PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on
our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical
facts are "forward-looking statements" for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "plan," "potential," "predict," "project," "should," "will," "would" and similar expressions intended to identify forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time
frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater
detail under the heading "Risk Factors." Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking
statements represent our estimates and assumptions only as of the date of this filing. You should read this Annual Report on Form 10-K completely and with the understanding that our actual
future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information
becomes available in the future.
ITEM 1. BUSINESS
Overview
SteadyMed Ltd. (referred to as "we", "Company" or "SteadyMed" in this Annual Report on Form 10-K) is a specialty pharmaceutical
company focused on the development and commercialization of therapeutic product candidates that address the limitations of market-leading products for certain orphan indications and in other
well-defined, high-margin specialty markets. Our primary focus is to obtain approval for the sale of Trevyent®, our lead product candidate for the treatment of pulmonary arterial
hypertension, or PAH, in the United States. We also have two other product candidates, for the treatment of post-surgical and acute pain in the home setting, referred to as our At Home Patient
Analgesia, or AHPA, products, that are at an earlier stage of development. Our product candidates are enabled by our proprietary PatchPump, which is a discreet, water-resistant and disposable drug
administration technology that is aseptically pre-filled with liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow of drug to a patient, either subcutaneously
or intravenously.
We
submitted a New Drug Application, or NDA, to the United States Food and Drug Administration, or FDA, for Trevyent for the treatment of PAH on June 30, 2017. On
August 28, 2017, we received a Refusal to File Letter, or RTF, from the FDA. Based on its preliminary review, the FDA determined
that the NDA was not sufficiently complete to permit a substantive review. Specifically, the FDA requested further information on certain device specifications and performance testing and also
requested additional design verification and validation testing on the final, to-be-marketed Trevyent product. On November 1, 2017, we held a Type A meeting with the FDA to gain
clarification on these requests. We believe the meeting was constructive. Following our receipt and review of the minutes from this meeting, we finalized our revised operating plan and now expect to
resubmit the NDA for the subcutaneous administration of Trevyent in the fourth quarter of 2018. We have also finalized a revised
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spending
plan, to allow our current cash and cash equivalents to fund our operations through the third quarter of 2019, when we believe we will receive FDA approval of the Trevyent NDA.
In
December 2015, the Office of Orphan Products Development, part of the FDA, granted orphan designation for Trevyent. Orphan drug designation, under the Orphan Drug Act, may provide
several pre-approval advantages, including waiver of Prescription Drug User Fee Act, or PDUFA, fees, enhanced access to FDA staff and potential waiver of pediatric research requirements, and potential
post-approval advantages, including seven years of market exclusivity, tax credits for certain research and a waiver of the NDA application user fee. Orphan drug designation does not shorten the
duration of the regulatory review or approval process.
All
of our drug product candidates are being developed for sale in the United States under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, which allows the
submission of an NDA where information required for approval comes from scientific literature and publicly available information contained in the labeling of a listed drug, as well as from the FDA's
previous findings of safety and efficacy for such listed drug.
On
June 28, 2015, we entered into an Exclusive License and Supply Agreement with Cardiome Pharma Corp. and Correvio International Sarl, collectively referred to as Cardiome,
pursuant to which we granted to Cardiome an exclusive license to develop and commercialize Trevyent in Europe, Canada, and the Middle East. In March 2018, Cardiome sublicensed the Canadian rights to
Trevyent to Cipher Pharmaceuticals.
In
consideration for the exclusive license, we received a non-refundable up-front payment of $3.0 million from Cardiome. Additionally, we are eligible to receive (i) future
regulatory, third-party payor reimbursement and commercialization milestone payments of up to $9.25 million that do not require performance by us, (ii) scaling royalties ranging from the
low teens to the mid-twenty percent on future Trevyent sales by Cardiome and (iii) a fixed price (based on a cost-plus margin) on our supply of Trevyent finished product to Cardiome. Cardiome
expects to submit a Marketing Authorization Application for Trevyent with the European Medicines Agency in 2019.
Other
than our arrangement with Cardiome, we own global development and commercialization rights to Trevyent. If approved by the FDA, we expect to commercialize Trevyent for PAH in the
United States with a contract commercial organization of approximately 25 individuals targeting the approximately 200 PAH treatment centers in the United States.
We
have not received regulatory approvals to sell Trevyent or any of our other product candidates, and we have not generated any sales through December 31, 2017. We expect to
continue to incur significant expenses and operating losses for the foreseeable future as we continue to seek regulatory approval for Trevyent and commence pre-commercialization efforts.
Our Strategy
Our initial focus has been on the development of Trevyent for the treatment of PAH. If and as our capital resources permit, we plan to leverage
our proprietary PatchPump technology to develop and commercialize additional differentiated pharmaceutical products that offer significant benefits over existing commercially successful yet often
inadequate treatment options in select specialty markets that we can commercialize on our own in the United States.
The
focus of our current strategy is:
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Obtain approval for the sale of Trevyent in the United States and establish a contract commercial organization of approximately 25 people to
promote Trevyent as a preferred alternative to Remodulin® (treprostinil sodium), the current market-leading prostacyclin PAH
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Trevyent for the Treatment of Pulmonary Arterial Hypertension (PAH)
Trevyent is being developed for the treatment of PAH, a progressive orphan disease that may eventually lead to heart failure and premature
death. Trevyent is designed to improve the quality of life of PAH patients by providing an effective alternative that overcomes the limitations associated with the administration of Remodulin,
produced by United Therapeutics Corporation. The annual cost of Remodulin is reported to be between approximately $125,000 and $175,000 per patient and United Therapeutics reported Remodulin revenues
of $430.1 million, $458.0 million, $491.2 million, $553.7 million, $572.8 million, $602.3 million, and $670.9 million in 2011, 2012, 2013, 2014, 2015,
2016 and 2017, respectively.
In
addition to its debilitating physical symptoms, PAH has a profound social, practical and emotional impact on the lives of patients and their families and caregivers. Although
Remodulin is an effective treatment for PAH, we believe its use is limited in part because the day-to-day method of delivery is burdensome and inconvenient for patients and caregivers. Approximately
30,000 individuals in the United States are currently diagnosed with PAH. While approximately 24,000 of these patients are
eligible for Remodulin therapy, we believe only approximately 3,500 are receiving Remodulin. We believe its use is limited in part because the day-to-day method of delivery is burdensome, complicated
and inconvenient for patients and caregivers. We believe Trevyent will provide a better alternative for PAH patients taking Remodulin and expand the number of patients eligible to receive treprostinil
therapy.
Remodulin
is provided to patients in a multi-use liquid vial and delivered subcutaneously or intravenously 24 hours a day, every day, by infusion pumps not designed for this
purpose. PAH specific infusion pumps do not currently exist. For subcutaneous administration, the patient or caregiver must transfer the drug from the vial, using a special connector, into a
disposable syringe that is then inserted into a non-disposable insulin infusion pump, which is attached to the patient using a long tube and catheter. These pumps require complex manual programming
and are often not water-resistant. Because Remodulin needs to be transferred from a vial to the pump, it is formulated with the preservative meta-cresol, which is a known skin irritant. We believe the
infusion site pain reported in 85% of patients receiving subcutaneous Remodulin therapy to be potentially associated with or exacerbated by the presence of meta-cresol in the Remodulin formulation.
For
intravenous Remodulin therapy, the delivery systems are larger than those typically used for subcutaneous therapy and require even more complex dose calculations and programming.
They also include a larger drug reservoir that requires patients to precisely mix Remodulin with diluent, sometimes multiple times per day, which can take a substantial amount of time and may lead to
dosing errors. Patients must also take care to use aseptic techniques when completing the complex preparation of intravenous treprostinil because contaminated filling can result in infection, which
can lead to sepsis.
Trevyent
is specifically designed for PAH therapy. It is designed to deliver a proprietary, preservative-free formulation of treprostinil using our ready-to-go, compact and disposable
PatchPump. Trevyent is aseptically pre-filled with drug and pre-programmed with the required delivery rate at the
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site
of manufacture. It is water-resistant and does not require any filling or programming by the patient or caregiver. To initiate therapy, the patient would simply attach Trevyent to the
subcutaneous infusion set and after 48 hours of continuous dosing, Trevyent will alert the patient that a replacement needs to be attached.
Overview of PAH
PAH is an orphan disease with no known cure, which is progressive and life-threatening and severely impacts and restricts the lives of patients
on a daily basis. PAH is characterized by high blood pressure in the pulmonary arteries, which are the blood vessels leading from the heart to the lungs. Common symptoms, which worsen as the disease
progresses, include breathlessness, fatigue, angina, fainting or light headedness and abdominal distension. In addition to these physical symptoms, PAH has a profound social, practical and emotional
impact on the lives of patients and their families and caregivers.
Oral
therapies are commonly prescribed as first-line treatments for the least severely ill patients. As patients progress in their disease severity, inhaled therapies are added to oral
therapy. When the disease progresses even further, infused prostacyclin therapies are frequently added to oral therapy. PAH patients have reduced levels of prostacyclin, a naturally occurring
substance that has the effect of relaxing pulmonary blood vessels. Prostacyclin analogues, such as treprostinil, mimic the effects of prostacyclin and have become an established treatment for PAH.
Treprostinil is formulated as a liquid drug that is stable at room temperature and is the only prostacyclin drug available for both subcutaneous and intravenous treatment of PAH. Other prostacyclins,
such as epoprostenol, are available but are not widely used as they only offer intravenous therapy, have a very short half-life, are inherently unstable and must be reconstituted from a dry powder
into liquid form and then used within 24 hours.
Remodulin,
the market-leading prostacyclin, is administered continuously 24 hours per day, every day and is sold by United Therapeutics Corporation. United Therapeutics reported
Remodulin revenues of $430.1 million, $458.0 million, $491.2 million, $553.7 million, $572.8 million, $602.3 million, and $670.9 million in 2011, 2012,
2013, 2014, 2015, 2016 and 2017, respectively. The annual cost of Remodulin is reported to be between approximately $125,000 and $175,000 per patient. This reported cost only includes Remodulin and
does not include the cost of the required pumps and the ancillary supplies needed to administer Remodulin.
Approximately
30,000 patients in the United States are currently diagnosed with PAH and the market for the treatment of PAH is expanding. GlobalData estimates that the global market will
grow to $3.0 billion by 2020. Diagnosis is difficult, but as awareness of PAH grows and diagnosis improves, the number of patients requiring PAH therapy will continue to increase. While
approximately 24,000 of the PAH patients in the United States are eligible for the market-leading prostacyclin therapy, Remodulin, we believe only approximately 3,500 are receiving Remodulin therapy.
We believe more patients would receive treprostinil treatments if a more convenient and simple alternative to existing prostacyclin therapies were available.
On
May 13, 2014, the FDA held a public meeting to hear perspectives from patients living with PAH. Patients discussed their disease, its impact on their daily lives, and currently
available therapies.
Approximately 60 PAH patients or patient representatives attended the meeting in-person, and approximately 25 patients or patient representatives provided input through the live webcast and polling
questions.
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We
believe that input from the meeting underscores the chronic and debilitating effect that PAH has on patients' lives and the challenges patients face in finding effective and tolerable
therapies to help manage their condition. Several key themes emerged from this meeting:
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PAH is a progressive, devastating disease. Participants described living with daily shortness of breath, persistent fatigue, and chest pain, in
addition to a range of other debilitating symptoms. Many shared their fears of symptoms continuing to worsen over time.
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PAH affects all aspects of patients' lives. Participants described the dramatic change from their active and vibrant lives before diagnosis.
Many participants noted that the significant decline in health caused them or their loved ones to limit or completely stop participating in activities and tasks that they once enjoyed or were able to
do.
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Nearly all participants described using a combination therapy in addition to non-drug therapies in their treatment approach. Many participants
were able to identify whether a treatment was or was not effective, and described making difficult decisions on benefits versus adverse effects of treatments and switching to alternate treatments, if
necessary.
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Participants emphasized the continued need for medications that are effective, have convenient dosing schedules, and are easy and safe to
administer.
Limitations of Current Remodulin Treatment for PAH
Remodulin is provided to patients in a multi-use liquid vial and delivered subcutaneously or intravenously 24 hours a day, every day,
using pumps that are not specifically designed for Remodulin or PAH therapy.
Subcutaneous
delivery is indicated as the first route of administration for Remodulin therapy. The patient or caregiver must transfer the drug from a vial, using a special connector,
into a disposable reservoir which is then inserted into a non-disposable and complicated-to-use insulin infusion pump. The pump is attached to the patient via a long tube and catheter. These pumps
require detailed manual programming and typically are not water-resistant. Because Remodulin needs to be transferred from a vial to the reservoir multiple times, it is formulated with the preservative
meta-cresol, which is a known skin irritant. We believe the infusion site pain reported in 85% of patients receiving subcutaneous Remodulin therapy to be potentially associated with or exacerbated by
the presence of meta-cresol in the Remodulin formulation.
If
subcutaneous delivery of Remodulin is not tolerated, patients can be switched to intravenous delivery. For intravenous Remodulin therapy, the delivery systems are larger than the
insulin pumps typically used for subcutaneous therapy and require even more complex dose calculations and programming. They also include a larger drug reservoir that requires patients to precisely mix
Remodulin with diluent, sometimes multiple times per day or night, which may lead to dosing errors and the associated side effects or return of PAH symptoms. Patients must also take care to use
aseptic techniques when completing the preparation of intravenous treprostinil as contaminated filling can result in infection which can result in sepsis and hospitalization.
More
specifically, the delivery systems currently used for administration of subcutaneous Remodulin have the following limitations:
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Complex Programming.
Algebraic calculations must be made by the patient or
caregiver to define the delivery rate of the infusion pump based on the patient's weight, concentration of Remodulin and required dose. The patient or caregiver must navigate through multiple
instruction screens by pressing multiple buttons in order to program the delivery rate of the pump. Incorrect calculations or programming can lead to dosing errors and related side effects or return
of symptoms associated with PAH.
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Multiple Precise Steps to Prepare Refills.
The patient or caregiver must
follow a strict, time-consuming regimen to refill an empty pump with Remodulin. Typically, the drug must be transferred from a vial into a separate reservoir using a special connector, making sure no
air bubbles are present. The pump is rewound by navigating through prompts on the pump's screen. The reservoir is then loaded into the pump and the infusion line is attached, primed by the pump, and
finally attached to the cannula, all of which must typically be done once or multiple times per day.
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Unpredictable Length of Time Between Refills.
The length of time between
refills depends on the delivery rate programmed into the pump and can be impacted by the inaccuracies of priming the infusion line with drug. Therefore, many patients find it hard to schedule daily
activities because it is difficult to predict when they will need to refill their pump. Patients must be ready with all of the ancillary filling disposables and drug vial at all times regardless of
where they are.
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Restricts Activities and Lifestyle Choices.
These pumps are not typically
water-resistant and are tethered to the patient by a long tube, between 18 and 43 inches, which is inconvenient and can limit lifestyle choices, such as bathing and swimming. Also, because of the
requirement for continuous infusion of treprostinil to treat PAH, patients are required to carry a backup pump with them at all times.
In
controlled studies of Remodulin administered subcutaneously, there were infusion system complications reported in 28% of patients, of which 93% were pump-related and 7% were related
to the infusion set. In addition, Remodulin has been reported to cause infusion site pain in 85% of patients and infusion site reaction in 83% of patients when infused subcutaneously.
Almost
half of Remodulin patients are on intravenous therapy, which introduces challenges incremental to those for subcutaneous therapy. Specifically:
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Central Line.
Remodulin is administered intravenously by continuous
infusion, using a surgically placed central venous catheter, which usually goes through the patient's chest cavity.
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Additional Complexity.
The steps required to prepare Remodulin for
intravenous delivery are even more onerous than for subcutaneous therapy. First, an intravenous infusion rate must be calculated and programmed. Then, with this rate and the patient's dose and weight,
the diluted intravenous Remodulin concentration must be calculated using an algebraic formula. Next, the amount of Remodulin needed to make the diluted Remodulin concentration for the reservoir must
be calculated using an additional algebraic formula. Using a needle and syringe, Remodulin is then transferred from a vial into the reservoir along with the sufficient volume of diluent to achieve the
desired total volume in the reservoir. Given the additional complexity, the potential for incorrect calculations or programming and the risk of dosing errors is increased.
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Aseptic Technique Is Essential.
Failure to use aseptic techniques when
completing the complex preparation and filling steps can result in infection, which can lead to sepsis, and require drug therapy and surgical intervention to replace the central venous catheter. A
survey by the United States Centers for Disease Control, or CDC, of seven sites that administered intravenous Remodulin for the treatment of PAH, found approximately one blood stream infection event
for every three years of administration.
In
addition to its debilitating physical symptoms, PAH has a profound social, practical and emotional impact on the lives of patients and their families and caregivers. This is why we
are developing Trevyent.
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Our Solution: Trevyent
We believe Trevyent will improve the daily lives of these patients because it offers a simple, effective and more convenient administration of
treprostinil for subcutaneous treatment of PAH patients. We believe Trevyent, if approved, will be the only product that is a combination of a
drug and device specifically designed for subcutaneous treatment of PAH patients. In the United States, we intend to price Trevyent competitively between $125,000 and $175,000 per patient per year.
Trevyent
is an all-in-one product that combines our proprietary preservative-free formulation of treprostinil with our proprietary PatchPump technology. PatchPump is a discreet,
water-resistant and disposable drug administration technology that is aseptically pre-filled with sterile liquid drug at the site of manufacture and pre-programmed to deliver an accurate, steady flow
of drug to a patient for 48 hours. We believe Trevyent will reduce pump-related user errors and the related side effects or return of symptoms associated with PAH. In addition, we believe that
our preservative-free treprostinil formulation may also provide an additional benefit to patients by potentially reducing the infusion site pain or reaction that is currently associated with
subcutaneous administration of Remodulin.
The
key benefits of Trevyent are:
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Convenient and Ready-to-Go.
Trevyent will be delivered to the patient as a
sterile, preservative-free, ready-to-go product pre-filled with treprostinil. Simply attaching the infusion cannula automatically activates Trevyent. There is no need for the patient to prepare the
drug, add diluents, or program and load the pump. This is all done, aseptically, during manufacture.
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Simple Dosing.
Trevyent will be available for prescription in a broad-range
of concentrations to meet patient dosing requirements. The delivery rate of Trevyent will be programmed during manufacture, without the need for any patient or healthcare provider calculations or
programming. There is no need for programming buttons on the product, which eliminates a primary source of dosing errors and the related side effects or return of symptoms associated with PAH.
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Predictable, 48-Hour Dosing Period.
Trevyent is designed to provide a
predictable, 48-hour continuous infusion of treprostinil so that patients can better plan their daily lives. At the end of the 48-hour dosing period, the patient simply disposes of the unit and
attaches a new Trevyent.
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Compact and Water-Resistant.
Trevyent is lightweight, compact, discreet and
water-resistant. Patients have the option to wear Trevyent inconspicuously on the body or clip it on their clothing. The compact size and water resistant features enables more freedom to conduct
normal activities such as bathing, without interruption of dosing. The compact size of Trevyent and all-in-one design make carrying a backup easy.
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Offers Patient Reassurance.
Trevyent provides patients with audible and
visual feedback. This includes simple LEDs and sounds that provide notifications on activation and when Trevyent is nearly empty and needs replacement, as well as alerts in the event of occlusions or
no delivery. There is also a status-check button that provides feedback on demand.
Trevyent
also directly addresses challenges stated by healthcare providers, patients and payers regarding limitations of current treatment options. In market research studies
commissioned by SteadyMed and conducted with 126 healthcare professionals associated with PAH accredited institutions or major PAH academic treatment centers, both physicians and nurses recognized as
highly valuable the following Trevyent attributes: convenience (ease of use, no programming or dose manipulation) and size (the smaller, more discreet device). In addition, nurses felt the waterproof
attribute of Trevyent would be very important to their patients as well.
In
a separate quantitative study of 70 physicians, participants were asked to rate Trevyent on a scale of "one" (not at all likely to prescribe), to "seven" (extremely likely to
prescribe). 57% of participants rated Trevyent a six or higher, and 43% rated Trevyent from three to five, with ease of use cited as a top advantage. Not a single respondent rated Trevyent as two or
less.
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In a separate study, 20 physicians, 20 payers and ten patients were asked to assess willingness to buy Trevyent. Patient convenience, innovative delivery
mechanism, fixed dosing schemes, limited patient manipulation, and self-administration were among the advantages mentioned by both healthcare professionals and payers. All the payers in the study
agreed on a positive coverage for Trevyent, with utilization management being a standard prior authorization, similar to any other drug in this category. In the same study, there was an overwhelmingly
positive response to Trevyent by patients due to Trevyent's discreet size, no drug handling, ease of use and waterproof attributes. Patients were asked to assess Trevyent on a scale of "one" (not
excited) to "seven" (very excited). All but one of the participants rated Trevyent as seven, with the outlier rating Trevyent at six.
Currently,
healthcare payors cover the cost of Remodulin, as well as costs for the pump and back up pump that deliver it, the diluent used for intravenous therapy as well as the
ancillary equipment such as infusion lines and cannulas. Since Trevyent does not require diluents and will be provided as a pre-filled disposable pump with the required cannula, we believe that
Trevyent will be economically favorable to payors by offering a reduction in overall cost of therapy.
Trevyent Development Plan
We have spent approximately 11 years developing our enabling proprietary PatchPump system and, in 2011, we commenced the development of a
treprostinil and PAH specific PatchPump that we now refer to as Trevyent. We received orphan designation for Trevyent in December 2015 and expect to resubmit the NDA for the subcutaneous
administration of Trevyent in the fourth quarter of 2018 under Section 505(b)(2) of the FFDCA. Our partner Cardiome expects to submit an Marketing Authorization Application, or MAA, for
Trevyent to the European Medicines Agency, or EMA, in 2019.
We
have conducted two human clinical trials using the PatchPump. The first trial, in 2012, was a "First in Man Study to Assess the Safety and Performance of PatchPump for Subcutaneous
Infusion in Ten Healthy Volunteers". All primary endpoints were successfully met. In particular, device application, use and removal, including needle insertion into the skin and retraction were
painless in most subjects and if pain occurred, it was mild and transient. The device adhered well to the subjects' skin for the duration of infusion. The most common adverse events likely related to
the device were erythema and edema. These events were local and transient. The study concluded that use of the PatchPump was well-tolerated.
The
second clinical study, in 2013, was an "Assessment of Treprostinil Blood Concentrations Following Subcutaneous Administration by the SteadyMed PatchPump to Seven Healthy Volunteers".
This study was designed to assess whether our PatchPump could achieve measurable levels of treprostinil in plasma when a low, clinically relevant dose of drug was administered to healthy subjects via
continuous subcutaneous infusion. Plasma treprostinil was detected within 30 minutes of starting the infusions, increased rapidly during the first two hours, and then remained relatively constant
until the PatchPumps were removed after 18 hours of infusion. The mean treprostinil steady state concentration achieved in this study compares favorably to that previously reported in the
literature for Remodulin when administered via insulin pump at similar doses and rates of infusion. This study in healthy subjects demonstrated that our PatchPump can deliver treprostinil via
continuous infusion at a relatively constant rate for extended periods of time. No serious or unexpected adverse events were observed.
We
have secured a source of the active pharmaceutical ingredient, or API, for treprostinil from a third-party manufacturer and commenced the development of our proprietary treprostinil
formulation for Trevyent. Quantitative chemical composition, related impurities and physicochemical properties were experimentally determined for Trevyent prototype formulations and compared to
results obtained from samples of the reference Remodulin product. Based on these studies, we expect Trevyent to
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provide
equivalent product quality and performance as the reference-listed drug, Remodulin, which is necessary for approval under Section 505(b)(2).
The
Trevyent dose strengths will range from 1 mg/mL to 10 mg/mL of treprostinil, in an aseptically pre-filled single-use product. Our proprietary drug container has been tested to ensure
drug compatibility and long-term stability with our Trevyent treprostinil formulation with no effect observed on drug stability or contamination from the container.
Trevyent
is being developed in accordance with ISO 62366 and the FDA 2011 draft Guidance for Industry and Food and Drug Administration StaffApplying Human Factors and
Usability Engineering to Optimize Medical Device Design, including a use error risk analysis and several formative usability studies, to identify, evaluate and mitigate use-related risks. Eight human
factors studies have been conducted with 148 volunteers in the U.S. and Europe, with 33 healthcare practitioners, 92 PAH patients and 23 additional participants. The first formative study was an
ethnographic study designed to explore the users and their use settings in order to support the preliminary design of the pump and the user interface. The second and third formative studies were
focused specifically on evaluating the user's ability to use and understand aspects of the product user interface. The online questionnaire comprising the fourth study was focused on patient
preferences for product wearability. The fifth study focused on simulated usage of the product over the full delivery cycle, along with the user's ability to understand the various alerts and alarms
that could arise during usage. The sixth and seventh studies again evaluated the user interface and the full simulated usage of the product, respectively. An additional, and final, formative study
conducted in mid-2015 confirmed that Trevyent satisfies all applicable requirements for ISO 62366 and the FDA human factors guidance.
Because
we are seeking approval for Trevyent under the Section 505(b)(2) pathway, the Trevyent NDA will rely on the FDA's previous findings of safety and effectiveness for
Remodulin (treprostinil) Injection NDA 21-272 as the reference listed drug. We met with the FDA in July 2013 to discuss our development plan for Trevyent. The FDA agreed with our proposal for a
bio-waiver request for the FDA to waive the requirement of in vivo bioavailability or bioequivalence studies for the Trevyent NDA, subject to our demonstration of the pharmaceutically equivalent
nature of Trevyent and the reference-listed drug Remodulin. Based on this meeting and our November 1, 2017 meeting with the FDA, we continue to believe that no clinical studies are required for
the Trevyent NDA. As a precedent example for this approach, a bio-waiver was relied on by Actelion Ltd. in connection with their approved NDA for Veletri (intravenous epoprostenol to treat
PAH), which relied on Flolan as the reference-listed drug and was approved for sale without the need for any clinical trials or post-approval requirements. Further, based on a survey of 40 NDAs
approved by the FDA under the Section 505(b)(2) pathway, we believe over twenty-five percent received and relied on a bio-waiver.
The
key Orange Book-listed U.S. patent for the use of treprostinil to treat PAH expired in October 2014 and our NDA will include a certification stating that Trevyent does not infringe
any unexpired Orange Book-listed U.S. patents related to Remodulin, or that such patents are invalid or that such
patents have been rendered invalid based on rulings of the Patent Trial and Appeal Board, or PTAB, of the United States Patent and Trademark Office, or USPTO. The Orange Book-listed U.S. patents
related to Remodulin are: (i) (iii) patents 7,999,007, 8,653,137 and 8,658,694, related to the use of high pH diluents containing glycine; (ii) patent 9,199,908, related to methods for
administering treprostinil with a diluent; and (iii) patents 8,497,393, 9,604,901 and 9,593,066, related to treprostinil or its salts using a recrystallization process to purify the
treprostinil. We initiated proceedings with the PTAB that, in March 2017, resulting in the PTAB finding that all 22 claims in the 8,497,393 patent unpatentable and cancelled them, rendering the patent
invalid. We believe that the two continuation patents listed above are also invalid. The Trevyent formulation does not require, and therefore, does not use high pH diluents or glycine.
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We
believe, and have been advised, that we can use a similar pathway to obtain marketing authorization of Trevyent in Europe. We met with regulatory agencies in Sweden, Germany and the
United Kingdom in October 2014 to discuss our development plans for Trevyent and these agencies agreed that we may submit an abridged MAA for Trevyent, with Remodulin listed as the reference drug.
These agencies also agreed that waiver of bioequivalence study requirements for Trevyent would be appropriate in connection with such an abridged MAA for Trevyent. Based on these meetings, we believe
that no clinical studies are required for the Trevyent MAA in these jurisdictions.
After
approval and launch of Trevyent, we intend to focus on market expansion opportunities and conduct several studies designed to demonstrate that, as compared to existing treatments,
Trevyent results in better patient outcomes and improved pharmaco-economics.
Trevyent Sales and Marketing
If approved by the FDA, we anticipate commercializing Trevyent for the treatment of PAH in the United States within six months of approval. PAH
is a rare disease and there are fewer than 200 PAH treatment centers in the United States. We believe we could successfully market Trevyent in the United States with a contract commercial organization
of approximately 25 people. We anticipate that Cardiome will begin commercializing Trevyent for the treatment of PAH in Europe in 2020.
We
plan to enter into distribution agreements with the leading specialty pharmacies in the United States, which currently distribute PAH treatments directly to patients. These specialty
pharmacies will
also be responsible for assisting patients with obtaining reimbursement for Trevyent and providing other support services.
In
the United States, we plan to price Trevyent comparably to Remodulin, which is currently reported to be priced between approximately $125,000 and $175,000 per patient per year. There
are currently no approved generic forms of treprostinil and, if such a generic became available, we do not expect that availability to impact our plan to price Trevyent comparably to Remodulin. We
believe that the current limitations of Remodulin would apply equally to any approved generic form of treprostinil and that the benefits of Trevyent will minimize any price impact from generics in the
market. Further, Trevyent will be reviewed as a new drug and, if approved, will not be regulated as a generic. Trevyent will not be substitutable by a Remodulin generic and will not be priced as a
generic.
Technology Licensing
We have ongoing efforts to license our PatchPump technology to pharmaceutical and biopharmaceutical companies for their large volume (greater
than 2 mL), high value small molecule or biologic drugs. Pharmaceutical companies are seeking infusion systems that are effective, safe and patient friendly. One of the biggest challenges facing
pharmaceutical companies developing biologics is to find the right formulation with the lowest injectable volume without creating viscosities that prevent administration by injection. We believe this
is resulting in a significant number of large volume injectable biologics currently in development that are not amenable to injection by needles and syringes or auto-injectors.
As
a result of the convenience, compact size and pre-filled nature of our PatchPump for the delivery of highly viscous and large volume molecules, we believe it could become a preferred
choice of drug administration for a number of biologics. A recent report on the bolus injector market reviewed a sample of 900 biologics which are either currently marketed or under various phases of
clinical development. Nearly one third of these biologics were identified as targets for delivery via large volume bolus injectors such as our PatchPump.
Our
proprietary drug container has been tested to ensure drug compatibility and long-term stability. We and third party bio-pharmaceutical companies have conducted studies confirming
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compatibility
with, and stability of, representative biologic compounds stored within the drug container under real-time and accelerated conditions.
Our Technology
We designed our proprietary PatchPump to enable easier, more convenient and less error-prone drug administration. The PatchPump is
water-resistant, compact, has an external status-check button, provides visual and audible patient feedback and has a clear window to view and inspect the pre-filled liquid drug. The core technology
inside our proprietary PatchPump is our expanding battery, the ECell, which is comparable to an alkaline battery but with a flexible housing. As the ECell discharges in a controlled fashion, it
expands and pushes against the flexible drug container, forcing the pre-filled drug out of the device. The other major components of the PatchPump include: a circuit board, containing the hardware and
software that control the expansion rate of the ECell and other device functions, various sensors to assist in flow control and occlusion detection, feedback LEDs to tell the patient the status of the
product and an external status-check button.
The
PatchPump, included in Trevyent and our AHPA product candidates, uses existing commercially available drug infusion sets, with minor modifications, to provide subcutaneous drug
administration.
The
PatchPump can be configured to deliver a range of volumes of drug and delivery rates, depending on the targeted disease.
During
continuous delivery, the PatchPump is silent unless the status-check button is pressed, which causes a buzzer to sound and the feedback LEDs to flash green, to notify the patient
of normal operation. Near the end of the dosing period the buzzer will sound and the LEDs will flash red to instruct the patient to remove the PatchPump and replace it with a new PatchPump, if
required.
We
expect that the PatchPump will be positioned on the patient's abdomen or, alternatively, on the upper arm, hip, thigh, or upper buttocks. The PatchPump is intended to be
self-administered and can be worn throughout the course of normal daily activities, including working, exercising, sleeping and bathing.
Manufacturing
Trevyent will be manufactured by contract manufacturing organizations, or CMOs. Custom manufacturing equipment, including process equipment,
injection molds and test equipment, is specific to the production of critical PatchPump components; and manufacturing processes are being developed under our direction and ownership, but will be
located at the various CMOs. All CMOs have been selected for their specific competencies in the manufacturing processes and materials included in our product candidates and comply with current Good
Manufacturing Practices, or cGMPs, and Quality System Regulations, or QSRs, as required by the FDA and other regulatory authorities.
PatchPump
Development and supply agreements for our proprietary PatchPump are in place with some of our critical contract manufacturers. We currently have
agreements with EaglePicher Medical Power, LLC and Nova Laboratories Limited. EaglePicher, a global supplier of custom battery technologies for the medical device industry, is our development
and manufacturing partner for the ECell. Nova Laboratories Limited specializes in novel, complex aseptic processing of pharmaceutical, biopharmaceutical and medical device products and will
aseptically fill our drug container.
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Drug Product
We currently have a long-term contract with a third party supplier for the API for Trevyent. Our supplier is a FDA-inspected, global supplier of
bulk API and has a Drug Master File (DMF) for treprostinil filed in the United States. The treprostinil API for Trevyent is manufactured using a unique, proprietary method of synthesis. Our NDA will
include a certification stating that Trevyent does not infringe any unexpired Orange Book-listed patents related to Remodulin, or that such patents are invalid or that such patents have been rendered
invalid based on PTAB rulings.
Standard
quality assurance testing and controls that are typical for GMP-manufactured sterile solutions have been established to ensure the product will meet FDA guidelines and
requirements. The chemistry, manufacturing and controls, or CMC documentation for the Trevyent drug product will be submitted to the FDA as part of our Trevyent NDA.
Competition
The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our
competitors include organizations such as major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and generic drug companies. Smaller or
early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large established companies.
Many
of our competitors have greater financial and other resources than we have, such as more commercial resources, larger research and development staffs and more extensive marketing
and manufacturing organizations. As a result, these companies may obtain marketing approval more rapidly than we are able and may be more effective in selling and marketing their products. We expect
any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price and the availability of reimbursement
from government and other third-party payers.
For
Trevyent, we expect to compete with certain existing infusion treatments for PAH patients with Class II-IV symptoms as well as known products under
development:
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Infused Prostacyclins.
This includes the market leader, Remodulin
(treprostinil) sold by United Therapeutics Corporation, and other prostacyclins, such as Veletri (epoprostenol) sold by Actelion Ltd., Flolan (epoprostenol) sold by GlaxoSmithKline PLC,
and generic epoprostenol sold by Teva Pharmaceutical Industries Ltd.
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Generic Treprostinil.
Sandoz and Teva have filed an abbreviated NDA, or
ANDA, for a generic form of treprostinil. As a result of litigation settlements with United Therapeutics, Sandoz and Teva each have a license to a launch generic treprostinil product in June 2018 and
December 2018, respectively.
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Semi-Disposable Remodulin Pump.
United Therapeutics has a research and
development collaboration with DEKA Research and Development to develop a pre-filled semi-disposable pump system for the subcutaneous delivery of Remodulin, known as RemUnity. United Therapeutics is
currently engaged in engineering, design and development efforts to optimize the RemUnity system to deliver treprostinil in pre-filled reservoirs, and intends to complete human factor studies and
functionality testing in subjects before submitting an application to the FDA to approve the pre-filled RemUnity system. If approved, RemUnity would be in direct competition with Trevyent.
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Implantable Pump.
Medtronic, Inc. currently sells the SynchroMed II
implantable pump to deliver baclofen to treat severe spasticity; however, in April 2015, the FDA filed a consent decree requiring Medtronic to stop manufacturing, designing and distributing the
SynchroMed II
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implantable
pump, except in limited circumstances, citing violations of the quality system regulation for medical devices. On March 14, 2017, Medtronic announced a Class I recall of the
Synchromed pump. Under a collaboration between United Therapeutics and Medtronic, Inc., a specially designed delivery catheter is being developed to enable use of the SynchroMed II Pump for the
delivery of treprostinil, which will be subject to the SynchroMed consent decree as well as subject to regulatory approval. Medtronic's premarket approval application, or PMA, for this device was
approved by the FDA in December 2017. United Therapeutics resubmitted its NDA for the use of Remodulin in the implantable pump on January 30, 2018, and anticipates a two-month review period.
In
addition, there may be companies unknown to us that are engaged in the development of products that are potentially competitive with those that we are developing.
Intellectual Property
Our success depends in large part on our ability to obtain and maintain intellectual property protection for the proprietary technologies that
are core to our business, including
our PatchPump technology. We seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and
improvements that are important to the development and implementation of our business. The material jurisdictions in which we have patents and/or patent applications include the United States, Europe,
Canada, China and Japan. We also rely on know-how, copyright, trademarks and trade secret laws, continuing technological innovation and potential in-licensing opportunities to develop and maintain our
proprietary position. Such protection is also maintained using confidential disclosure agreements. Protection of our technologies is important for us to offer our customers proprietary products
unavailable from our competitors, and to exclude our competitors from practicing technology that we have developed. If competitors in our industry have access to the same technology, our competitive
position may be adversely affected.
It
is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not
obtain issued patents from our pending patent applications or other inventions we seek to protect. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications may
be rejected and we may abandon them. It is also possible that we may develop proprietary products or technologies in the future that are not patentable or that the patents of others will limit or
altogether preclude our ability to do business. In addition, any patent issued to us may provide us with little or no competitive advantage, in which case we may abandon such patent or license it to
another entity. For more information, please see "Risk FactorsRisks Related to Intellectual Property."
As
of March 16, 2018, we held six issued U.S. patents and 15 issued foreign patents, one allowed U.S. patent, one allowed foreign patent, as well as nine U.S. pending applications
and 18 foreign pending applications, related to our PatchPump technology and our Trevyent drug formulation.
There
are multiple distinct patent or patent application families important to our intellectual property protection. They include:
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Preservative Free Treprostinil Formulation.
This family provides for
coverage of an aseptically filled, single-use container containing a parenteral formulation of treprostinil sodium without an antimicrobial preservative for subcutaneous or intravenous delivery, which
provides, among other things, for reduced pain at an injection site. The earliest expected expiration dates for this family will occur in year 2035.
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Novel Use of Expanding Battery Cells.
This family provides coverage for the
use of volume changes generated by battery cells to drive drug-delivery devices in order to administer drugs to
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Government Regulation
Government authorities in the United States, at the federal, state and local level and in other countries and jurisdictions, including the
European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising,
promotion, distribution, marketing, post-approval monitoring and reporting, pricing and import and export, of pharmaceutical and medical device products. The processes for obtaining regulatory
approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the
expenditure of substantial time and resources and the successful outcome of those processes cannot be guaranteed.
Review and Approval of Drugs Products in the United States
In the United States, the FDA regulates drugs under the FFDCA and implementing regulations. The process of obtaining regulatory approvals and
the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the
applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial
sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal
investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.
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An
applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:
-
-
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA's good laboratory practice, or
GLP, regulations;
-
-
submission to the FDA of an IND, which must take effect before human clinical trials may begin;
-
-
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
-
-
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety
and efficacy of the proposed drug product for each indication;
-
-
preparation and submission to the FDA of a new drug application, or NDA;
-
-
review of the product by an FDA advisory committee, where appropriate or if applicable;
-
-
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof,
are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product's
identity, strength, quality and purity;
-
-
payment of user fees and securing FDA approval of the NDA; and
-
-
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies
required by the FDA.
To
facilitate the drug development process, applicants may conduct formal meetings with FDA to discuss proposed development plans and study designs, with the goal to obtain FDA input and
concurrence on the overall development plan. Meetings with FDA may be held at any time, but are generally conducted at certain drug development milestones, such Pre-IND, End-of-Phase 2 and
Pre-NDA meetings.
Preclinical Studies
Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or active pharmaceutical
ingredient and the formulated drug or drug product, as well as
in vitro
and animal studies to assess the safety and activity of the drug for initial
testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the
preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, are submitted to the FDA as
part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.
Human Clinical Studies in Support of an NDA
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in
accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical
trial. Clinical trials are conducted under written
study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical
trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND
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automatically
becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on
clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA can also place the IND on clinical hold at any time during
development, which would require the resolution of outstanding safety concerns before development can continue.
In
addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and
the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be
provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of
Health for public dissemination on their ClinicalTrials.gov website.
Human
clinical trials are typically conducted in three sequential phases, which may overlap or be combined:
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Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease (e.g. cancer) or
condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
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Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to
preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
-
-
Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in
well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and
to provide adequate information for the labeling of the product.
Progress
reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. 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, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB's requirements or if the drug has
been associated with unexpected serious harm to patients.
Submission of an NDA to the FDA
Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies,
together with detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval
to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, and the sponsor of an approved NDA is also
subject to annual product and establishment user fees. These fees are typically increased annually.
The
FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74
th
day after the FDA's receipt of the
submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event,
the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it
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for
filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. In accordance with PDUFA legislation, specified performance goals have been established for FDA's
review of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing. The review process may be extended by the FDA for three additional months to consider new
information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Before
approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections usually cover all
facilities associated with an NDA submission, including drug component manufacturing (such as Active Pharmaceutical Ingredients), finished drug product manufacturing and control testing laboratories.
The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of
the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
In
addition, as a condition of approval, the FDA may require an applicant to develop a risk evaluation and mitigation strategy or REMS. REMS use risk minimization strategies beyond the
professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the
product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events and whether the product is a new molecular
entity. REMS can include medication guides, physician communication plans for healthcare professionals and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special
training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The FDA may require a REMS before approval
or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.
The
FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of
independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what
conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA's Decision on an NDA
On the basis of the FDA's evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing
facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific
indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the
application. If and when those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The
FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide
that the application does not satisfy the regulatory criteria for approval.
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If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included
in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug's safety after approval, require testing and surveillance
programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially
affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After
approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA
review and approval.
Orphan Drug Act
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is
generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable
expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan
drug designation must be requested before submitting an NDA. In December 2015, the Office of Orphan Products Development, part of the FDA, granted orphan designation for Trevyent. After the FDA grants
orphan drug designation, the name of the sponsor, identity of the drug or biologic and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not shorten the
duration of the regulatory review or approval process, but does provide certain advantages, such as a waiver of Prescription Drug User Fee Act, or PDUFA, fees, enhanced access to FDA staff and
potential waiver of pediatric research requirements.
If
a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product
exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug or biologic for the same indication for seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Because treprostinil for the treatment of PAH has previously been awarded orphan drug exclusivity,
we will need to demonstrate clinical superiority to Remodulin in order to be awarded orphan drug exclusivity for Trevyent, either through improved efficacy, safety or a major contribution to patient
care. We believe Trevyent represents a substantial improvement in patient safety. By significantly streamlining the process for preparing and administering continuous treprostinil infusion therapy,
use of Trevyent may lead to a lower incidence in serious systemic infections as compared to the number associated with intravenous Remodulin. We also believe the pre-filled, pre-programmed nature of
Trevyent may reduce dosing errors compared to the number reported with Remodulin. We intend to demonstrate this through detailed verification and validation testing of our device design and features,
which will be supported by existing, published data.
Orphan
drug exclusivity does not prevent FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or
condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
A
designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition,
exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or condition.
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Post-Approval Requirements
Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among
other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After
approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee
requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
The
FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-approval testing, including Phase 4 clinical
trials, or surveillance to further assess and monitor the product's safety or effectiveness upon commercialization.
In
addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state
agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and
often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements
upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality
control to maintain cGMP compliance.
Once
an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches
the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with
regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition
of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
-
-
restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
-
-
fines, warning letters or holds on post-approval clinical trials;
-
-
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;
-
-
product seizure or detention, or refusal to permit the import or export of products; or
-
-
injunctions or the imposition of civil or criminal penalties.
The
FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in
accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to
have improperly promoted off-label uses may be subject to significant liability.
In
addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug
samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the
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states.
Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.
Section 505(b)(2) NDAs
NDAs for most new drug products generally are based on two full clinical studies which must contain substantial evidence of the safety and
efficacy of the proposed new product. These applications are submitted under Section 505(b)(1) of the FFDCA. The FDA is, however, authorized to approve an alternative type of NDA under
Section 505(b)(2) of the FFDCA. This type of application allows the applicant to rely, in part, on the FDA's previous findings of safety and efficacy for a similar product, or published
literature. Specifically, Section 505(b)(2) applies to NDAs for a drug for which the investigations made to show whether or not the drug is safe for use and effective in use and relied upon by
the applicant for approval of the application were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the
investigations were conducted.
Thus,
Section 505(b)(2) authorizes the FDA to approve an NDA based on safety and effectiveness data that were not developed by the applicant. NDAs filed under
Section 505(b)(2) may provide an alternate and potentially more expeditious pathway to FDA approval for new or improved formulations or new uses of previously approved products. If the
Section 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, the applicant may eliminate the need to conduct some, most, or even all
preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then
approve the new drug candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)
applicant.
ITEM 1A. RISK FACTORS
Investing in our ordinary shares involves a high degree of risk, including those described below. You should consider
carefully the following risks, together with all the other information in this report, including our financial statements and related notes. If any of the following risks actually materializes, our
operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our ordinary shares could decline and you could lose part or all of your
investment.
Risks Related to the Development and Commercialization of our Product Candidates
Our success depends heavily on the successful development, regulatory approval and commercialization of our
lead product candidate, Trevyent.
We do not have any products that have been granted regulatory approval. We cannot commercialize Trevyent or any other or future product
candidates in the United States without first obtaining regulatory approval for the product from the FDA, nor can we or existing or future partners commercialize Trevyent or any other or future
product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. The FDA review process typically takes years to complete and
approval is never guaranteed. Specifically, in August 2017, the FDA issued a Refuse to File, or RTF, letter concerning our June 2017 Trevyent NDA. The FDA determined that our NDA was not sufficiently
complete to permit a substantive review. In November 2017, we held a Type A meeting with the FDA to discuss the RTF and to gain clarification on the additional information required for
resubmission and possible acceptance of the NDA. We expect to resubmit the NDA for the subcutaneous administration of Trevyent during the fourth quarter of 2018. As a result of these and other
uncertainties in the FDA review process, our near-term prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain regulatory
approval for and, if approved, to successfully commercialize Trevyent in a timely manner.
Obtaining
regulatory approval for marketing of any product candidate in one country does not ensure we will be able to obtain regulatory approval in other countries, while a failure or
delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
Further,
because Trevyent combines a drug product and a delivery device, the approval of Trevyent by a regulatory authority will require the review of components that are regulated under
different types of regulatory requirements. The need for oversight and review by different bureaus/centers within the regulatory authority could result in time delays with respect to the anticipated
marketing approval for Trevyent and additional costs in development and preparation of responses to the regulatory authority while our product submissions are under review.
Even
if we were to successfully obtain approval for one or more of our product candidates from the FDA and comparable regulatory authorities outside the United States, any approval might
contain significant limitations related to use restrictions or may be subject to burdensome and costly
post-approval study or risk management requirements. If we are unable to obtain regulatory approval for our product candidates in one or more jurisdictions, or any approval contains significant
limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue our operations. Also, any regulatory approval of our product candidates, once obtained, may be
withdrawn by the regulatory authority.
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Furthermore,
even if we obtain regulatory approval, commercial success will depend on how successfully we are able to address a number of challenges, including the
following:
-
-
Development and ongoing management of our commercial organization in the United States, including management and oversight of third-parties
under contract with us to build and manage that organization;
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-
Establishment of commercial collaborations with partners, including Cardiome Pharma Corporation, our Trevyent partner in Europe;
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-
Establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;
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-
The ability of our third-party manufacturers to manufacture quantities of Trevyent or any other or future product candidates using commercially
viable processes at a scale sufficient to meet anticipated demand and that are compliant with applicable regulations;
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Our success in educating physicians, other health care professionals and patients about the benefits, administration and use of Trevyent or any
other or future product candidates;
-
-
The availability, actual advantages, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing
treatments; and
-
-
The effectiveness of Cardiome's marketing, sales and distribution strategy and operations, and those of other potential commercial
collaborators.
Many
of these factors are beyond our control. If we or any commercialization partners are unable to successfully commercialize Trevyent, or any future product candidates, we may not be able to earn
sufficient revenues to continue our business.
If the FDA does not conclude that Trevyent or our other product candidates satisfy the requirements for the
Section 505(b)(2) regulatory approval pathway, or if the requirements for Trevyent or our other product candidates under Section 505(b)(2) are not as we expect, the approval pathway
would likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated and in either case may not be successful.
We will seek FDA approval through the Section 505(b)(2) regulatory pathway for Trevyent and for future product candidates. The Drug Price
Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act or Section 505(b)(2).
Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant
has not obtained a right of reference.
If
the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated for a product, we may need to conduct additional clinical trials, provide additional
data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval, and complications and risks
associated with FDA approval, would substantially increase. We may need to obtain additional funding, which could result in significant dilution to the ownership interests of our then existing
shareholders to the extent we issue
equity securities or convertible debt. We cannot assure you that we would be able to obtain such additional financing on terms acceptable to us, if at all.
Moreover,
inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could
materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the
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Section 505(b)(2)
regulatory pathway, we cannot assure you that Trevyent or our other product candidates will receive the requisite approvals for commercialization.
In
addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, some pharmaceutical companies and others have
objected to the FDA's interpretation of Section 505(b)(2). For example, several companies have previously petitioned the FDA regarding the constitutionality of allowing others to rely upon FDA
findings that are based on their proprietary data. If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its 505(b)(2) policies and
practices, which could require that we generate full data regarding safety and effectiveness for previously approved active ingredients and delay or even prevent the FDA from approving any NDA that we
submit under Section 505(b)(2).
We
also intend to seek approval of any other drug product candidates through the Section 505(b)(2) regulatory pathway. These product candidates, such as our AHPA programs, are at
an earlier stage of development than Trevyent and are subject to even greater uncertainty, over what we must do on our development program in order to secure approval under Section 505(b)(2).
We are required to make certifications with respect to certain patents listed in the FDA Orange Book. If the
owner of those patents initiates a lawsuit against us, the approval pathway would likely take significantly longer, cost significantly more and entail significantly greater complications and risks
than anticipated.
Because we will resubmit a Section 505(b)(2) NDA to the FDA for Trevyent and we plan to submit a Section 505(b)(2) NDA to the FDA
for each of our future product candidates, we will be required to make certifications concerning any patents listed for the reference drug product in the FDA list of Approved Drug Products with
Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. The reference drug product for Trevyent is Remodulin, and there are currently seven patents published in the Orange Book
in connection with Remodulin. As such, we will
be required to make certifications with respect to the listed patents, including in some instances that Trevyent will not infringe the listed patents and/or that the listed patents are invalid and/or
unenforceable. The owner of the listed patents may initiate a patent infringement lawsuit in response to the certifications, which would automatically prevent the FDA from providing final approval of
the NDA for Trevyent until the earlier of 30 months after the patent holder's receipt of the certifications, expiration of the listed patents, or a decision in the infringement lawsuit
favorable to us.
If
the patent owner initiates an infringement lawsuit, the marketing approval of Treyvent in the United States could be significantly delayed and we may face significant costs in defense
of the lawsuit. Further, there is no guarantee that we would be successful in defending a patent infringement case. If we are not successful, the FDA cannot grant final approval for Trevyent under
Section 505(b)(2) until all listed patents have expired, which could be 2029.
Accordingly,
the proposed time frame for marketing approval of Trevyent may be delayed by as long as 30 months, pursuant to an automatic stay, or longer if we have to wait for the
expiration of any of the Orange Book patents. This delay could have a significant material adverse effect on our business, prospects and financial condition. Moreover, if there is an adverse outcome
in a patent infringement lawsuit, it could result in substantial damages.
United
Therapeutics Corporation, the owner of the patents published in the Orange Book in connection with Remodulin, filed a lawsuit against Sandoz, Inc. based on Sandoz's earlier
submission of its abbreviated NDA, or ANDA, to the FDA and its certification with respect to the Remodulin patents. On August 29, 2014, the court found that Sandoz infringed one of the patents,
patent U.S. Patent No. 6,765,117, and that the effective date of any FDA approval for Sandoz to sell its generic version of Remodulin should be no earlier than the expiration of that patent,
which is scheduled to expire on October 24, 2017. The court also found that Sandoz did not infringe other asserted patents.
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In
September 2014, United Therapeutics filed a separate lawsuit filed against Sandoz in the same U.S. District Court, alleging infringement of U.S. Patent No. 8,497,393.
On
September 30, 2015, United Therapeutics announced that it had entered into a Settlement Agreement with Sandoz in both cases. Under the Settlement Agreement, United Therapeutics
granted to Sandoz a non-exclusive license to manufacture and commercialize the generic version of Remodulin, as described in Sandoz's ANDA filing, in the United States beginning on June 26,
2018, although Sandoz may be permitted to enter the market earlier under certain circumstances. The Settlement Agreement does not grant Sandoz any rights other than those required to launch Sandoz's
generic version of Remodulin. In accordance with the Settlement Agreement, the parties will submit the
Settlement Agreement to the U.S. Federal Trade Commission and the U.S. Department of Justice for review.
United
Therapeutics also filed a lawsuit against Teva Pharmaceuticals USA, Inc. on September 2, 2014, alleging infringement of five United Therapeutics patents based on
Teva's submission of its ANDA to the FDA seeking approval of a generic form of Remodulin. On January 15, 2016, United Therapeutics announced that it had entered into a Settlement Agreement with
Teva. Under the Settlement Agreement, United Therapeutics granted Teva a non-exclusive license beginning on December 23, 2018 to manufacture and commercialize in the United States, the generic
version of Remodulin described in Teva's ANDA, although Teva may be permitted to enter the market earlier under certain circumstances.
Teva
and Sandoz relied on ANDAs, which were required to have the same labeling to the referenced listed drug, Remodulin. A 505(b)(2) NDA applicant, such as for our NDA for Trevyent, does
not have these same requirements. We are not seeking approval as a generic to be automatically substituted for Remodulin, as would be the case for ANDAs. The likelihood of United Therapeutics filing
suit against us is therefore not determined by their actions with respect to Sandoz and Teva; however, there can be no assurances that a lawsuit will not be filed against us.
In
October 2015, we filed an Inter Partes Review with the Patent Trial and Appeal Board, or PTAB, of the United States Patent and Trademark Office to invalidate the U.S. Patent
No. 8,497,393 granted to United Therapeutics. This patent relates to a process to prepare prostacyclin derivatives such as treprostinil. Treprostinil is used in Trevyent. The PTAB initiated the
Inter Parties Review in April 2016 and on March 31, 2017, the PTAB ruled in our favor, invalidating all of the claims of the '393 patent. United Therapeutics appealed the ruling to the Circuit
Court of Appeals in Washington, D.C., and a hearing on the matter was held on November 7, 2017. On November 14, the Court of Appeals upheld the PTAB ruling in our favor without issuing
an opinion. On February, 9, 2018, United Therapeutics filed a petition for certiorari with the U.S. Supreme Court asking for a review of the appellate ruling. Steadymed's response to that petition is
due on April 6, 2018.
In
March 2017, United Therapeutics was issued two continuation patents to the '393 patent discussed above, U.S. Patent No. 9,593,066 and 9,604,901. In July 2017, United
Therapeutics was issued U.S. Patent No. 9,713,599 concerning Remodulin. We will be required to make certifications with respect to these three new patents in our NDA for Trevyent. If United
Therapeutics chooses to litigate these patents, management is hopeful these patents will be invalidated like the '393 patent or we will be found not to have infringed them, but there can be no
assurance of ultimate success in this regard.
The regulatory approval processes of the FDA and comparable authorities outside the United States are
lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable authorities outside the United States is unpredictable and typically takes many
years. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product
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candidate's
development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any
product candidates we may seek to develop in the future will ever obtain regulatory approval. Our product candidates could fail to receive regulatory approval for many reasons, including the
following:
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-
The FDA or comparable foreign regulatory authorities may disagree with the design, scope or implementation of any clinical trials that we
propose to conduct or require us to conduct additional clinical trials;
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We may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe
and effective for its proposed indication;
-
-
We may be unable to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;
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-
The FDA or comparable regulatory authorities outside the United States may disagree with our interpretation of data from preclinical studies or
clinical trials;
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-
The data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission
or to obtain regulatory approval in the United States or elsewhere;
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The FDA or comparable regulatory authorities outside the United States may fail to approve the manufacturing processes or facilities of third
party manufacturers with which we contract for clinical and commercial supplies; and
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-
The approval policies or regulations of the FDA or comparable regulatory authorities outside the United States may change significantly in a
manner rendering our clinical data insufficient for approval.
Specifically,
in August 2017, the FDA issued a Refuse to File letter to us concerning our June 2017 Trevyent NDA. The FDA determined that our NDA was not sufficiently complete to permit
a substantive review. In November 2017, we had a Type A meeting with the FDA to discuss the letter and to gain clarification on the additional information required for resubmission and
acceptance of the NDA. The meeting was constructive and management believes that we will be able to sufficiently address the FDA's concerns, and resubmit the NDA for the subcutaneous administration of
Trevyent during the fourth quarter of 2018.
Failing
to obtain regulatory approval to market any of our product candidates would harm our business, results of operations and prospects significantly.
In
addition, even if we were to obtain approval, such regulatory approval may be for more limited indications than we request, may impact the price we intend to charge for our products,
may be contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the
successful commercialization of that product candidate. Any of the foregoing scenarios could harm the commercial prospects for our product candidates.
We
cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory
approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully
obtain regulatory approvals to market one or more of our product candidates in one or more jurisdictions, our revenue will be dependent, to a significant extent, upon the size of the markets in the
jurisdictions for which we gain regulatory approval.
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Even if Trevyent and our other or future product candidates receive regulatory approval, they may fail to
achieve the degree of market acceptance by physicians, pharmacies, hospital administrators, patients, caregivers, healthcare payors and others in the medical community necessary for commercial
success.
Some of the existing therapies for PAH have well-established market positions and familiarity with physicians, healthcare payors and patients.
If we are unable to achieve significant differentiation for Trevyent from existing and widely accepted therapies for PAH, our opportunity for Trevyent to be commercialized successfully, if approved,
would be adversely affected.
If
Trevyent or any future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, pharmacies, hospital
administrators, patients, caregivers, healthcare payors and others in the medical community. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on
a number of factors, including the following:
-
-
convenience and ease of administration of the product candidates compared to alternative treatments;
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the prevalence and severity of any side effects;
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-
their efficacy and potential advantages compared to alternative treatments;
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the willingness of physicians, nurses, pharmacies and other health care providers to change their current treatment practices;
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the willingness of the target patient population to try new therapies and of physicians to prescribe new therapies;
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the strength of marketing and distribution support; and
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the price we charge for our product candidates.
Trevyent has never been manufactured on a commercial scale, and there are risks associated with scaling up
manufacturing to commercial scale.
We have never manufactured Trevyent on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale
including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency and timely availability of raw materials. Even if we could
otherwise obtain regulatory approval for Trevyent there is no assurance that our manufacturer will be able to manufacture the approved product to specifications acceptable to the FDA or other
regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand.
If
our suppliers are unable to produce sufficient quantities of any approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse
effect on our business, financial condition, results of operations and growth prospects.
Trevyent may fail to offer material commercial advantages over other injectable prostacyclin therapies.
The convenience and possible safety advantages that we believe Trevyent would offer, if approved by regulatory authorities, may fail to
materialize, or may not be recognized by patient, caregivers or physicians. For example, patients may have invested significantly in pumps and equipment and be comfortable with their preparation of
other injectable prostacyclin therapies, such as Remodulin, making it more difficult to convince a prescribing physician that these patients should switch to Trevyent. We do not have clinical evidence
that removal of meta-cresol from our formulation of treprostinil will reduce or eliminate the experience of injection site reaction seen with Remodulin when
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administered
subcutaneously. The convenience advantages of Trevyent may not be sufficient to either move market share to us or expand the population of PAH patients being prescribed treprostinil.
We face substantial competition, which may result in others discovering, developing or commercializing
products before or more successfully than we do.
The development and commercialization of new specialty pharmaceutical products is highly competitive. We face competition with respect to
Trevyent, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that currently market and sell PAH and pain management products to our target
patient groups. These companies typically have a greater ability to reduce prices for their competing drugs in an effort to gain or retain market share and undermine the value proposition that we
might otherwise be able to offer to payors. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research,
seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.
For
Trevyent, we expect to compete with existing infusion treatments for PAH patients with Class II-IV symptoms as well as known products under development, including Remodulin
(treprostinil) sold by United Therapeutics and other prostacyclins such as Veletri (epoprostenol) sold by Actelion Ltd., Flolan (epoprostenol) sold by GlaxoSmithKline PLC, and generic
epoprostenol sold by Teva Pharmaceutical Industries Ltd. In addition, Sandoz and Teva have filed an ANDA for a generic form of treprostinil, which we expect will be launched in the second half
of 2018.
Under
a separate collaboration between United Therapeutics and Medtronic, Inc., a specially designed delivery catheter is being developed to enable use of an implantable pump, the
Synchromed pump, for the delivery of treprostinil. This collaboration is subject to settlement of a consent decree between Medtronic and the FDA regarding the Synchromed pump and the resolution of a
Class I recall for that pump. In addition, use of the Synchromed pump for the delivery of treprostinil is subject to regulatory approval and the FDA informed Medtronic in March 2016 that its
premarket approval application was not approvable as submitted. Medtronic's premarket approval application, or PMA, for the device was approved by the FDA in December 2017. United Therapeutics
resubmitted its NDA for the use of Remodulin in the implantable pump on January 30, 2018, and anticipates a two-month review period. In January 2015, United Therapeutics further announced that
it had entered into an agreement with DEKA Research & Development Corp. for the development of a prefilled, semi-disposable pump system for the subcutaneous delivery of Remodulin, known as
RemUnity. United Therapeutics is currently engaged in engineering, design and development efforts to optimize the RemUnity system to deliver treprostinil in pre-filled reservoirs, and intends to
complete human factor studies and functionality testing in subjects before submitting an application to the FDA to approve the pre-filled RemUnity system. If approved, RemUnity would be in direct
competition with Trevyent.
United
Therapeutics is also engaged in pre-clinical development of a new prodrug of treprostinil called RemoPro, which is intended to enable subcutaneous delivery without the site pain
currently associated with subcutaneous Remodulin. A prodrug is a metabolically inactive compound that, after administration, metabolizes into an active compound. RemoPro is intended to be inactive in
the subcutaneous tissue, which should decrease or eliminate site pain. Once RemoPro is absorbed into the blood, it metabolizes into treprostinil.
Many
of our competitors, including United Therapeutics and other large pharmaceutical companies that compete directly with us, have significantly greater financial resources and
expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. There may also be
companies
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unknown
to us that are engaged in the development of products that are potentially competitive with those that we are developing. Mergers and acquisitions in the pharmaceutical, biotechnology and
diagnostic industries may result in even more resources being concentrated among a smaller number of
our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our limited operating history makes evaluating our business and future prospects difficult, and may increase
the risk of any investment in our ordinary shares.
Our operations to date have been limited to developing Trevyent, our enabling PatchPump technology, and, to a much lesser extent, our AHPA
product candidates. In addition, as a development-stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties
frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated an ability to obtain regulatory approval for or to
commercialize a product candidate. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history of successfully developing and commercializing
a significant number of pharmaceutical products.
We may expend our limited resources to pursue a particular product candidate or indication and fail to
capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates and are
currently focused principally on Trevyent. As a result, we may forego or delay pursuit of opportunities with other product candidates, including our AHPA products, or for other indications that later
prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current
and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or
target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other arrangements in cases in which it would
have been more advantageous for us to retain sole development and commercialization rights.
We rely, or intend to rely, on third parties to manufacture Trevyent. The development and commercialization
of our product candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of product or fails to do so at acceptable quality levels or prices or
fails to maintain or achieve satisfactory regulatory compliance.
We lack the resources and the capability to manufacture Trevyent. Instead, we rely on our third-party contract manufacturers, component
fabricators and secondary service providers. The facilities used by our third-party contract manufacturers, component fabricators and secondary service providers must successfully pass inspections by
the applicable regulatory authorities, including the FDA, after we resubmit our NDA to the FDA and if it is accepted for filing by the FDA. We are currently completely dependent on our third-party
contract manufacturers, component fabricators and secondary service providers for the production of Trevyent in accordance with applicable guidelines and regulations, which include, among other
things, quality control, quality assurance and the maintenance of records and documentation.
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Although we have entered into an agreement for the development and manufacture of certain Trevyent components and for registration lot production our third-party
manufacturers may not perform as agreed, may be unable to comply with these applicable guidelines and regulations and with FDA, state and foreign regulatory requirements or may terminate their
agreements with us. If any of our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities' strict regulatory
requirements, or pass regulatory inspection, our NDA and MAA will not be approved. In addition, although we are ultimately responsible for ensuring product quality, we have no direct day-to-day
control over our third-party manufacturers' ability to maintain adequate quality control, quality assurance and qualified personnel. If our third-party manufacturers are unable to satisfy the
regulatory requirements for the manufacture of our products, or if our suppliers or third-party manufacturers decide they no longer want to manufacture our products, we may need to find alternative
manufacturing facilities. The number of third-party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant
amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. We might be unable to identify manufacturers for long-term commercial supply on
acceptable terms or at all. Manufacturers are subject to ongoing periodic announced and unannounced inspections by the FDA and other governmental authorities to ensure compliance with government
regulations. If the FDA or other regulatory authority has any concerns following an inspection of these manufacturing facilities, the facility may be ordered to cease operations until such issues are
resolved, which could have a material adverse effect on our business.
The
active pharmaceutical ingredient, or API, for Trevyent will be manufactured for us by a third-party manufacturer using a unique, patented method of synthesis. We do not have an
exclusive relationship with this manufacturer, which means this manufacturer could sell the treprostinil API to our competitors, which may have their own delivery systems and could compete against
Trevyent. If for any reason this third-party manufacturer is unable to supply API for Trevyent to us, we do have a back-up supplier of AP Trevyent.
The
manufacture of pharmaceutical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and
process controls. We and our contract manufacturers, component fabricators and secondary service providers must comply with applicable guidelines and regulations.
Manufacturers
of pharmaceutical products often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties
with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly
enforced U.S. federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products
are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues
relating to the manufacture of any of our products will not occur in the future. Additionally, our contract manufacturers, component fabricators or secondary service providers may experience
manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our contract manufacturers, component fabricators or secondary service
providers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any product candidates to patients in clinical trials
would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial
programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely.
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Any
adverse developments affecting commercial manufacturing of our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other
interruptions in the supply of our products or product candidates. We may also have to take inventory write-offs and incur other charges and expenses for products or product candidates that fail to
meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially
adversely affect our business and delay or impede the development and commercialization of any of our products or product candidates and could have a material adverse effect on our business,
prospects, financial condition and results of operations.
We will need to rely on third-party specialty channels to distribute Trevyent to patients. If we are unable
to effectively establish and manage this distribution process, the commercial launch and sales of Trevyent may be delayed or compromised.
We plan to contract with and rely on third-party specialty pharmacies to distribute Trevyent. A specialty pharmacy is a pharmacy that
specializes in the dispensing of medications for complex or chronic conditions, which require a high level of patient education and ongoing management. If we are unable to effectively establish and
manage this distribution process, the commercial launch and sales of Trevyent will be delayed or compromised and our results of operations may be harmed.
In
addition, the use of specialty pharmacies involves certain risks, including, but not limited to, risks that these organizations will:
-
-
not provide us with accurate or timely information regarding their inventories, the number of patients who are using our product candidates, or
complaints regarding our product candidates;
-
-
not effectively sell or support our product candidates;
-
-
reduce or discontinue their efforts to sell or support our product candidates;
-
-
not devote the resources necessary to sell our product candidates in the volumes and within the time frames that we expect; or
-
-
cease operations.
Any
such events may result in decreased sales and lower revenue, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
Coverage and reimbursement may not be available, or may be available at only limited levels, for our product
candidates, which could make it difficult for us to sell our product candidates profitably, if approved.
Market acceptance and sales of our product candidates will depend in large part on global reimbursement policies and may be affected by future
healthcare reform measures. Successful commercialization of Trevyent, our AHPA product candidates or other product candidates will depend in part on the availability of governmental and third-party
payor reimbursement for the cost of our product candidates. Government authorities, private health insurers and other organizations establish coverage and reimbursement policies for new products. In
particular, in the United States, the Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement
policies for drugs and other medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Further, the increased
emphasis on managed healthcare in the United States will put additional pressure on product pricing, coverage, reimbursement and utilization, which may adversely affect our product sales and results
of operations. These pressures can arise from policies and practices of managed care groups, judicial decisions and governmental laws and regulations
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related
to Medicare, Medicaid and healthcare reform, coverage and reimbursement policies and pricing in general.
In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, ACA, became law in the United States. ACA
substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry. Some of the provisions of the ACA have yet to be
fully implemented, while certain provisions have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA.
Since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the ACA. Concurrently, 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,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that
is commonly referred to as the "individual mandate". Congress may consider other legislation to repeal or replace elements of the ACA.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes include: the Budget Control Act of 2011, which, among other things, led to
aggregate reductions to Medicare payments to providers of 2% per fiscal year starting in 2013 and, due to subsequent legislative amendments to the statute, the reductions will stay in effect through
2025, unless additional congressional action is taken; and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased
the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws and any new healthcare reform measures may result in additional
reductions in Medicare and other health care funding and otherwise affect the prices we may obtain for any of our drug candidates for which we may obtain regulatory approval or the frequency with
which any such drug candidate is prescribed or used.
Further,
there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing,
review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. At the
federal level, the cost of prescription pharmaceuticals has been the subject of considerable discussion, and members of Congress and the Trump administration have stated that they will address such
costs through new legislative and administrative measures. At the state level, legislatures are increasingly 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
expect that these health care reforms, as well as other health care reform measures that may be adopted in the future, may result in additional reductions in Medicare, Medicaid and
other health care funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of
reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with
which our products are prescribed or administered. Any reduction in reimbursement from Medicare, Medicaid or other government programs may result in a similar reduction in payments from private
payors.
Legislative
and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure
whether
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additional
legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug
candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us and any
future collaborators to more stringent product labeling and post-marketing testing and other requirements.
We
expect to experience pricing pressures in connection with the sale of Trevyent and our other product candidates, if approved, due to the trend toward managed healthcare, the
increasing influence of health maintenance organizations and additional legislative proposals. If we fail to successfully secure and maintain adequate coverage and reimbursement for our products or
are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and expected revenue and profitability which would have a material adverse effect on our
business, prospects, financial condition and results of operations.
We currently have no sales representatives or distribution personnel and limited marketing capabilities. If
we are unable to develop directly or indirectly a sales and marketing and distribution capability, we will not be successful in commercializing Trevyent or other or future product candidates.
We have not yet built out an infrastructure to sell, market or distribute therapeutic products. If Trevyent is approved, we intend to
commercialize Trevyent with contractual support from inVentiv Healthcare in the United States and through Cardiome in Europe, the Middle East and Canada. If any other or future product candidates are
approved we may commercialize them directly and/or through commercial partners in the United States and with commercial partners outside of the United States. There are risks involved with both
establishing our own sales and marketing and distribution capabilities and entering into third-party arrangements to perform these services. For example, we or our partners may not be successful in
recruiting and training a sales force, which is expensive and time-consuming. In such case, the Trevyent product launch could be delayed.
We
may be unable to identify appropriate commercial partners to distribute our products outside the United States or to negotiate terms with such commercial partners that are favorable
or acceptable to us. Also, we may be unable to maintain those relationships. The inability to identify, successfully negotiate with, and maintain relationships with, commercial partners for
distribution outside the United States could limit and/or delay our ability to commercialize our products outside the United States.
If we obtain approval to commercialize any of our product candidates outside the United States, we will be
subject to additional risks.
If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international
operations could materially adversely affect our business, including:
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different regulatory requirements for drug approvals in countries outside the United States;
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reduced protection for intellectual property rights;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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non-U.S. taxes, including withholding of payroll taxes;
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-
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing
business in another country;
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-
workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons,
floods and fires.
Our future success depends on our ability to retain our chief executive officer and other key executives and
to attract, retain and motivate qualified personnel.
We are highly dependent on our chief executive officer and the other principal members of our executive team. Under the terms of their
employment, our executives may terminate their employment with us at any time, and in fact, in November 2017, our Executive Vice President and Chief Operating Officer resigned his position with us.
The loss of the services of any executive officer could impede the achievement of our research, development and commercialization objectives. Recruiting and retaining qualified and experienced
scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the
competition among numerous pharmaceutical and
biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on
consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be
employed by employers or engaged by entities other than us and may have commitments under employment, consulting or advisory contracts with other entities that may limit their availability to us.
We expect to expand our sales and marketing capabilities, and our company generally, in advance of
commercialization of Trevyent, if approved, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
As of February 28, 2018, we had 26 full-time employees. Beginning in 2019, and in anticipation of commercialization of Trevyent, if
approved, we expect to experience significant growth in the number of our employees and the scope of our operations. To manage our anticipated future growth, we must continue to implement and improve
our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited
experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified
personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Future growth would impose significant added
responsibilities on members of management, including:
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-
-
-
identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience we will require;
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managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and
other third parties;
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managing additional relationships with various strategic partners, suppliers and other third parties;
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improving our managerial development, operational and finance reporting systems and procedures; and
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expanding our facilities.
Our
failure to accomplish any of these tasks could prevent us from successfully growing our company. Any inability to manage growth could delay the execution of our business plans or
disrupt our operations.
We are an "emerging growth company" and we cannot be certain if the reduced reporting requirements applicable
to emerging growth companies will make our ordinary shares less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, which was enacted in April 2012.
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 not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could cause us to
lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of our 2015 initial
public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means, among other
things, that the market value of our ordinary shares that are held by non-affiliates exceeds $700 million
as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities 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 Sarbanes-Oxley Act and reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements.
Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act 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 cannot predict if investors will find our ordinary shares less attractive because we may rely on these reduced
requirements. If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
Guidelines and recommendations published by various organizations can reduce the use of our product
candidates.
Government agencies promulgate regulations and guidelines directly applicable to us and to our product candidates. In addition, professional
societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the
healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of
therapies. Recommendations or guidelines suggesting the reduced use of our product candidates or the use of competitive or alternative products as the standard
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of
care to be followed by patients and healthcare providers could result in decreased use of our product candidates.
Even if we receive regulatory approval for Trevyent and our other or future product candidates, we will be
subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory
requirements.
Any regulatory approvals that we may receive for our product candidates will contain approved indicated uses, and we will be required to market
any approved products in accordance with the indicated uses and our approved labeling. In addition, any regulatory approvals may contain conditions for approval or requirements for potentially costly
post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable regulatory authority outside the United States approves any
of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product
will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued
compliance with current good manufacturing practices, or cGMPs, Quality System Regulation, or QSR, requirements and current good clinical practices, or cGCPs, for any clinical trials that we conduct
post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product
recalls;
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fines, warning or untitled letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed, or suspension or revocation of product
approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions, the imposition of civil penalties or criminal prosecution.
We
cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Any
government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. If we are not able to maintain
regulatory compliance or if we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, regulatory sanctions may be applied or we may lose any
marketing approval that we may have obtained, and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
If we fail to comply with healthcare and other regulations, we could face substantial penalties and our
business, operations and financial condition could be adversely affected.
Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors,
certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and
abuse and patient privacy regulation by both the federal
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government
and the states in which we conduct our business. The regulations that may affect our ability to operate include, without limitation:
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the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering,
soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or
service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;
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-
indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for
which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;
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the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like us which provide coding and billing advice to
customers;
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federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to
healthcare matters;
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the federal transparency requirements require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of
Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and
Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and
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foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act, or FCPA, anti-kickback and
false claims laws that may apply to items or services reimbursed by any third party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the
pharmaceutical industry's voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare
providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus
complicating compliance efforts.
If
our operations are found to be in violation of any of the laws or regulations described above, comparable laws and regulations of non-U.S. jurisdictions or any other governmental
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages,
fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if
we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining
compliance with applicable federal and state privacy, security and fraud laws may prove costly.
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Our product candidates may cause serious adverse side effects or have other properties that could delay or
prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.
It is impossible to predict when or if any of our product candidates will prove safe enough to receive regulatory approval. Undesirable side
effects could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable regulatory authority outside the United States for the affected product
candidate. Additionally, if any of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially
significant negative consequences could result, including:
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we may be forced to suspend the marketing of such product;
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-
regulatory authorities may withdraw their approvals of such product;
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-
regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of
such products;
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-
the FDA or other regulatory bodies may issue safety alerts, "Dear Healthcare Provider" letters, press releases or other communications
containing warnings about such product;
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-
the FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies, or REMS, or a comparable regulatory authority
outside the United States may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome and costly
implementation requirements on us;
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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 could be sued and held liable for harm caused to subjects or patients;
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we may be subject to litigation or product liability claims; and
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our reputation may suffer.
Any
of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved.
Further,
changes in regulatory requirements and guidance may occur and we may need to amend clinical study protocols to reflect these changes. Amendments may require us to resubmit our
clinical study protocols to Institutional Review Boards for reexamination, which may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events
concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public have raised concerns
about potential drug safety issues. These events have resulted in the recall and withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment
of risk management programs that may, for instance, restrict distribution of drug products or require safety surveillance and/or patient education. The increased attention to drug safety issues may
result in a more cautious approach by the FDA to clinical studies and the drug approval process. Data from clinical studies may receive greater scrutiny with respect to safety, which may make the FDA
or other regulatory authorities more likely to terminate or suspend clinical studies before completion, or require longer or additional clinical studies that may result in substantial additional
expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.
Given
the serious public health risks of high profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk evaluation and
mitigation
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strategies,
which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events,
preapproval of promotional materials and restrictions on direct-to-consumer advertising.
If we are able to commercialize any of our product candidates, the products may become subject to unfavorable
pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing and reimbursement for specialty pharmaceutical products vary widely from country to
country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is
granted. In some markets outside the United States, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might
obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able
to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates
obtain regulatory approval.
Our
ability to commercialize Trevyent or any other or future product candidates successfully also will depend in part on the extent to which reimbursement for these products and related
treatments becomes available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health
insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost
containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly,
third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that
reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price
of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with products administered
under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we
successfully develop.
There
may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or
regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research,
development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary
according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into
existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation
of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and
payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for new products
that we develop could have a
material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In some foreign countries, including major markets
in the
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European
Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take nine to twelve
months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that
compares the cost-effectiveness of our product to other available therapies. Our business could be materially harmed if reimbursement of our approved products, if any, is unavailable or limited in
scope or amount or if pricing is set at unsatisfactory levels.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of
off-label uses and establishing requirements for promotion.
If any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products or otherwise to have
improperly promoted our products, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription
products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the
product's approved labeling. It is also required to provide pertinent safety information about a product. If we are found to have promoted such off-label uses, or not to have provided adequate safety
information, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and
other forms of improper promotion. The United States government has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is
changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect
our business and financial condition.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements, which could result in significant liability for us and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar
regulations of comparable regulatory
authorities outside the United States, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with
federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, comply with the FCPA and other
anti-bribery laws, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the
course of clinical trials, which could result in regulatory sanctions, delays in clinical trials, or serious harm to our reputation. We will adopt a code of conduct for our directors, officers and
employees, or the Code of Business Conduct and Ethics, which will be effective as of consummation of this offering, but it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions
or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our
rights, those actions could harm our business, results of operations, financial condition and cash flows, including through the imposition of significant fines or other sanctions.
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We may form strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form strategic alliances, create joint ventures, co-promotion agreements or marketing collaborations or enter into licensing arrangements
with third parties that we believe will complement or augment our existing business. These relationships or those like them may require us to incur non-recurring and other charges, increase our near-
and long-term expenditures, issue securities that dilute our existing shareholders or disrupt our management and business. If we license products or businesses, we may not be able to realize the
benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license,
we will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new strategic partnership or marketing agreements related to our product candidates
could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit
commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to any of our future product candidates. If we cannot successfully defend
ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result
in:
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decreased demand for any product candidates or products that we may develop;
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injury to our reputation and significant negative media attention;
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significant costs to defend the related litigation;
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substantial monetary awards to patients;
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loss of revenue; and
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the inability to commercialize any products that we may develop.
While
we hold product liability insurance coverage, it may not be adequate to cover 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.
We are subject to laws and regulations governing corruption, which will require us to develop and implement
costly compliance programs.
We must comply with a wide range of laws and regulations to prevent corruption, bribery and other unethical business practices, including the
FCPA and anti-bribery and anti-corruption laws in other countries. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to
enforce, particularly where reliance on third parties is required.
Anti-bribery
laws prohibit us, our employees and some of our agents or representatives from offering or providing any personal benefit to covered government officials to influence their
performance of their duties or induce them to serve interests other than the missions of the public organizations in which they serve. Certain commercial bribery rules also prohibit offering or
providing any personal benefit to employees and representatives of commercial companies to influence their performance of their duties or induce them to serve interests other than their employers. The
FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring us to maintain books and records that accurately and fairly
reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an
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adequate
system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the Department of Justice, or DOJ. The Securities and
Exchange Commission, or the SEC, is involved with enforcement of the books and records provisions of the FCPA.
Compliance
with these anti-bribery laws is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the anti-bribery laws present
particular challenges in the pharmaceutical industry, because, in many countries, hospitals are state-owned or operated by the government, and doctors and other hospital employees are considered
foreign government officials; furthermore, in certain countries, hospitals and clinics are permitted to sell pharmaceuticals to their patients and are primary or significant distributors of
pharmaceuticals. Certain payments to hospitals in connection with clinical studies, procurement of pharmaceuticals and other work have been deemed to
be improper payments to government officials and have led to vigorous anti-bribery law enforcement actions imposing heavy fines in multiple jurisdictions.
It
is not always possible to identify and deter violations, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks
or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
In
the pharmaceutical industry, corrupt practices include, among others, acceptance of kickbacks, bribes or other illegal gains or benefits by the hospitals and medical practitioners
from pharmaceutical manufacturers, distributors or their third party agents in connection with the prescription of certain pharmaceuticals. If our employees, affiliates, distributors or third party
marketing firms violate these laws or otherwise engage in illegal practices with respect to their sales or marketing of our products or other activities involving our products, we could be required to
pay damages or heavy fines by multiple jurisdictions where we operate, which could materially and adversely affect our financial condition and results of operations.
If
we expand our operations, we may need to increase the scope of our compliance programs to address the risks relating to the potential for violations of the FCPA and other anti-bribery
and anti-corruption laws. Our compliance programs will need to include policies addressing not only the FCPA, but also the provisions of a variety of anti-bribery and anti-corruption laws in multiple
foreign jurisdictions, encompass provisions relating to books and records that will apply to us as we become a public company and include effective training for our personnel throughout our
organization. The creation and implementation of anti-corruption compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.
Violation of the FCPA and other anti-corruption laws can result in significant administrative and criminal penalties for us and our employees, including substantial fines, suspension or debarment from
government contracting, prison sentences, or even the death penalty in extremely serious cases in certain countries. The SEC also may suspend or bar us from trading securities on U.S. exchanges for
violations of the FCPA's accounting provisions. Even if we are not ultimately punished by government authorities, the costs of investigation and review, the distraction of company personnel, legal
defense costs and harm to our reputation could be substantial and could limit our profitability or our ability to develop or commercialize our product candidates. In addition, if any of our
competitors are not subject to the FCPA, they may engage in practices that will lead to their receipt of preferential treatment from foreign hospitals and enable them to secure business from foreign
hospitals in ways that are unavailable to us.
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Our business involves the use of hazardous materials, and we and our third-party manufacturers must comply
with environmental laws and regulations, which can be expensive and restrict how we do business.
We and our third-party manufacturers' activities involve the controlled storage, use and disposal of hazardous materials. We and our
manufacturers are subject to United States federal, state and local as well as foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials.
Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials comply with the standards prescribed by these laws and
regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, state, federal or foreign authorities may curtail the use of
hazardous materials and interrupt our business operations. We do not currently maintain hazardous materials insurance coverage. If we are subject to any liability as a result of our third-party
manufacturers' activities involving hazardous materials, our business and financial condition may be adversely affected. In the future we may seek to establish longer term third-party manufacturing
arrangements, pursuant to which we would seek to obtain contractual indemnification protection from such third-party manufacturers potentially limiting this liability exposure.
Business interruptions could seriously harm our future revenue and financial condition and increase our costs
and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, systems failures, water shortages, floods,
hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions. The occurrence of any of these business interruptions
could seriously harm our business and financial condition and increase our costs and expenses. Our management operates in our principal executive offices located in San Ramon, California. If our
offices were affected by a natural or man-made disaster, particularly those that are characteristic of the region, such as wildfires and earthquakes, or other business interruption, our ability to
manage our domestic and foreign operations could be impaired, which could materially and adversely affect our results of operations and financial condition. We currently rely, and intend to rely in
the future, on our third-party manufacturers, to produce our supply of Trevyent or our AHPA product candidates. Our ability to obtain supplies could be disrupted, and our results of operations and
financial condition could be materially and adversely affected if the operations of our third-party manufacturers were affected by a man-made or natural disaster or other business interruption. The
ultimate impact of such events on us, our significant suppliers and our general infrastructure is unknown.
Under applicable employment laws, we may not be able to enforce covenants not to compete, and may, therefore,
be unable to prevent competitors from benefiting from the expertise of some of our former employees involved in research and development activities.
We generally enter into non-competition agreements with our employees in Israel. These agreements prohibit our employees, if they cease working
for us, from competing directly with us or working for our competitors or clients for a limited period following termination of employment. We may be unable to enforce these agreements under the laws
of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees developed while working for us. For
example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm
one of a limited number of material interests of the employer which have been recognized by the courts, such as the protection of a company's trade secrets or other intellectual property. If we cannot
demonstrate that harm would be caused to us, an Israeli court may refuse to enforce our non-compete restrictions or reduce the contemplated period of
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non-competition
such that we may be unable to prevent our competitors from benefiting from the expertise of our former employees.
Risks Related to Our Financial Condition and Need for Additional Capital
Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going
concern and our auditors issued a "going concern" audit opinion in their report on our financial statements
.
Our
independent auditors have indicated in their report on our audited consolidated financial statements as of December 31, 2017, which are included in this
report, that there is substantial doubt about our ability to continue as a going concern. A "going concern" opinion indicates that the financial statements have been prepared assuming we will continue
as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that
may result if we do not continue as a going concern. As of this Annual Report on Form 10-K, the circumstances have not been changed and therefore the aforementioned going concern situation
remains current. Therefore, you should not rely on our consolidated balance sheet as an indication of the amount of proceeds that would be available to satisfy claims of creditors, and potentially be
available for distribution to shareholders, in the event of liquidation.
We need to raise additional capital in early 2019 to execute our current operating plan. If we fail to obtain
additional financing, we would be forced to delay the development and, if approved, commercialization of our lead product candidate, Trevyent, or liquidate the company.
We are a development stage company with limited operating history. To date, we have focused primarily on developing our lead product candidate,
Trevyent, our enabling PatchPump technology. While we believe that we have the financial resources to obtain FDA approval of Trevyent, we will need significant, additional capital to commercialize
Trevyent, if approved, and to develop other product candidates, such as our AHPA programs. As of December 31, 2017, we had cash and cash
equivalents (excluding restricted cash of $0.015 million) of $32.5 million and working capital of $30.2 million.
In
April 2017, we raised approximately $28.1 million of net proceeds from the sale of our ordinary shares and warrants to purchase our ordinary shares in a private placement.
Based on our current operating plan, we expect that the net proceeds from the April private placement, together with our existing cash and cash equivalents as of December 31, 2017, will enable
us to fund our operating expenses through at least December 31, 2018. For a description of the terms of this private placement, see "Management's Discussion and AnalysisLiquidity
and Capital ResourcesSources of Liquidity
Recent Private Placement Financing
".
We
will need to raise additional capital in early 2019 to execute our current operating plan. Securing additional financing may divert our management from our day-to-day activities,
which may adversely affect our ability to operate our business, including our ability to develop and commercialize our product candidates.
We
cannot guarantee that additional capital will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital, when required
in 2019 or thereafter in the future, or on acceptable terms, we may be required to:
-
-
significantly delay, scale back or discontinue the development or commercialization of Trevyent;
-
-
seek corporate partners for Trevyent or our product candidates at an earlier stage than otherwise would be desirable or on terms that are less
favorable than might otherwise be available; or
-
-
significantly curtail, or cease, operations.
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If
we are unable to raise additional capital in sufficient amounts or on terms acceptable to use, we will be prevented from pursuing development and commercialization efforts, which will
have a material adverse impact on our business operating results and prospects, including possible liquidation of the company.
In
addition, we have secured, and may continue to secure, additional capital using credit facilities and other debt, and may substantially increase our reliance on such debt in the
future. Such debt may be secured by a portion or substantially all of our assets. If we do not repay such indebtedness in a timely fashion, secured lenders could declare a default and foreclose upon
our assets, which would result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. Such credit facilities also typically
include several operational and financial covenants. If we fail to comply with the covenants and our other obligations under any credit facility, the secured lenders would be able to accelerate the
required repayment of amounts due and, if they are not repaid, could foreclose upon our assets, which would result in harmful disruption to our business, the sale of assets for less than their fully
realizable value, and possible bankruptcy. In addition, future credit facilities may limit our ability to incur incremental debt without our lenders' permission.
Future sales and issuances of our ordinary shares or rights to purchase ordinary shares by us will result in
additional dilution of the percentage ownership of our shareholders and may cause our share price to decline.
Until such time, if ever, as we can generate substantial product revenues, we expect that significant additional capital will be needed to
continue our planned operations, including conducting clinical trials, commercialization efforts, expanding research and development activities and costs associated with operating as a public company.
We may sell ordinary shares, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell ordinary shares,
convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing
shareholders and new investors. In addition, new shareholders could gain rights superior to our existing shareholders.
For
example, in August 2016, we issued and sold in a private placement an aggregate of 6,554,016 ordinary shares, plus warrants to purchase up to an additional 6,554,016 ordinary shares,
and in April 2017, we issued and sold in a private placement an aggregate of 5,031,550 ordinary shares, plus warrants to purchase up to an additional 2,515,775 ordinary shares. These share issuances
resulted in dilution to our existing shareholders and any exercise of the warrants issued in these private placements will result in additional dilution of our existing shareholders. For a description
of the terms of these private placements, see "Management's Discussion and AnalysisLiquidity and Capital ResourcesSources of
Liquidity
Recent Private Placement Financing
".
We have incurred significant losses since our inception and anticipate that we will continue to incur
significant losses for the foreseeable future.
We have incurred significant net losses in each year since our inception, including net losses of $7.9 million, $19.0 million,
$25.0 million and $25.9 million for fiscal years 2013, 2014, 2015 and 2016, respectively. As of December 31, 2017, we had an accumulated deficit of $112.4 million.
We
have devoted most of our financial resources to product and technology development. To date, we have financed our operations primarily through the sale of equity securities. The size
of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, none of our product candidates have been commercialized, and if our
product candidates are not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we
successfully obtain regulatory
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approval
to market our product candidates in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market
approval and achieve commercial success inside and outside the United States.
We
expect to continue to incur substantial and increased expenses as we launch and commercialize Trevyent, if approved. We also expect a further increase in our expenses associated with
creating additional infrastructure to support operations as a public company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for
the foreseeable future.
We have never generated any revenue from sales of our product candidates and may never be profitable.
Our ability to generate revenue and achieve profitability depends on our ability, alone or with collaborators, to successfully complete the
development of, obtain the necessary regulatory approvals for, and commercialize our product candidates. We do not anticipate generating revenue from sales of our product candidates for the
foreseeable future, if ever.
Our
ability to generate future revenue from product sales depends heavily on our success in:
-
-
completing development of Trevyent;
-
-
obtaining regulatory approval for Trevyent; and
-
-
launching and commercializing Trevyent, either by building our own targeted sales force or by collaborating with third parties.
Even
if Trevyent is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. 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.
Unstable market and economic conditions may have serious adverse consequences on our business, financial
condition and share price.
As widely reported, global credit and financial markets have experienced extreme disruptions in the past several years, including severely
diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no
assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic
downturn, volatile business environment and continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any
necessary debt or equity financing more difficult to complete, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material
adverse effect on our growth strategy, financial performance and share price and could require us to delay or abandon development or commercialization plans. In addition, there is a risk that one or
more of our current service providers
or our manufacturers may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
The termination or reduction of tax and other incentives that the Israeli government provides to us may
increase the costs involved in operating a company in Israel.
We may be eligible for certain tax benefits provided to "Beneficiary Enterprises" under the Israeli Law for the Encouragement of Capital
Investments, 5719-1959, referred to as the Investment Law. In order to be eligible for the tax benefits for "Beneficiary Enterprises," we must meet certain conditions
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stipulated
in the Investment Law and its regulations, as amended. If we do not satisfy these conditions, our Israeli taxable income would be subject to regular Israeli corporate tax rates. The
standard corporate tax rate for Israeli companies was 26.5% for 2014 and 2015, and reduced to 25% for 2016 and thereafter. Even if we were to become eligible for these tax benefits, they may be
reduced, cancelled or discontinued. See "Israeli Tax Considerations and Government ProgramsTax Benefits under the Law for the Encouragement of Capital Investments, 5719-1959."
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers,
which could increase the costs of our services and adversely impact our business.
The application of U.S. federal, state and local tax laws and of international tax laws to our industry is evolving. For example, on
December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among
other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction
for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of
net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain
important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits.
Notwithstanding the reduction in the corporate income tax rate, the overall impact of the
new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly
enacted federal tax law. The impact of this tax reform on holders of our ordinary shares is also uncertain and could be adverse. We urge our shareholders to consult with their legal and tax advisors
with respect to this legislation and the potential tax consequences of investing in or holding our ordinary shares.
Risks Related to Intellectual Property
If we are unable to obtain or protect intellectual property rights related to our product candidates, we may
not be able to compete effectively in our market.
As of March 16, 2018, our intellectual property portfolio included six issued U.S. patents, 15 issued foreign patents, as well as one
allowed U.S. patent, one allowed foreign application, nine U.S. pending applications and 18 foreign pending applications relating to our PatchPump technology. The strength of patents in the life
sciences field involves complex legal and scientific questions and can be uncertain. The patent applications that we own may fail to result in issued patents with claims that cover the products in the
United States or in other countries. If this were to occur, early generic competition could be expected against product candidates in development. There is no assurance that all of the potentially
relevant prior art relating to our patents and patent applications, which can invalidate a patent or prevent a patent from issuing based on a pending patent application, has been found. Our patents
and patent applications all relate to our PatchPump technology. The drug molecules that we will deliver using the PatchPump are generics. We cannot prevent our competitors from developing products
that make use of the same drugs, so long as they do not infringe our PatchPump technology patents or the patents of our API suppliers. Even if patents do successfully issue, third parties may
challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated, which could adversely affect our ability to establish market share or successfully
execute our business strategy to increase sales of our products and would negatively impact our financial condition and results of operations, including causing a significant decrease in our revenues
and cash flows.
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Furthermore,
our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing
around our patent claims. If the patent applications we hold with respect to our PatchPump technology fail to issue or if the breadth or strength of protection of our patents or patent applications is
threatened, competitors could directly compete against our products and we would have no recourse.
We
cannot offer any assurances about which, if any, patents will issue or whether any issued patents will be found valid and enforceable or will be unthreatened by third parties or will
offer adequate coverage of our products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market Trevyent, or our other product candidates under patent
protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be
certain that we were the first to file or invent any patent application related to our PatchPump technology. Furthermore, if third parties have filed such patent applications, an interference
proceeding in the United States can be provoked by a third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our
applications. In the United States, the natural expiration of a maintained patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and
the protection it affords, is limited. Once the patent life has expired for our PatchPump technology, we may be open to competition from competitors that will be able to freely use our technology
described in our expired patent(s).
In
addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or which we
elect not to patent, processes for which patents are difficult to enforce and any other elements of our development processes that involve proprietary know-how, information or technology that is not
covered by patents. Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary
know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other
confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and
techniques. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our
information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any
breach. If the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, our
competitors may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional
information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the
FDA's disclosure policies may change in the future, if at all.
Changes
in either the patent laws or interpretations of the patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope
of our patent protection. For example, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, which was signed into law in September 2011, includes a number of significant changes to U.S. patent
law. These include changes in the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent and Trademark Office, or U.S. PTO, has developed new and
generally
untested regulations and procedures to govern the full implementation of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular,
the first to file provisions, only became effective in March 2013. The Leahy-Smith Act has also
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introduced
procedures making it easier for third parties to challenge issued patents, as well as to intervene in the prosecution of patent applications. Finally, the Leahy-Smith Act contains new
statutory provisions that require the U.S. PTO to issue new regulations for their implementation and it may take the courts years to interpret the provisions of the new statute. Accordingly, it is not
clear what, if any, impact the Leahy-Smith Act will have on the cost of prosecuting our patent applications, our ability to obtain patents based on our patent applications and our ability to enforce
or defend our issued patents. An inability to obtain, enforce and defend patents covering our proprietary technologies would materially and adversely affect our business prospects and financial
condition.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States may be less extensive than those in the United States. Further, the laws of some foreign countries do not tend to protect
proprietary rights to the same extent or in the same manner as the laws of the United States. Consequently, 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 have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement may not
be 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. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. For example, if the issuance to us, in a given
country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity,
enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in
another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other
countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection. We may be unable to prevent material disclosure of the non-patented intellectual
property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, and therefore we may not be able to establish or
maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.
Further,
many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries,
particularly certain developing countries, do not tend to favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology
products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our
patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages
or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant
commercial advantage from the intellectual property that we develop or license.
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We may be involved in lawsuits to protect or enforce our patents, which could be expensive, time-consuming
and unsuccessful.
Competitors may infringe our patents. To counter infringement or unauthorized use, we may be required to pursue infringement litigation, which
can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference
proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications. An
unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does
not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our
management and other employees. We may not be able to prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in
the United States.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. There could also be public announcements of the initiation of claims, or of the results of hearings, motions or other interim proceedings
or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our ordinary shares.
Periodic
maintenance fees on any issued patent are due to be paid to the U.S. PTO and foreign patent agencies in several stages over the lifetime of the patent. The U.S. PTO and various
foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent
lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of
the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or
patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal
documents. If we fail to maintain the patents and patent applications covering our PatchPump technology, our competitors might be able to enter the market using technology previously covered by such
patents or patent applications, which would have a material adverse effect on our business.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a
competitor will discover them or that our trade secrets will be misappropriated or disclosed.
Because we rely on third parties to manufacture Trevyent and intend to rely on third parties for the manufacture of our other or future product
candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer
agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information.
These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working
with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are
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inadvertently
incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade
secrets, a
competitor's discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used
or disclosed confidential information of third parties.
We employ individuals who were previously employed at other biotechnology, pharmaceutical and medical device companies. We may be subject to
claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees' former employers or other third
parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial
cost and be a distraction to our management and other employees.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual
property.
We may also be subject to claims that former employees or other third parties have an ownership interest in our patents or other intellectual
property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our PatchPump technology.
Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose
valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we
are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
We may become subject to claims for remuneration or royalties for assigned service invention rights by our
employees, which could result in litigation and adversely affect our business.
We have invested and expect to continue to invest a significant amount of resources in the development of intellectual property by our employees
in the course of their employment for us. Under the Israeli Patent Law, 5727-1967, or the Patent Law, inventions conceived by an employee during the term and as part of the scope of his or her
employment with a company are regarded as "service inventions," which belong to the employer, absent a specific agreement between
the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no such agreement between an employer and an employee, the Israeli Compensation
and Royalties Committee, or the Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her inventions.
Recent
decisions by the Committee have created uncertainty in this area, as it held that employees may be entitled to remuneration for their service inventions despite having
specifically waived any such rights. Further, the Committee has not yet determined the method for calculating this remuneration nor the criteria or circumstances under which an employee's waiver of
his or her right to remuneration will be disregarded. We generally enter into assignment-of-invention agreements with our employees pursuant to which such individuals assign to us all rights to any
inventions created in the scope of their employment or engagement with us. Although our employees have agreed to assign to us service invention rights and have specifically waived their right to
receive any special remuneration for such assignment beyond their regular salary and benefits, we may face claims demanding remuneration in consideration for assigned inventions. As a consequence of
such claims, we could be required to pay additional remuneration or royalties to our current or former employees, or be forced to litigate such claims, which could negatively affect our business.
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We may be subject to other intellectual property litigation.
We may be subject to other intellectual property litigation. For example, a competitor or another intellectual property rights owner may assert
that our products, or the operation of our business, infringe their intellectual property. Our involvement in intellectual property litigation could result in substantial costs and be a distraction to
management and other employees and could adversely affect the sale of any products involved or the use or licensing of related intellectual property, even if we are successful in the litigation. In
the event of an adverse result, we may, among other things, be subject to payment of substantial damage payments; cease the development, manufacture, use, sale or importation of products that infringe
on another party's intellectual property rights; discontinue processes incorporating the infringing technology; expend significant resources to develop or acquire non-infringing intellectual property;
or obtain licenses to the relevant intellectual property. We cannot offer any assurance that we will be successful in any intellectual property litigation or, if we were not successful in such
litigation, that licenses to the intellectual property we are found to be infringing would be available on commercially reasonable terms, if at all. The cost of intellectual property litigation as
well as the damages, licensing fees or royalties that we might be required to pay, could have a material adverse effect on our business.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations,
and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we
own or have exclusively licensed;
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we might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have
exclusively licensed;
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we might not have been the first to file patent applications covering certain of our inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights;
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it is possible that our pending patent applications will not lead to issued patents;
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issued patents that we own may be held invalid or unenforceable, as a result of legal challenges by our competitors;
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our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information
learned from such activities to develop competitive products for sale in our major commercial markets;
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we may not develop additional proprietary technologies that are patentable; and
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the patents of others may have an adverse effect on our business.
Should
any of these events occur, or other limitations of intellectual property rights result in inadequate protection for our business, they could significantly harm our business, results of
operations and prospects.
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Risks Related Our Ordinary Shares
Our share price is and may continue to be volatile, and purchasers of our ordinary shares can incur
substantial losses.
Our share price is and is likely to remain volatile. The stock market in general and the market for specialty pharmaceutical companies in
particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our ordinary shares may be influenced by many
factors, including the following:
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trading volume of our ordinary shares;
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sales of our ordinary shares by us or our shareholders;
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actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;
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developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our
commercialization partners;
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the success of competitive products or technologies;
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the outcomes of any clinical or non-clinical studies regarding our current and future product candidates;
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regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our
products;
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introductions and announcements of new products by us, our commercialization partners, or our competitors, and the timing of these
introductions or announcements;
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variations in our financial results or those of companies that are perceived to be similar to us;
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the success of our efforts to acquire or in-license additional products or product candidates;
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developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
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developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent
protection for our products;
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our ability or inability to raise additional capital and the terms on which we raise it;
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the recruitment or departure of key personnel;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our ordinary shares, other
comparable companies or our industry generally;
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general economic, industry and market conditions; and
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the other risks described in this "Risk Factors" section.
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We incur significant increased costs as a result of operating as a public company, and our management is
required to devote substantial time to new compliance initiatives.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and
regulations of the Securities and Exchange Commission, or SEC, and the rules and regulations of The Nasdaq Stock Market, or Nasdaq, and provisions of the Companies Law that apply to public companies
such as us. Compliance with the various reporting and other requirements applicable to public companies require considerable time and attention of management and significantly increase our legal,
accounting and other expenses. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring
establishment and maintenance of effective disclosure and financial controls. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. These
rules and regulations will continue to 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 insurance, and we may be required to accept reduced policy limits on coverage or incur
substantial costs to maintain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of
directors, our board committees, or as executive officers.
The
Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must
perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting,
as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal
control over financial reporting beginning with our Annual Report on Form 10-K following the date on which we are no longer an emerging growth company. Our compliance with Section 404 of
the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire
additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. If we are not able to comply with the requirements of Section 404 in a
timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the
market price of our shares could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and
management resources.
Our
ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we
will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or
disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting
is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act.
This,
in turn, could have an adverse impact on trading prices for our ordinary shares and could adversely affect our ability to access the capital markets.
An active trading market for our ordinary shares may not develop.
Our ordinary shares are currently traded on Nasdaq Global Market, but we can provide no assurance that we will be able to maintain an active
trading market for our shares on Nasdaq or any
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other
exchange in the future. If an active market for our ordinary shares does not develop, it may be difficult for our shareholders to sell shares without depressing the market price for the shares
or at all.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research,
about our business, our share price and trading volume could decline.
The trading market for our ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish about
us or our business. If one or more of the analysts who cover us downgrade our shares or publish inaccurate or unfavorable research about our business, our share price would likely decline. In
addition, if our operating results fail to meet the forecast of analysts, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish
reports on us regularly, demand for our ordinary shares could decrease, which might cause our share price and trading volume to decline.
Because we do not anticipate paying any cash dividends on our ordinary shares in the foreseeable future,
capital appreciation, if any, will be our shareholders' sole source of gain.
We have never declared or paid cash dividends on our share capital. We currently intend to retain all of our future earnings, if any, to finance
the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our
ordinary shares will be our shareholders' sole source of gain for the foreseeable future. In addition, Israeli law limits our ability to declare and pay dividends and may subject our dividends to
Israeli withholding taxes.
Our principal shareholders and management own a significant percentage of our shares and will be able to
exert significant control over matters subject to shareholder approval.
As of December 31, 2017, our executive officers, directors and 5% shareholders beneficially owned an aggregate of approximately 82.7% of
our outstanding voting shares (including our outstanding warrants, vested stock options and those vesting within 60 days of December 31, 2017). These shareholders may have the ability to
influence us through this ownership position. These shareholders may be able to determine all matters requiring shareholder approval. For example, they 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 ordinary shares that you may feel are in your best interest as one of our shareholders.
Sales of a substantial number of our ordinary shares in the public market by our existing shareholders could
cause our share price to fall.
Sales of a substantial number of our ordinary shares in the public market or the perception that these sales might occur, could depress the
market price of our ordinary shares and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the
prevailing market price of our ordinary shares.
We may be a passive foreign investment company, which may result in adverse U.S. federal income tax
consequences for U.S. Holders of our ordinary shares.
Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the average quarterly value of our
assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Our status as a
PFIC may also depend on how quickly we use the cash proceeds from this offering in our business. Based on the nature of our current and expected income and the
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current
and expected value and composition of our assets, we do not expect that we will be classified as a PFIC for the taxable year ending December 31, 2017. However, because PFIC status is
determined on an annual basis and generally cannot be determined until the end of the taxable year, there can be no assurance that we will not be a PFIC for the current or future taxable years. If we
are characterized as a PFIC, our shareholders who are U.S. Holders (as defined in "Material U.S. Federal Income Tax Considerations") may suffer adverse tax consequences, including the treatment of
gains realized on the sale of our ordinary shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our ordinary shares by
individuals who are U.S. Holders, and the addition of interest charges to the tax on such gains and certain distributions. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S.
federal income tax consequences by making a "qualified electing fund" election, or, to a lesser extent, a "mark to market" election. However, we do not intend to provide the information necessary for
U.S. Holders to make qualified electing fund elections if we are classified as a PFIC.
Future sales and issuances of our ordinary shares or rights to purchase ordinary shares by us pursuant to our
equity incentive plans could result in additional dilution of the percentage ownership of our shareholders and could cause our share price to decline.
Pursuant to our Amended and Restated 2009 Stock Incentive Plan, our management is authorized to grant options to purchase our ordinary shares to
our employees, directors and consultants. The number of shares available for future grant under our stock option plans will automatically increase on January 1st of each year, from
January 1, 2017 through January 1, 2024, by an amount equal to four percent of all shares of our share capital outstanding as of December 31st of the preceding calendar
year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. Unless our board of directors elects not to increase the number
of shares underlying our stock option plans each year, our shareholders may experience additional dilution, which could cause our share price to decline.
We are at risk of securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its
securities. This risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in
substantial costs and a diversion of management's attention and resources, which could harm our business.
We may become obligated to pay liquidated damages if we fail to file, obtain effectiveness and maintain
effectiveness of a registration statement pursuant to the requirements of the registration rights granted to the investor in our August 2016 and April 2017 private placements.
Under the subscription agreement we entered into in connection with our August 2016 private placement, we registered an additional 13,108,032
ordinary shares (including 6,554,016 ordinary shares underlying the warrants). If we are unable to maintain the effectiveness of the registration statement, we must pay liquidated damages in an amount
equal to 1.0% of the aggregate purchase price of the securities for each 30-day period until we are able to comply with such obligations, subject to a maximum limit of 5% of the aggregate purchase
price of the securities. Under certain circumstances, the registration statement can be suspended for up to two, 30-day periods without the payment of damages.
Under
the subscription agreement we entered into in connection with our April 2017 private placement, we registered an additional 7,547,325 ordinary shares (including 2,515,775 ordinary
shares underlying the warrants). If we are unable to maintain the effectiveness of the registration statement, we must pay liquidated damages in an amount equal to 1.0% of the aggregate purchase price
of the
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securities
for each 30-day period until we are able to comply with such obligations, subject to a maximum limit of 5% of the aggregate purchase price of the securities. Under certain circumstances,
the registration statement can be suspended for up to two, 30-day periods without the payment of damages.
Risks Related to Our Operations in Israel
A significant portion of our R&D operations are located in Israel and, therefore, our business and operations
may be adversely affected by political, economic and military conditions in Israel.
Our business and operations may be directly influenced by the political, economic and military conditions affecting Israel at any given time.
Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. In recent years, these have included hostilities
between Israel and Hezbollah in Lebanon and Hamas in the Gaza strip, both of which resulted in rockets being fired into Israel causing casualties and disruption of economic activities. Most recently,
in July and August 2014, an armed conflict took place between Israel and Hamas, and since September 2015, there has been an increase in sporadic terror incidents conducted by individuals not
necessarily associated with terror organizations. In addition, Israel faces threats from more distant neighbors, in particular, Iran and ISIS. Our commercial insurance does not cover losses that may
occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages
that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate us fully for damages
incurred. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflict involving Israel could adversely affect our operations and results of
operations.
Several
countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with
Israel and Israeli companies whether as a result of hostilities in the region or otherwise. In addition, there have been increased efforts by activists to cause companies and consumers to boycott
Israeli goods based on Israeli government policies. Such actions, particularly if they become more widespread, may adversely impact our ability to sell our products.
Any
hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners, or significant downturns in the economic or financial
condition of Israel, could adversely affect our operations and product development, cause our revenues to decrease and adversely affect the share price of publicly traded companies having operations
in Israel, such as us.
Our operations could be disrupted as a result of the obligation of our personnel to perform military service.
As of February 28, 2018, we had 13 full-time employees based in Israel, certain of whom may be called upon to perform up to
54 days in each three year period (and in the case of non-officer commanders or officers, up to 70 or 84 days, respectively, in each three year period) of military reserve duty until
they reach the age of 40 (and in some cases, depending on their specific military profession up to 45 or even 49 years of age) and, in certain emergency circumstances, may be called to
immediate and unlimited active duty. Our operations could be disrupted by the absence of one or more of these employees related to military service. Any such disruption could adversely affect our
business, results of operations and financial condition.
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We received Israeli government grants for certain research and development activities. The terms of the
grants require us to satisfy specified conditions and to pay penalties in addition to repayment of the grants upon certain events.
Our research and development efforts were financed in part through grants from the OCS and RAD, in Israel. During 2005 and 2006, we received
grants from the OCS and RAD with an aggregate total of approximately $782,000, including accrued LIBOR interest. As of December 31, 2017, we accrued and paid $32,000 in royalties to the OCS.
Even
following full repayment of any OCS grants, we must nevertheless continue to comply with the requirements of the Israeli Law for the Encouragement of Industrial Research and
Development, 5744-1984, and related regulations, or collectively, the R&D Law. When a company develops know-how, technology or products using OCS grants, the terms of these grants and the R&D Law
restrict the transfer outside of Israel of such know-how, and the manufacturing or manufacturing rights of such products, technologies or know-how, without the prior approval of the OCS. Therefore, if
aspects of our technologies are deemed to have been developed with OCS funding, the discretionary approval of an OCS committee would be required for any transfer to third parties outside of Israel of
know-how or manufacturing or manufacturing rights related to those aspects of such technologies. We have applied for and received an approval from the OCS to transfer manufacturing of products
developed under the programs financed by the OCS outside of Israel to our subcontractors, subject to payment of an increased royalty rate and increased payment cap, in accordance with the royalties
regulations described below. The actual rate of the increased royalty payments and cap were not
determined by the OCS. The approval is also subject to maintaining all ownership rights regarding all of our intellectual property and know-how under SteadyMed Ltd. In Israel. Furthermore, the
OCS may impose certain conditions on any arrangement under which it permits us to transfer technology or development outside of Israel, which conditions may not be acceptable to us.
The
transfer of OCS-supported technology or know-how or manufacturing or manufacturing rights related to aspects of such technologies outside of Israel may involve the payment of
significant penalties and other amounts, depending upon the value of the transferred technology or know-how, the amount of OCS support, the time of completion of the OCS-supported research project and
other factors. We may be required to pay an increased total amount of royalties, which may be up to 300% of the grant amounts (depending on the manufacturing percentage that is performed outside of
Israel) plus interest, in case of manufacturing the developed products outside of Israel and up to 600% in case of transferring intellectual property rights in technologies developed using these
grants. In the event that intellectual property rights are deemed to be transferred out of Israel, the grants amount from the OCS and the Incubator may become a loan to be repaid immediately up to
600% of the grants amounts. These restrictions and requirements for payment may impair our ability to sell our technology assets outside of Israel or to outsource or transfer development or
manufacturing activities with respect to any product or technology outside of Israel. Furthermore, the consideration available to our shareholders in a transaction involving the transfer outside of
Israel of technology or know-how developed with OCS funding (such as a merger or similar transaction) may be reduced by any amounts that we are required to pay to the OCS.
Exchange rate fluctuations between the U.S. dollar and other currencies may negatively affect our results of
operations
We incur expenses in U.S. dollars, New Israeli Shekels, Euro and Pounds sterling, but our financial statements are denominated in U.S. dollars.
As a result, we are exposed to the risks that the New Israeli Shekel or these other currencies may appreciate relative to the U.S. dollar. For example, should the New Israeli Shekel appreciate
relative to the U.S. dollar, our U.S. dollar cost of operations in Israel would increase and our U.S. dollar-denominated results of operations would be adversely affected. We
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cannot
predict any future trends or the rate of devaluation (if any) of the New Israeli Shekel or other currencies against the U.S. dollar.
It may be difficult to enforce a judgment of a U.S. court against us, to assert U.S. securities laws claims
in Israel or to serve process on our officers and directors.
We are incorporated in Israel. A judgment obtained against us in the United States, including one based on the civil liability provisions of the
U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It may also be difficult to effect service of process or to assert U.S.
securities law claims in original actions instituted in Israel.
Israeli
courts may refuse to hear a claim based on an alleged violation of U.S. securities laws reasoning that Israel is not the most appropriate forum in which to bring such a claim.
Even if an Israeli court agrees to hear such a claim, it may determine that Israeli, and not U.S., law is applicable to the claim. Under Israeli law, if U.S. law is found to be applicable to such a
claim, the content of applicable U.S. law must be proved as a fact by expert witness, which can be a time-consuming and costly process, and certain matters of procedure would be governed by Israeli
law. There is little binding case law in Israel addressing these matters. As a result of the difficulty associated with enforcing a judgment against us in Israel, you may not be able to collect any
damages awarded by either a U.S. or foreign court. See "Enforceability of Civil Liabilities" in our prospectus dated March 19, 2015, filed with the SEC pursuant to Rule 424(b)(4) under
the Securities Act of 1933, as amended (the "Prospectus"), for additional information on your ability to enforce a civil claim against us and our executive officers and directors.
Provisions of our restated articles of association and Israeli law and tax considerations may delay, prevent
or make difficult a merger with, or an acquisition of, us, even when the terms of such a transaction are favorable to us and our shareholders.
Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special
approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. For example, acquisition
of our shares, in a way that the purchaser shall hold more than 90% of our issued and outstanding shares following that acquisition, is subject to a tender offer for all of our issued and outstanding
shares. Such acquisition can only be completed if the acquirer receives positive responses from the holders of more than 95% of the issued share capital.
Completion
of the tender offer also requires approval of a majority of the offerees that do not have a personal interest in the tender offer, unless, following consummation of the tender
offer, the acquirer would hold at least 98% of the company's outstanding shares. Furthermore, the shareholders, including those who indicated their acceptance of the tender offer, may, at any time
within six months following the completion of the tender offer, petition an Israeli court to alter the consideration for the acquisition, unless the acquirer stipulated in its tender offer that a
shareholder that accepts the offer may not seek such appraisal rights. In addition, a merger may not be consummated unless at least 50 days have passed from the date on which a proposal for
approval of the merger was filed by each
party with the Israeli Registrar of Companies; and at least 30 days have passed from the date on which the merger was approved by the shareholders of each party. These provisions of Israeli law
may delay, prevent or make difficult an acquisition of us, which could prevent a change of control, even if doing so would be beneficial to our shareholders, and therefore depress the price of our
ordinary shares. See "Description of Share CapitalAcquisitions under Israeli Law" in the Prospectus for additional information.
Our
restated articles of association provide that our directors (other than external directors) are elected on a staggered basis, such that a potential acquiror cannot readily replace
our entire board of
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directors
at a single annual general shareholder meeting. This could prevent a potential acquiror from receiving board approval for an acquisition proposal that our board of directors opposes.
Furthermore,
Israeli tax considerations may make potential transactions unappealing to us or to our shareholders, especially for those shareholders whose country of residence does not
have a tax treaty with Israel which exempts such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With
respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of a number of conditions, including, in some cases, a holding
period of two years from the date of the transaction during which sales and dispositions of shares of the participating companies are subject to certain restrictions. Moreover, with respect to certain
share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.
Your rights and responsibilities as a shareholder will be governed by Israeli law, which differs in some
material respects from the rights and responsibilities of shareholders of U.S. companies.
The rights and responsibilities of the holders of our ordinary shares are governed by our restated articles of association and by Israeli law.
These rights and responsibilities differ in some material respects from the rights and responsibilities of shareholders in U.S. companies. In particular, a shareholder of an Israeli company has a duty
to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders, and to refrain from abusing its power in the company,
including, among other things, in voting at a general meeting or class meeting of shareholders on matters such as amendments to a company's articles of association, increases in a company's authorized
share capital, mergers and acquisitions and related party transactions requiring shareholder approval. A shareholder also has to refrain from deprivation of
other shareholders. In addition, a shareholder who is aware that it possesses the power to determine the outcome of a vote at a meeting of the shareholders or to appoint or prevent the appointment of
a director or executive officer in the company has a duty of fairness toward the company with regard to such vote or appointment. There is limited case law available to assist us in understanding the
nature of this duty or the implications of these provisions. These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not
typically imposed on shareholders of U.S. companies.