders could have a material adverse effect on the trading price of our common stock.
Potential uncertainty resulting from unsolicited acquisition proposals and related matters may adversely
affect our business.
In the past we have received, and in the future we may receive, unsolicited proposals to acquire our company or our assets. For example, in June
2017 and in October 2017, the Board of Directors received an unsolicited non-binding proposal for the acquisition of all of our stock. The review and consideration of acquisition proposals and related
matters could require the expenditure of significant management time and personnel resources. Such proposals may also create uncertainty for our employees, customers and vendors. Any such uncertainty
could make it more difficult for us to retain key employees and hire new talent, and could cause our customers and vendors to not enter into new arrangements with us or to terminate existing
arrangements. Additionally, we and members of our Board of Directors could be subject to future lawsuits related to unsolicited proposals to acquire us. Any such future lawsuits could become time
consuming and expensive.
We will continue to incur significant 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.
As a public company, we will continue to incur significant legal, accounting and other expenses. In addition, the SOX Act, as well as rules
subsequently implemented by the Securities and Exchange Commission (the "SEC") and NASDAQ, have imposed various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the "Dodd-Frank Act"), was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that required the SEC to
adopt additional rules and regulations in these areas such as "say on pay" and proxy access. Stockholder activism, the current political environment and the current high level of government
intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate)
the manner in which we operate
our business. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and
financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to
obtain director and officer liability
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insurance
and we may be required to incur substantial costs to maintain our current levels of such coverage.
We are an "emerging growth company," and we cannot be certain if the reduced reporting requirements
applicable to emerging growth companies will make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"). For as long as we continue to be an
emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including
exemption from compliance with the auditor attestation requirements of Section 404 of the SOX Act and reduced disclosure obligations regarding executive compensation in the Annual Report on
Form 10-K and our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. We will remain an emerging growth
company until the earlier of (1) the last day of the fiscal year (a) in 2020, (b) in which we have total annual gross revenue of at least $1.07 billion (as
inflation-adjusted by the SEC from time to time), or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the prior March 31st, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
Even
after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same
exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 of the SOX Act and reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may 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.
Under
the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have
irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public
companies that are not emerging growth companies.
We do not intend to pay dividends on our common stock and, consequently, your ability to achieve a return on
your investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock and do not currently intend to do so in the foreseeable future. We
currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable
future. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will
appreciate in value or even maintain the price at which you purchased them.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of
Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others,
even if an acquisition would be beneficial to our
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stockholders
and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:
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authorizing the issuance of "blank check" preferred stock, the terms of which may be established and shares of which may be issued without
stockholder approval;
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limiting the removal of directors by the stockholders;
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creating a classified board of directors;
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prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
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eliminating the ability of stockholders to call a special meeting of stockholders; and
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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon
at stockholder meetings.
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, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally
prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder
became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it
is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of
Delaware is the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us
or our directors, officers or employees.
Our amended and restated certificate of incorporation, as currently in effect, provides that the Court of Chancery of the State of Delaware is
the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors,
officers or other employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated
certificate of incorporation or our amended and restated bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a
stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and
our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation and amended and
restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business
and financial condition.