Investing in our common stock involves significant risks. Before investing, carefully consider the risks described below and the other information in this Quarterly Report on Form 10-Q, including our financial statements and related notes. The risks and uncertainties described below are the ones we believe may materially affect us. There may be others of which we are unaware, but which become important and materially harm our business or financial condition and cause the price of our stock to decline, in which case you could lose part or all of your investment.
Risks Related to the Commercial Sale of Korlym
®
Failure to generate sufficient revenue from the sale of Korlym would harm our financial results and would likely cause our stock price to decline.
Our ability to generate revenue and fund our commercial operations and development programs is entirely dependent on the sale of Korlym to treat patients with Cushing’s syndrome. Physicians will prescribe Korlym only if they determine that it is preferable to other treatments, even if those treatments are not approved for Cushing’s syndrome. Because Cushing’s syndrome is rare, most physicians are inexperienced diagnosing or caring for patients with the illness and it may be difficult to persuade them to identify appropriate patients and prescribe Korlym.
Many factors could limit our Korlym revenue, including:
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the preference of some physicians for long-standing off-label treatments for Cushing’s syndrome, such as ketoconazole;
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competition from non-medical treatments, such as surgery and radiation;
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the potential introduction of a generic version of Korlym, including by Teva if it prevails in its litigation with us and is successful in its ANDA submission;
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negative publicity and political concerns about Korlym, RU-486, Mifeprex
®
or mifepristone;
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the lack of availability of private and government insurance coverage; and
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rapid technological change that makes Korlym obsolete.
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Failure to generate sufficient Korlym revenue may prevent us from fully funding our planned commercial and clinical activities and would likely cause our stock price to decline.
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Korlym’s orphan drug designation does not bar other companies from developing different medications to treat patients with Cushing’s syndrome. The availability of co
mpeting treatments could limit our revenue from the sale of Korlym for the treatment of Cushing’s syndrome or other indications.
Although we have received orphan drug designation and exclusivity for Korlym for the treatment of Cushing’s syndrome in the United States, the FDA may approve other drugs for the treatment of patients with Cushing’s syndrome.
In 2012, Novartis received approval in both the United States and the European Union (“EU”) to market its somatostatin analogue Signifor
®
(pasireotide) Injection for adult patients with Cushing’s disease (a subset of Cushing’s syndrome that accounts for approximately 70 percent of all patients with Cushing’s syndrome) for whom pituitary surgery is not an option or has not been curative. In addition, Novartis is conducting Phase 3 trials of the experimental cortisol synthesis inhibitor osilodrostat to treat patients with Cushing’s syndrome and has received orphan drug designation in the United States and the EU for that use. Novartis has substantially more resources and experience than we do and may provide significant competition.
Strongbridge Biopharma plc (“Strongbridge”) has received orphan drug designation in the United States and the EU for the use of the cortisol synthesis inhibitor levoketoconazole to treat Cushing’s syndrome and is conducting Phase 3 trials in Europe and the United States for this indication. Levoketoconazole is an enantiomer of the generic anti-fungal medication, ketoconazole, that is sometimes prescribed off-label to treat patients with Cushing’s syndrome.
If generic products that compete with Korlym or any future Corcept product are approved and launched, our business, financial position or results of operations would be adversely affected.
Although Korlym is protected by patents covering its method of use, including its use to treat patients with Cushing’s syndrome, we cannot assure you that third parties will not attempt to invalidate or design around the patents or assert that they are invalid or otherwise unenforceable and introduce generic equivalents of Korlym or any future products. In February 2018, we received notice that Teva had filed an ANDA requesting approval to market a generic version of Korlym. Teva’s Paragraph IV Notice Letter certified that our patents listed in the Orange Book for Korlym at the time Teva filed its ANDA are invalid, unenforceable or will not be infringed by Teva’s proposed generic product. Corcept has filed suit against Teva in Federal District Court defending its patents, triggering the statutory automatic 30-month stay of FDA approval, beginning as of the date we received the Notice Letter. Litigation to enforce or defend intellectual property rights is complex, costly and involves significant commitments of management time. If our Orange Book listed patents are successfully challenged by Teva or any other party and a generic version of Korlym is approved, the sale of Korlym tablets and their price could decline significantly.
Following expiration of Korlym’s orphan drug exclusivity in February 2019, other companies may seek to introduce generic equivalents of Korlym, provided they receive FDA approval and can show that their products do not infringe our patents or that our patents are invalid or unenforceable. After the introduction of a generic competitor, a significant percentage of the prescriptions written for a product may be filled with the generic version, resulting in a loss in sales of the branded product and reducing its price. Generic competition for Korlym or our future products could have a material adverse effect on our sales, results of operations and financial condition.
If we cannot continue to obtain acceptable prices or adequate insurance coverage and reimbursement for Korlym, we will be unable to generate significant revenues.
The commercial success of Korlym depends on the availability of insurance coverage and reimbursement. Government payors, including Medicare, Medicaid and the Veterans Administration, as well as private insurers and health maintenance organizations, are increasingly attempting to contain healthcare costs by limiting reimbursement for medicines. If government or private payors cease to provide adequate and timely coverage and reimbursement for Korlym, physicians may not prescribe the medication and patients may not purchase it, even if it is prescribed. In addition, delays in coverage for individual patients may reduce our revenues.
In some foreign markets, drug prices and the profitability of prescription medications are subject to government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. Also, the trends toward managed health care in the United States and recent laws and legislation intended to increase the public visibility of drug prices and reduce the cost of government and private insurance programs could significantly influence the purchase of health care services and products and may result in lower prices for Korlym.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs.
The
Patient Protection and Affordable Care Act (“PPACA”), which was passed in 2010, substantially changed the way health care is financed by both governmental and private insurers and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things, expanded Medicaid program eligibility and access to commercial health insurance coverage, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and promoted a new Medicare Part D coverage gap discount program. The PPACA also appropriated additional funding to comparative clinical effectiveness research, although it remains unclear how the research will impact current Medicare coverage and reimbursement or how new information will influence other third-party payor policies.
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Since its enactment, there have been judicial and Congressional challenges to certain aspects of the PPACA, and we expect there will be additional challenges and amendments to the PPACA in the future. For example, on January 20, 2017, Presid
ent Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the PPACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the PPACA that would impose a fiscal or regulatory
burden on states, individuals, healthcare providers, health insurers or manufacturers of pharmaceuticals or medical devices. On October 12, 2017, President Trump signed another Executive Order directing federal agencies to expand access to alternative heal
th plans and health reimbursement arrangements, and the U.S. Department of Health and Human Services announced that it would immediately cease making Cost-Sharing Reduction (“CSR”) payments to issuers of qualified health plans. The loss of the CSR payments
is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. In addition, CMS has proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small grou
p marketplaces, which may have the effect of relaxing the essential health benefits required under the PPACA for plans sold through such marketplaces. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace p
ortions of the PPACA. Most recently, the Tax Cuts and Jobs Acts was enacted, which, among other things, removes penalties for not complying with the individual mandate to carry health insurance. At this time, the full effect that the PPACA, the Executive O
rders, the halting of CSR payments and any subsequent legislation would have on our business remains unclear
.
Any new limitations on, changes to, or uncertainty with respect to the ability of individuals to enroll in governmental reimbursement programs or
other third-party payor insurance plans could impact demand for Korlym, which in turn could affect our ability to successfully develop and commercialize our products
.
Other legislative and regulatory changes have been proposed and adopted in the United States since the PPACA was enacted. These changes included an aggregate reduction in Medicare payments to providers of up to 2 percent per fiscal year, which went into effect on April 1, 2013 and will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. On February 1, 2016, the Centers for Medicare & Medicaid Services, or CMS, published a final rule that revised certain requirements involved in our calculation of prices we report in connection with our participation in government reimbursement programs so that Korlym will be eligible for purchase by, or qualify for partial or full reimbursement from, Medicaid and other government programs. The extent to which this rule may alter our reported prices and estimated rebates and chargebacks under government programs remains unclear. Moreover, the federal government and the individual states in the United States have become increasingly aggressive in developing proposals, passing legislation and implementing regulations designed to control drug product pricing, including price or patient reimbursement constraints, discounts, formulary flexibility, marketing cost disclosure and transparency measures.
These new laws and the regulations and policies implementing them, as well as other healthcare reform measures that may be adopted in the future, could materially reduce our ability to successfully develop and commercialize Korlym and our product candidates.
The unfavorable public perception of mifepristone may limit our ability to sell Korlym.
The active ingredient in Korlym, mifepristone, is approved by the FDA in another drug for the termination of early pregnancy. As a result, mifepristone has been and continues to be the subject of considerable debate in the United States and elsewhere. Public perception of mifepristone may limit the acceptance of Korlym by patients and physicians. Even though we have taken measures to minimize the chance that Korlym will be prescribed to a pregnant woman, physicians may choose not to prescribe Korlym to a woman simply to avoid the risk of unintentionally terminating a pregnancy.
We have no manufacturing or pharmacy capabilities and depend on third party vendors to manufacture Korlym’s active ingredient, form it into tablets, package it, and dispense it to patients. We also depend on third-party suppliers to manufacture the API and capsules or tablets for relacorilant, CORT118335, CORT125281 and our other product candidates. If these suppliers become unable or unwilling to perform these functions and we cannot transfer our business to qualified replacement vendors in a timely manner, our business will be harmed.
A single third-party manufacturer, Novacap (formerly known as PCAS), supplies the API in Korlym. Another third-party manufacturer, Alcami, produces and bottles our Korlym tablets. Our agreements with Novacap and Alcami automatically renew and can be terminated by either party, subject to notice provisions. We also rely on a single manufacturer of relacorilant’s API. Our agreement with this manufacturer has a five-year term, which can be terminated by us, subject to notice provisions. The manufacturer can terminate the agreement upon our bankruptcy or insolvency or uncured material breach, subject to notice provisions.
A single specialty pharmacy, Optime Care, Inc. (“Optime”), dispenses the Korlym we sell directly to patients and collects payments from insurers and other third-party payers with respect to those sales, which represent approximately 99 percent of our revenue. If Optime fails to adhere to its agreements with third-party payers, it may not be able to collect some or all of the payments due to us. Our agreement with Optime has a five-year term and renews upon the written consent of both parties
subject to the ability of either party to terminate upon material breach by either party or bankruptcy or insolvency
. In addition, we may terminate the agreement for convenience.
If any of these vendors is unable or unwilling to meet our requirements, we may not be able to manufacture or dispense
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our product in a timely manner. We cannot assure you that our vendors will manufacture Korlym and our product candidates or dispense Korlym on a timely basis in the qu
antities that we require or otherwise maintain their contracts with us. If they fail to do so, we may exhaust our Korlym or product candidate inventory and not be able to generate revenue or advance our clinical development programs in a timely manner. In
addition, identifying replacement vendors and transitioning our business to them would be time-consuming, complex and expensive, and failure to do so efficiently and in a timely manner would harm our business.
The facilities used by our vendors to manufacture and package Korlym and our product candidates must be approved by the FDA and, in some cases, the European Medicines Agency (“EMA”). We do not control the manufacturing activities of our contract manufacturing partners and are completely dependent on them for compliance with the regulatory requirements known as current good manufacturing practices (“cGMPs”). If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict requirements of the FDA or others, they will not be able to maintain regulatory approval for their manufacturing facilities. We have no control over whether our contract manufacturers maintain adequate quality control and hire qualified personnel. If the FDA, EMA or other regulatory authority does not approve these facilities for the manufacture of our products or if a necessary approval is withdrawn, we may need to find alternative manufacturing facilities, which would be expensive and could significantly hamper our ability to develop, obtain regulatory approval for and market our products. In addition, sanctions could be imposed on us, including fines, injunctions, civil penalties, failure of regulators to approve our product candidates, delays, suspensions or withdrawals of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could harm our business.
We may not have adequate insurance to cover our exposure to product liability claims.
We may be subject to product liability or other claims based on allegations that Korlym or one of our product candidates has caused adverse effects. Such a claim may damage our reputation by raising questions about Korlym or our product candidates’ safety and could prevent or interfere with product commercialization. Less common adverse effects of a pharmaceutical product are sometimes not known until long after the product is approved for marketing. Because the active ingredient in Korlym is used to terminate pregnancy, clinicians using the medicine in our clinical trials and physicians prescribing the medicine to women must take strict precautions to ensure that the medicine is not administered to pregnant women. Failure to observe these precautions could result in significant product liability claims.
We have product liability insurance with coverage limits we believe to be appropriate for a company marketing a single pharmaceutical product and developing others. However, this insurance may become prohibitively expensive or may not fully cover our potential liabilities. Our inability to obtain adequate insurance coverage at an acceptable cost could prevent or inhibit the commercialization of Korlym or our product candidates or could result in meaningful underinsured or uninsured liability. Defending a lawsuit could be costly and significantly divert management’s attention from conducting our business.
We are subject to ongoing regulatory review. If we are unable to maintain regulatory approval of Korlym for the treatment of patients with Cushing’s syndrome or if we fail to comply with regulatory requirements, we will be unable to generate revenue or may be subject to penalties and our business would be harmed.
We are subject to ongoing obligations and continued regulatory review by the FDA and other regulatory authorities in the United States and other countries with respect to the research, testing, manufacturing, labeling, distribution, adverse event reporting, storage, selling, advertising, promotion, recordkeeping and marketing of products. These requirements include submissions of safety information, annual updates on manufacturing activities and continued compliance with FDA regulations known as “cGMPs,” current good laboratory practices (“cGLPs”) for the nonclinical studies we conduct and current good clinical practices (“cGCPs”) for our clinical studies. The FDA enforces these regulations through periodic inspections of us and the laboratories, manufacturers and clinical sites we use. Foreign regulatory authorities have comparable requirements and enforcement mechanisms. Discovery of previously unknown problems with a product or product candidate, including adverse events of unanticipated severity or frequency or with our third-party manufacturers or manufacturing processes, or failure to comply with FDA and applicable foreign and U.S. regulatory requirements, may subject us to substantial civil and criminal penalties, injunctions, holds on clinical trials, product seizure or detention, refusal to permit the import or export of products, restrictions on product marketing, withdrawal of the product from the market, voluntary or mandatory product recalls, total or partial suspension of production, refusal to approve pending NDAs or supplemental NDAs, and suspension or revocation of product approvals.
In addition, we must comply with requirements concerning the advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label.
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The FDA’s policies may change or new regulations may be enacted that prevent, limit or delay regulatory approval of our product candidates. We cannot predict the nature or scope of future government regula
tions. For example, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine oversi
ght activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these Executive Orders will be implemented, if at all, and the extent to which they wil
l affect the FDA’s ability to exercise its authority. If these executive actions impose restrictions on the FDA’s ability to engage in oversight and implementation activities or if we are slow or unable to adapt to sudden changes in existing requirements o
r the adoption of new requirements or policies, we may not be able to maintain regulatory compliance, and we may lose marketing approval or face other enforcement action.
We may be subject to civil or criminal penalties if we market Korlym in a manner that violates FDA regulations or health care fraud and abuse laws.
In the United States, we are subject to FDA regulations governing the promotion and sale of medications. Although physicians are permitted to prescribe drugs for indications other than those approved by the FDA, manufacturers are prohibited from promoting products for such “off-label” uses. In the United States, we market Korlym to treat hyperglycemia secondary to hypercortisolism in adult patients with endogenous Cushing’s syndrome who have type 2 diabetes mellitus or glucose intolerance and have failed surgery or are not candidates for surgery. We provide promotional materials and training programs to physicians covering the use of Korlym for this indication. Although we believe our marketing materials and training programs do not constitute “off-label” promotion of Korlym, the FDA may disagree. If the FDA determines that our promotional materials, training or other activities by our employees or agents constitute “off-label” promotion of Korlym, it could ask us to change our training or promotional materials or other activities. The FDA could also subject us to regulatory enforcement actions, including issuance of a public “warning letter,” injunction, seizure, civil fine or criminal penalties. Other federal or state enforcement authorities might act if they believe that the alleged improper promotion led to the submission and payment of claims for an unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. Even if it is determined that we are not in violation of these laws, we may be faced with negative publicity, incur significant expenses and be forced to devote management time to defending our position.
We are subject to federal and state healthcare fraud and abuse regulations, including:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare and Medicaid programs;
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federal false claims laws, including, without limitation, the False Claims Act, which prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as allegedly providing free product to or entering into “sham” consulting arrangements with customers to induce such customers to purchase, order or recommend the company’s products in violation of the Anti-Kickback Statute and federal false claims laws and regulations; reporting to pricing services inflated average wholesale prices that were then used by certain governmental programs to set reimbursement rates; engaging in the promotion of “off-label” uses that caused customers to submit claims to and obtain reimbursement from governmental payors for non-covered “off-label” uses; and submitting inflated best price information to the Medicaid Drug Rebate Program;
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the federal Civil Monetary Penalties law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;
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the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created federal criminal laws that prohibit executing a scheme to defraud any health care benefit program or making false statements relating to health care matters;
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federal “sunshine” laws, including the federal Physician Payment Sunshine Act, that require transparency regarding financial arrangements with health care providers, such as the reporting and disclosure requirements imposed by the PPACA on drug manufacturers regarding any “transfer of value” made or distributed to prescribers and other health care providers, and ownership or investment interests held by physicians and their immediate family members. Manufacturers are required to submit reports detailing these financial arrangements by the 90
th
day of each calendar year;
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HIP
AA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing regulations, which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well a
s their business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable healt
h information; and
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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; 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 and often are not preempted by HIPAA, thus complicating compliance efforts.
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The risk of our being found in violation of these laws and regulations is increased by the fact that many of them have not been definitively interpreted by the regulatory authorities or the courts and their provisions are open to a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under them, it is possible that some of our business activities, including our relationships with physicians and other healthcare providers (some of whom recommend, purchase and/or prescribe our products) and the manner in which we promote our products, could be subject to challenge. We are also exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, distributors, and Contract Research Organizations (“CROs”) may engage in fraudulent or other illegal activity. Although we have policies and procedures prohibiting such activity, it is not always possible to identify and deter misconduct and the precautions we take may not be effective in controlling unknown risks or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with applicable laws and regulations.
If our operations are found to be in violation of any of the laws described above or any other government regulations, we may be subject to civil and criminal penalties, damages, fines, exclusion from governmental health care programs, and the curtailment or restructuring of our operations, any of which could adversely affect our financial results and ability to operate.
A break-down or breach of our information technology systems or our failure to protect adequately confidential information concerning patients or other third parties could subject us to liability or interrupt the operation of our business.
We store sensitive data on our computer networks and on the networks of third-party vendors, including intellectual property and confidential information relating to our business, patients and employees. Despite the implementation of security measures, our internal computer systems and those of our vendors are subject to the risk of cyberattacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. They may also be manipulated by criminals seeking to commit fraud or theft. In addition, system failures could cause the loss or theft of valuable clinical trial data or otherwise disrupt our clinical and commercial activities and be expensive and time-consuming to remedy. If a disruption or security breach resulted in the disclosure of confidential or proprietary information, we could incur liability and our research, development and commercialization efforts could be delayed or otherwise harmed.
We are subject to government regulation and other legal obligations relating to privacy and data protection. Compliance with these requirements could result in additional costs and liabilities and inhibit our ability to collect and process data. The failure to comply with such requirements could have a material adverse effect on our business.
As we receive, collect, process, use and store personal and confidential data, we are subject to subject to diverse laws and regulations relating to data privacy and security, including, in the United States, HIPAA, and, in the EU and shortly in the European Economic Area (EEA), Regulation 2016/679, known as the General Data Protection Regulation (“GDPR”). Compliance with these privacy and data security requirements is rigorous and may increase our cost of doing business. Despite our best efforts, we may be subject to fines and penalties, litigation and reputational harm, which could materially and adversely affect our business, financial condition and results of operations.
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In addition, the regulatory framework for the receipt, collection, processin
g, use, safeguarding, sharing and transfer of personal and confidential data is rapidly evolving and is likely to remain uncertain for the foreseeable future as new global privacy rules are being enacted and existing ones are updated and made more stringen
t. For example, on May 25, 2018, the GDPR took effect in Europe. The
GDPR
establishes new requirements for the use and safeguarding of personal data in the EU
and applies to companies established in the EU as well as companies that collect and use personal
data to offer goods or services to, or monitor the behavior of, individuals in the EU (including via clinical trials)
.
Penalties for failure to comply with GDPR are significant, including fines of up to €20 million or four percent of worldwide annual reve
nue, whichever is greater.
Data protection authorities in some of the EU member states have not completed their interpretative guidance and implementing laws and regulations regarding GDPR, which makes compliance difficult. In addition, the data protectio
n authorities of the different EU countries may interpret the regulation differently. Once promulgated, national and EU guidance are likely to be updated from time to time, which will add complexity and cost to our collection and handling of data.
If we or our vendors fail to comply with the GDPR or other applicable data privacy laws, or if the data protection measures and disclosures we or our vendors undertake are not considered adequate, we could be subject to government enforcement actions and substantial penalties and fines, which could harm our business.
Recent U.S. tax legislation may materially adversely affect our results of operations, financial condition and cash flows.
Recently enacted U.S. tax legislation has significantly changed the U.S. federal income taxation of U.S. corporations, including reducing the U.S. corporate income tax rate, limiting interest deductions, permitting immediate expensing of certain capital expenditures, adopting elements of a territorial tax system, revising the rules governing net operating losses and foreign tax credits, and introducing new anti-base erosion provisions. Many of these changes became effective immediately, without transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and Internal Revenue Service, which could increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often use federal taxable income as a starting point for computing state and local tax liabilities.
A catastrophic disaster could damage our own or our manufacturers’ facilities and equipment, which could require us to cease or curtail operations.
Our business is vulnerable to damage from various types of natural disasters or other disruptive events, including earthquakes, fires, floods, power losses and communications failures. Our headquarters are located in the San Francisco Bay Area, which is earthquake-prone. Our specialty pharmacy and our tablet manufacturer are located in areas that are subject to severe weather conditions. Political considerations relating to mifepristone put us and our manufacturers at increased risk for terrorist attacks, protests or other disruptive events. If a disaster or similar event were to occur, we might not be able to operate our business or our manufacturers might not be able to produce or dispense Korlym or our product candidates. Our insurance may not cover or be adequate to cover losses resulting from disasters or other business interruptions.
Risks Related to the Development of our Product Candidates
Clinical drug development is lengthy, expensive and is often not successful. Results of early studies and trials may not be predictive of later trial results.
Clinical development is expensive and takes a long time. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The results from early clinical trials may not be predictive of results in later clinical trials. Product candidates may ultimately fail to show the desired safety and efficacy traits despite having produced positive results in preclinical studies and initial clinical trials. Many companies have suffered significant setbacks in advanced clinical trials due to lack of efficacy or the adverse safety profile of a product candidate.
Except for our Phase 3 trial of relacorilant to treat patients with Cushing’s syndrome, our current clinical trials are too small to support marketing approvals for the compounds being studied. Even if these trials generate positive results, those results would have to be confirmed in one or more substantially larger, more expensive and lengthier trials before we could seek regulatory approvals.
The commencement and completion of clinical trials may be delayed by many factors, including:
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delays obtaining regulatory permission to start a trial or changes to the size or design or regulatory requirements with respect to a trial already underway;
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inability to secure acceptable terms with vendors and clinical trial sites;
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delays or inability to obtain institutional review board (“IRB”) approval at prospective trial sites;
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slow patient enrollment;
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failure of patients or investigators to comply with the clinical trial protocol;
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negative or inconclusive trial results; and
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negative findings of inspections of our clinical or manufacturing operations by us, the FDA or other authorities.
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We could encounter delays if a clinical trial is suspended or terminated by us, the trial’s data safety monitoring board or the IRBs governing the sites where the trial is being conducted. The FDA or other regulatory authorities may suspend or terminate a trial for many reasons, including failure to conduct the trial in accordance with regulatory requirements or our clinical protocols, negative findings in an inspection by the FDA or other authorities of our clinical trial operations or clinical trial sites, unforeseen safety issues, failure to demonstrate a benefit from using a product candidate or changes in government regulations.
During the clinical development of a product candidate, we may decide, or the FDA or other regulatory authorities may require us to conduct more pre-clinical or clinical studies than we had planned or to change the size or design of a trial already underway, which could delay or prevent the completion of our development program and increase its cost. Even if we conduct all of the clinical trials and supportive studies that we consider appropriate and we consider the results of those trials and studies to be positive, we may not receive regulatory approval of a product candidate.
We depend on third parties to conduct and manage some of our clinical trials and to perform data collection and analysis. Failure of these third parties to successfully perform their contractual duties or meet expected timelines may prevent or delay approval of our product candidates, which could harm our business.
We rely on clinical investigators and clinical sites to enroll patients and third parties such as CROs to manage many of our trials and to perform required data collection and analysis. Although we control only certain aspects of these third parties’ activities, we are still responsible for ensuring that every study adheres to its protocol and meets all applicable regulatory and scientific standards. If we or any of the third parties working with us fail to comply with applicable cGCPs, the clinical data generated in our trials may be unreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approving a product candidate. In addition, failure of our manufacturers to comply with cGMP may require us to repeat clinical trials, which would delay regulatory approval. We may not be able to select and qualify appropriate sites for our trials. If our clinical sites fail to enroll a sufficient number of patients in a timely way, we may be unable to complete our trials as planned, which could delay or prevent the approval of our product candidates.
Although we have agreements with the CROs and consultants helping to conduct our clinical trials, we may fail to maintain satisfactory relationships with them or with our clinical investigators. If our agreements with any of these third parties terminates, we may not be able to enter into alternative arrangements in a timely manner or on commercially reasonable terms, or at all. If the third parties on which we rely do not perform their contractual duties or fail to meet expected deadlines or if the quality or accuracy of the data they produce is compromised, our clinical trials may be extended, delayed or terminated and we may be unable to obtain approval for our product candidates.
We may be unable to obtain and maintain regulatory approvals for our product candidates. Failure can occur at any stage.
We cannot promote any products before we receive regulatory approval from the FDA or comparable foreign regulatory authorities. We may not receive regulatory approval for any of our product candidates. Obtaining regulatory approval of a new drug is uncertain, lengthy and expensive. Failure can occur at any stage. In order to receive approval from the FDA for a product candidate, we must demonstrate that the new drug product is safe and effective for its intended use and that our manufacturing processes comply with cGMPs. Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in delays in or denials of new product approvals, warning letters, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products, total or partial suspension of product sales and criminal prosecution. Any of these or other regulatory actions could materially harm our business and our financial condition.
Future governmental action or changes in FDA policy or personnel may also result in delays or rejection of an NDA or supplemental NDA in the United States. In addition, because the only other currently FDA-approved use of mifepristone is the termination of pregnancy, we expect that the label for mifepristone for any indication will include, as Korlym’s does, some limitations, including a so-called “black-box” warning that it should not be used by pregnant women or women seeking to become pregnant.
If we receive regulatory approval for our future product candidates, we will be subject to ongoing FDA obligations and continued regulatory oversight and review, such as continued safety reporting requirements; and we may also be subject to additional FDA post-marketing restrictions and obligations. If we are not able to maintain regulatory compliance, we may not be permitted to develop our product candidates or market our products and may be subject to product recalls or seizures. Any regulatory approvals for our product candidates may limit the uses for which the medicine may be marketed or require costly post-marketing studies.
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Obtaining regulatory approval of our product candidates in foreign jurisdictions would be costly and difficult. Failure to obtain such approvals
would prevent us from commercializing our product candidates outside the United States.
We may seek to commercialize our products in international markets on our own or with the help of partners. Outside the United States, we may commercialize a product only if we receive a marketing authorization and, in many cases, pricing approval, from the appropriate regulatory authorities, whose approval processes include all of the risks associated with the FDA’s approval process, and, in some cases, additional risks. The approval procedure varies among countries and can involve conducting additional pre-clinical or clinical studies. The time required to obtain approval may differ from that required to obtain FDA approval. Although approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by others, failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our product candidates in any foreign market.
We face competition from companies with financial, technical and marketing resources substantially greater than our own.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our present and potential competitors include major pharmaceutical companies, specialized pharmaceutical firms, universities and public and private research institutions. These competitors may develop and commercialize medications that are superior to and less expensive than ours. We expect competition to intensify as technical advances are made.
Many of our competitors and potential competitors have greater experience, more financial and marketing resources and larger research and development staffs than we do. In addition, many of them, either alone or together with their collaborative partners, have significantly greater experience than we do in drug development, obtaining regulatory approvals, manufacturing and commercializing products. They may develop drugs that are superior to our product candidates, which could render our product candidates obsolete or uncompetitive.
Our efforts to discover, develop and commercialize product candidates beyond Korlym for the treatment of patients with Cushing’s syndrome may not succeed.
To develop additional sources of revenue, we must develop new product candidates or new therapeutic uses for Korlym. Our selective cortisol modulators, including relacorilant, may not be effective to treat any disorders. We could discover that cortisol modulators have unacceptable side effects or are otherwise not safe. Due to the potential for lack of efficacy and side effects inherent in novel compounds and in new uses for existing medications, we are developing multiple compounds, which will increase our rate of spending, with no assurance of developing drugs that are safe, effective or commercially viable. If we cannot discover and commercialize new uses for Korlym or our selective cortisol modulators, we may be unable to generate sufficient revenue to support our operations.
We will need to increase the size of our organization and we may experience difficulties in managing growth.
Our commercial and research and development efforts are constrained by our limited administrative, operational and management resources. To date, we have relied on a small management team. Growth will impose significant added responsibilities on members of management, including the need to recruit and retain additional employees. Our future financial performance and our ability to compete effectively will depend on our ability to manage growth effectively. To that end, we must:
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manage our sales and marketing efforts, clinical trials, research and development activities and supply chain effectively;
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hire additional management, clinical development, administrative and sales and marketing personnel; and
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develop our administrative, accounting and management information systems and controls.
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Our failure to accomplish any of these tasks could harm our business.
If we lose our key personnel or are unable to attract and retain additional skilled personnel, we may be unable to pursue our product development and commercialization efforts.
Our ability to operate successfully and manage growth depends significantly upon retaining key managerial, scientific, sales, marketing, and financial personnel. We face intense competition for qualified personnel. We depend substantially on the principal members of our management and scientific staff. We do not have agreements with any of our executive officers that provide for their continued employment with us or employment insurance covering any of our key personnel. Any officer or employee can terminate his or her relationship with us at any time and work for one of our competitors. The loss of key individuals could delay our research, development and commercialization efforts.
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Risks Related to Our Capital Needs and Financial Results
We may need additional capital to fund our operating plans, including our clinical development programs, or for strategic reasons. Such capital may not be available on acceptable terms or at all.
We are dependent on revenue from the sale of Korlym to fund our development programs. If our Korlym revenues decline, we may need to raise funds to support our operating plans, including our research and development activities. We may choose to raise funds for strategic reasons. We cannot be certain that additional funding will be available on acceptable terms or at all. Equity financing would cause dilution. Debt financing, if available, may involve restrictive covenants. If we obtain funds through collaborations with other companies, those arrangements may be on unfavorable terms or may require us to relinquish certain rights to Korlym or our product candidates. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research or development programs or we may be required to discontinue operations.
If we acquire other potential products, we will incur a variety of costs and may never realize the anticipated benefits of the acquisition.
If appropriate opportunities arise, we may attempt to acquire products or product candidates that complement our operating plan. Acquiring rights to another potential product or technology may result in unforeseen difficulties and expenditures and may absorb significant management attention that would be spent developing our existing business. We may fail to realize the anticipated benefits of any acquisition, which could dilute our stockholders’ ownership interest or cause us to incur debt, expose us to future liabilities and result in amortization or other expenses related to goodwill and other intangible assets.
Risks Relating to Our Intellectual Property
If Korlym or our other product candidates infringe the patents of others or if we become involved in additional intellectual property disputes, we may have to engage in further costly litigation or obtain a license or may be barred from commercializing our product candidates or Korlym for a new indication.
Our success depends on our ability to obtain and maintain adequate patent protection for the composition of our proprietary, selective cortisol modulators and their methods of use and the use of Korlym to treat Cushing’s syndrome, TNBC, CRPC and other disorders. Patents in the pharmaceutical industry are highly uncertain, involve complex legal and factual questions and are the subject of very costly litigation. If we do not adequately protect our intellectual property, competitors may erode our competitive advantage. Our patent applications and patents licensed or issued to us may be challenged by third parties in court and in administrative proceedings. Responding to such challenges is costly, time-consuming and the outcomes are uncertain.
We are currently defending certain of our patents in two separate proceedings. In March 2018, in response to the Teva ANDA submission, we filed suit in the U.S. District Court for the District of New Jersey against Teva for infringement of three of our patents covering the use of Korlym. The outcome of this lawsuit is uncertain and will be costly and require substantial commitments of management time. Please see the discussion of this matter under Part II, Item 1. Legal Proceedings above. In addition, in August 2018, Neptune Generics, LLC (“Neptune”) submitted a petition for Inter Partes Review (“IPR”) at the U.S. Patent Trial and Appeal Board (“PTAB”) of U.S. Patent No. 8,921,348 (the “348 patent”), which covers certain methods of using Korlym. If the PTAB grants institution to Neptune’s IPR and we do not prevail in the subsequent IPR trail proceedings, the PTAB could invalidate the ‘348 patent or one or more of its claims. PTAB final judgements are appealable to the Court of Appeals of the Federal Circuit for review. The outcome of such an appeal is uncertain.
Our products and product candidates may also give rise to claims that our patents or the patents we have licensed infringe the rights of others, which may require us to engage in costly, time-consuming and possibly unsuccessful litigation. If it is determined that our product candidates infringe others’ patent rights, we may be required to obtain licenses to those rights. If we fail to obtain such licenses, we may have to delay commercializing our product candidates while we attempt to design around the infringed patent. If our efforts fail, we may be unable to commercialize our product candidates. We do not have liability insurance for patent infringement.
We do not believe that we infringe any patents or other proprietary rights. We are not obligated to pay royalties relating to the use of intellectual property except to Stanford University and the University of Chicago. To maintain the exclusive license to these patents, we must make milestone and royalty payments to both universities. If we do not comply with our obligations under our licenses, we may lose the right to commercialize cortisol modulators, including mifepristone, for the treatment of psychotic depression, cocaine-induced psychosis, early dementia, TNBC and CRPC.
Our patent applications may not result in issued patents. Any patent issued to us may be challenged, invalidated, held unenforceable or circumvented. Our patent claims may not prevent third parties from producing competing products. The foreign countries in which we may someday operate may not protect our intellectual property to the extent of the laws of the United States. If we fail to obtain adequate patent protection in other countries, our competitors may produce competing products in those countries based on our technology.
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Our ability to compete could be diminished if we are unable to protect our trade secrets and proprietary information.
In addition to patents, we rely on a combination of confidentiality, nondisclosure and other contractual provisions, laws protecting trade secrets and security measures to protect our proprietary information. These measures may not provide adequate protection, in which case competitors could exploit our proprietary information to our disadvantage. If employees, consultants or anyone else breaches their agreements with us regarding our proprietary information, we may not have adequate remedies for the breach.
The mifepristone patents that we own or license cover the use of mifepristone, not its composition, which may make it more difficult to prevent patent infringement if physicians prescribe another manufacturer’s mifepristone.
We own or have exclusively licensed issued U.S. patents covering the use of cortisol modulators to treat a variety of disorders. A method of use patent covers only a particular use of a compound, not its composition. Because our patents do not cover the composition of mifepristone, we cannot prevent others from commercializing mifepristone to treat disorders not covered by our method of use patents. The availability of mifepristone for these disorders may enable patients to obtain mifepristone from other companies for indications covered by our patents. Although such “off-label” use would violate our patents, effectively monitoring compliance and enforcing our rights may be difficult and costly. Mifepristone is sold in the United States by Danco Laboratories for the termination of pregnancy. Although distribution is limited to a single dose provided in the physician’s office and covered by other restrictions, we cannot be certain that patients with Cushing’s syndrome will not be able to obtain mifepristone from this or other sources, should another company receive approval to market mifepristone for another indication.
Risks Related to Our Stock
The price of our common stock fluctuates widely and is likely to continue to do so. Opportunities for the sale of shares at any particular time may be limited.
We cannot assure you that an active trading market for our common stock will exist at any particular time. As a result, holders of our common stock may not be able to sell shares quickly or at the market price. During the 52-week period ended October 30, 2018, our average daily trading volume was approximately 1,530,641 shares and the intra-day sales prices per share of our common stock on The Nasdaq Capital Market ranged from $11.21 to $25.96. As of October 30, 2018, our officers, directors and principal stockholders beneficially owned approximately 16 percent of our common stock.
Our stock price, like the stock price of many biotechnology companies, sometimes experiences extreme price and volume fluctuations that are unrelated or disproportionate to our operating performance or prospects. Securities class action lawsuits are often instituted against companies following periods of stock market volatility. If instituted against us, such litigation could result in substantial costs and divert management’s attention from more productive efforts.
The price of our common stock can fluctuate rapidly and widely in response to a variety of factors, including:
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actual or anticipated variations in our operating results, or changes to any public guidance we have provided;
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actual or anticipated timing and results of our clinical trials;
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changes in the expected or actual timing of our competitors’ potential development programs, including the announcement of ANDA filings seeking approval to market generic versions of Korlym and developments in ANDA litigation;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
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changes in estimates or recommendations by securities analysts or the failure of our performance to meet the published expectations of those analysts or any public guidance we have provided;
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actual or anticipated regulatory approvals of our product candidates or of competing products;
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purchases or sales of our common stock by our officers, directors or stockholders;
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purchases of our common stock pursuant to our Stock Repurchase Program or changes to that program;
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changes in laws or regulations applicable to our product candidates or our competitors’ products;
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announcements of technological innovations by us, our collaborators or our comp
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our cash and short-term investment position;
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trading volume of our common stock;
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conditions or trends in the biotechnology and pharmaceutical industries, including the market valuations of companies similar to Corcept;
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general market and economic conditions;
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additions or departures of key personnel;
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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments; and
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additional financing activities.
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Our stock price may decline if our financial performance does not meet the guidance that we provided to the public, estimates published by research analysts or other investor expectations.
The guidance we provide as to our expected 2018 revenue is only an estimate of what we believe is realizable at the time we give such guidance. Our actual results may vary materially. There are inherent difficulties in predicting the amount of Korlym that we will sell. For example, the rate of physician adoption of Korlym and the actions of government and private payors is uncertain. We may not meet our financial guidance or other investor expectations for other reasons, including those arising from the risks and uncertainties described in this report and in our other public filings and public statements. Research analysts have published revenue estimates based on their own analyses. The guidance we provide may be one factor they consider when determining their estimates.
Returning capital to shareholders through our Stock Repurchase Program will reduce our cash reserves and could fail to improve our business and results of operations.
In August 2018, our Board of Directors authorized the repurchase of up to $100 million of our common stock pursuant to the Stock Repurchase Program. Unless it is terminated or suspended prior to its expiration, the Stock Repurchase Program will remain in effect until June 30, 2019. The Stock Repurchase Program does not require us to acquire any specific number of shares and it may be modified, suspended or discontinued at any time without notice.
Any change to the Stock Repurchase Program could cause our stock price to decline. If we repurchase shares of our common stock, it is because we believe our shares are trading at an attractive price relative to other uses of our capital. However, it is possible that other uses of our capital would have been more advantageous or that our future capital requirements increase unexpectedly. Our repurchases of common stock could fail to improve our results of operations or hamper our ability to execute our plans, meet financial obligations, access financing or raise additional capital, which could harm our business and results of operations.
Research analysts may not continue to provide or initiate coverage of our common stock or may issue negative reports.
The market for our common stock may be affected by the reports financial analysts publish about us. If one of the analysts covering us downgrades or discontinues coverage of our stock, its price could decline rapidly and significantly. Paucity of research coverage may adversely affect our stock price.
Sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
Sales of a substantial number of shares of our stock in the public market could reduce its price. As additional shares of our stock become available for resale in the public market, whether by the exercise of stock options by employees or directors or because of an equity financing by us, the supply of our stock will increase, which could cause its price to fall. Substantially all of the shares of our stock are eligible for sale, subject to applicable volume and other resale restrictions under securities law.
Our officers, directors and principal stockholders, acting as a group, could significantly influence corporate actions.
As of October 30, 2018, our officers and directors beneficially owned approximately 16 percent of our common stock. Acting together, these stockholders could significantly influence any matter requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combinations. The interests of this group may not always coincide with our interests or the interests of other stockholders and may prevent or delay a change in control. This significant concentration of share ownership may adversely affect the trading price of our common stock because many investors perceive disadvantages to owning stock in companies with controlling stockholders.
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Changes in laws and regulations may significantly increase our costs, which could harm our financial results.
New laws and regulations, as well as changes to existing laws and regulations, including statutes and regulations concerning the development, approval, and marketing of medications, the provisions of the PPACA requiring the reporting of aggregate spending related to health care professionals, the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC and by The Nasdaq Capital Market have and will likely continue to increase our cost of doing business. Complying with these regulations may increase our expenses and divert management’s time and attention from revenue-generating activities.
We may fail to comply with our public company obligations, including securities laws and regulations. Such compliance is costly and requires significant management attention.
The federal securities laws and regulations, including the corporate governance and other requirements of the Sarbanes-Oxley Act of 2002, impose complex and continually changing regulatory requirements on our operations and reporting. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate the effectiveness of, and provide a management report with respect to, our internal controls over financial reporting. It also requires that the independent registered public accounting firm auditing our financial statements must attest to and report on the effectiveness of our internal controls over financial reporting. These requirements have increased and will continue to increase our compliance costs. Furthermore, if we are unable to complete the required assessment and report as to the adequacy of our internal control over financial reporting or if our independent registered public accounting firm is unable to issue an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors could lose confidence in our financial reporting.
Changes in or interpretations of accounting rules and regulations could result in unfavorable accounting charges or require us to change our accounting policies or operating practices.
Accounting methods and policies for business and marketing practices of pharmaceutical companies are subject to continual review, interpretation and guidance from accounting authorities, including the SEC. Although we believe that our accounting practices are consistent with current requirements, changes to accounting methods or policies may require us to reclassify, restate or otherwise change or revise our financial statements. Such changes could result in changes to the amounts or characterization of our assets, liabilities, revenues, expenses and income, which could harm our financial position and results of operations and could cause the price of our common stock to decline.
Anti-takeover provisions in our charter and bylaws and under Delaware law may make an acquisition of us or a change in our management more expensive or difficult, even if an acquisition or a management change would be beneficial to our stockholders.
Provisions in our charter and bylaws may delay or prevent an acquisition of us or a change in our management. Some of these provisions allow us to issue preferred stock without any vote or further action by the stockholders, require advance notification of stockholder proposals and nominations of candidates for election as directors and prohibit stockholders from acting by written consent. In addition, a supermajority vote of stockholders is required to amend our bylaws. Our bylaws provide that special meetings of the stockholders may be called only by our Chairman, President or the Board of Directors and that the authorized number of directors may be changed only by resolution of the Board of Directors. These provisions may prevent or delay a change in our Board of Directors or our management, which our Board of Directors appoints. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law. Section 203 may prohibit large stockholders, in particular those owning 15 percent or more of our outstanding voting stock, from merging or combining with us. These provisions in our charter and bylaws and under Delaware law could reduce the price that investors would be willing to pay for shares of our common stock and result in our stock price being lower than it would otherwise be.