We
describe our business risk factors below. This description includes any material changes to and supersedes the description of the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31,
2011, as filed with the Securities and Exchange Commission on March 30, 2012 (the 2011 Annual Report). You should carefully consider the risks described below together with the other information set forth in this Quarterly Report on
Form 10-Q, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and/or operating results.
Risks
Relating to Our Financial Position and Need for Additional Capital
We have a history of net losses. Currently, we have no products
approved for commercial sale, and to date we have not generated any product revenue. As a result, we may continue to incur substantial and increasing net losses for the foreseeable future, and we may never achieve or maintain profitability.
We are not profitable and do not expect to be profitable on a sustained basis in the foreseeable future. We have
incurred significant net losses in each year since our inception, including net losses of approximately $32.9 million, $54.7 million and $9.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. We have also incurred a
net loss of $43.8 million for the nine months ended September 30, 2012. As of September 30, 2012, we had a deficit accumulated during the development stage of approximately $316.3 million. We have devoted most of our financial resources to
research and development, including our pre-clinical development activities, clinical trials and manufacturing-related activities. We have not obtained regulatory approval for, or commercialized any product candidate and have therefore not generated
any product revenues. In that regard, we expect to incur additional expenses as we continue to pursue our new drug application, or NDA, for LEVADEX, our most advanced product candidate, with the U.S. Food and Drug Administration, or the FDA. On
March 26, 2012, we received a Complete Response letter in which the FDA described the reasons it was unable to approve our NDA and identified issues that we need to address in order to obtain FDA approval of LEVADEX. Following receipt of the
Complete Response letter, we worked to address the issues identified in the Complete Response letter and had an End-of-Review meeting with the FDA to discuss our proposed plan for responding to the Complete Response letter. We resubmitted the NDA
for LEVADEX in October 2012. Even though we submitted what we believe is a complete response to the items in the Complete Response letter, the FDA may not agree that we have completely addressed their concerns or approve our NDA. If the FDA
determines that our resubmission does not provide a complete response or identifies additional concerns or issues with our NDA, the FDA may request that we conduct additional studies or provide additional data or analysis. If we are ultimately
required by the FDA to perform studies in addition to those we have conducted, our expenses will increase beyond expectations and the timing of any potential product approval may be delayed. We expect an increase in our expenses associated with our
manufacturing work and with preparing for commercialization. In addition, we expect to continue to incur costs to support operations as a public company. As a result, we may continue to incur substantial net losses and negative cash flow for the
foreseeable future. These losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders equity and working capital.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of substantial expenses or when, or if, we will
be able to achieve or maintain profitability. We have financed our operations primarily through the sale of equity securities, collaboration payments and debt financings. The size of our future net losses will depend, in part, on the rate of growth
of our expenses and the rate of growth, if any, of our revenues. Revenues from potential strategic partnerships are uncertain because we may not enter into any additional strategic partnerships, including with respect to promotion of LEVADEX to
additional physicians including primary care physicians. On January 28, 2011, we entered into a collaboration agreement with Allergan pursuant to which Allergan will co-promote LEVADEX with us in the United States to neurologists and pain
specialists. In addition to the $80.0 million in upfront and milestone payments already received
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from Allergan, we are eligible to receive additional payments upon achievement of regulatory milestones and first commercial sale. If we do not meet these milestones, we will not receive
additional payments and, under certain circumstances, Allergan may terminate our collaboration. If we are unable to develop and commercialize our other product candidates, including pursuant to strategic partnerships, or if sales revenue from any
product candidate that receives marketing approval is insufficient, we will not achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability.
We have a limited operating history, and we expect a number of factors to cause our operating results to fluctuate on a quarterly
and annual basis, which may make it difficult to predict our future performance.
Our operations to date have been
primarily limited to organizing and staffing our company, developing our technology, undertaking pre-clinical studies, clinical trials and manufacturing-related activities of our product candidates and preparing for the potential commercialization
of our initial product candidate, LEVADEX, if approved. We have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they
could be if we had a longer operating history. Specifically, our financial condition and operating results have varied significantly in the past and will continue to fluctuate from quarter-to-quarter and year-to-year in the future due to a variety
of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, among others:
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our ability to obtain additional funding to develop our product candidates;
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the need to obtain regulatory approval of our most advanced product candidate, LEVADEX for the potential acute treatment of migraine;
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potential risks related to any collaborations we may enter into for our product candidates, including our current collaboration with Allergan for
LEVADEX;
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our ability to receive regulatory approval for or commercialize our LEVADEX product candidate, as well as future product candidates;
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any delays in regulatory review and approval of our LEVADEX product candidate or future product candidates, including any requirements to perform
additional preclinical or clinical trials;
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our ability to rely on Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, or FFDCA, to seek FDA marketing approval of our product
candidates;
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the success of clinical trials of our LEVADEX product candidate or future product candidates;
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delays in the commencement, enrollment and completion of clinical testing, as well as the analysis and reporting of results from such clinical testing;
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market acceptance and rate of market adoption of our product candidates for which we obtain regulatory approval;
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our ability, and our partners ability, to commercialize our products including establishing an effective sales and marketing infrastructure;
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the ability of patients to obtain coverage of or sufficient reimbursement for our products;
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competition from existing products or new products that may emerge;
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the impact of competition, including generics, in the migraine market on our ability to commercialize LEVADEX;
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the ability to receive regulatory approval or commercialize our products outside of the United States;
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potential side effects of our products that have received regulatory approval that could delay or prevent commercialization or cause an approved drug
to be taken off the market;
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regulatory difficulties and post-market requirements relating to products that have already received regulatory approval;
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our ability to obtain FDA approval of the proposed product names for our product candidates without delay;
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practice guidelines and recommendations of therapies published by various organizations;
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potential product liability claims;
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potential liabilities associated with hazardous materials;
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our ability to maintain adequate insurance policies;
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our dependency on third-party manufacturers to supply or manufacture our products;
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our ability to establish or maintain collaborations, licensing or other arrangements;
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our ability, our partners abilities, and third parties abilities to protect and assert intellectual property rights;
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costs related to and outcomes of potential intellectual property litigation;
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compliance with obligations under intellectual property licenses with third parties;
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our need to transform our company by adding commercial expertise;
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our ability to manage future growth;
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our ability to remediate a material weakness in our internal controls over financial reporting and risks related to that material weakness; and
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our ability to attract and retain key personnel to manage our business effectively.
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Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as
indications of our future operating performance.
We will need substantial additional funding and if we are unable to
raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs.
Developing biopharmaceutical products, including conducting pre-clinical studies and clinical trials, and establishing manufacturing
capabilities and an effective sales and marketing infrastructure, is expensive. While we have completed our clinical development program for LEVADEX for the acute treatment of migraine in adults, we expect to have continued expenses in connection
with our ongoing activities, particularly as we seek to obtain approval of our NDA for LEVADEX, our most advanced product candidate, for the acute treatment of migraine in adults. In the March 26, 2012 Complete Response letter received from the
FDA, the FDA requested that we address issues relating to the chemistry, manufacturing and controls, or CMC, of LEVADEX. The FDA also stated that manufacturing deficiencies identified during a recent facility inspection of one of our third party
manufacturers need to be resolved to the FDAs satisfaction. The FDA indicated in the Complete Response letter that it had not been able to complete its review of inhaler usability information requested late in the review cycle by the FDA. We
resubmitted the NDA for LEVADEX in October 2012. The FDA will not determine the type of resubmission (Class 1 or Class 2) and the resulting review timeline until after the resubmission has been accepted for filing. Even though we submitted what
we believe is a complete response to the items in the Complete Response letter, the FDA may not agree that we have completely addressed their concerns or approve our NDA. If the FDA determines that our resubmission does not provide a complete
response or identifies additional concerns or issues with our NDA, the FDA may request that we conduct additional studies or provide additional data or analysis. If any additional studies, analysis or data are required by the FDA after our
resubmission, it would require additional time and resources and may further delay our ability to obtain regulatory approval for LEVADEX, and our expenses will increase beyond expectations.
We believe that our existing cash and cash equivalents will be sufficient to fund our projected operating requirements for at least 12
months. We will need substantial additional capital in the future in order to commercialize LEVADEX and to fund the development and commercialization of future product candidates. Until we can generate a sufficient amount of product revenue, if
ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, including our collaboration with Allergan. Such funding, if needed, may not be available
on favorable terms, if at all. In the event we are unable to obtain additional capital, we may delay or reduce the scope of our current research and development programs and other expenses
If adequate funds are not available, we may be required to delay or reduce the scope of our commercialization efforts or delay, reduce
the scope of or eliminate one or more of our research or development programs. To the extent that we raise additional
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funds by issuing equity securities, our stockholders may experience additional significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we
raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or to grant licenses on terms that may not be favorable to us. We may seek to access
the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results
could vary as a result of a number of factors, including the factors discussed elsewhere in this Risk Factors section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital
resources sooner than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:
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the costs and timing of regulatory approval including any potential delays that may occur;
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the cost and timing of commercial-scale manufacturing and distribution activities;
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the costs of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval;
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rate of market adoption of our product candidates for which we obtain regulatory approval.
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the scope, rate of progress and cost of our clinical trials and other research and development activities;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
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the effect of competing technological and market developments; and.
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the terms and timing of any collaboration, licensing or other arrangements that we may establish, including our current collaboration agreement with
Allergan.
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Risks Relating to the Development, Regulatory Approval and
Commercialization of Our Product Candidates
We are largely dependent on the success of one product candidate, and we cannot be certain that this product candidate will receive regulatory approval.
We have invested a significant portion of our efforts and financial resources in the development of LEVADEX and our Unit Dose Budesonide,
or UDB, product candidate. In February 2009, we announced top-line results from our first Phase 3 trial of UDB, indicating that the trial did not meet its co-primary endpoints in either dose evaluated when compared to placebo. On July 8, 2009,
we received a notice of termination of our license agreement with AstraZeneca AB, or the AstraZeneca Agreement, related to our UDB product candidate. Following the termination of the AstraZeneca Agreement, we suspended development of UDB. We are now
largely dependent on the success of one product candidate, LEVADEX, for which we have completed a Phase 3 clinical development program for the acute treatment of migraine in adults. Our ability to generate product revenue is dependent on the
successful regulatory approval and commercialization of this product candidate. In the March 26, 2012 Complete Response letter received from the FDA, the FDA requested that we address issues relating to the chemistry, manufacturing and
controls, or CMC, of LEVADEX. The FDA also stated that manufacturing deficiencies identified during a recent facility inspection of one of our third party manufacturers need to be resolved to the FDAs satisfaction. The FDA indicated in the
Complete Response letter that it had not been able to complete its review of inhaler usability information requested late in the review cycle by the FDA. We resubmitted the NDA for LEVADEX in October 2012. The FDA will not determine the type of
resubmission (Class 1 or Class 2) and the resulting review timeline until after the resubmission has been accepted for filing. Even though we submitted what we believe is a complete response to the items in the Complete Response letter, the FDA may
not agree that we have completely addressed their concerns or approve our NDA. If the FDA determines that our resubmission does not provide a complete response or identifies additional concerns or issues with our NDA, the FDA may request that we
conduct additional studies or provide additional data or analysis. If any additional studies, analysis or data are required by the FDA after our resubmission, it would require additional time and resources and may further delay our ability to obtain
regulatory approval for LEVADEX, and our expenses will increase beyond expectations.
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We may have inadequate financial or other resources to advance LEVADEX through the NDA
process, depending on the requirements of the FDA. In May 2009, we announced top-line results from the efficacy portion of our first Phase 3 trial of LEVADEX, indicating that the trial met all its co-primary endpoints when LEVADEX was compared to
placebo. A long-term safety extension of the trial has also been completed and no drug-related serious adverse events were reported in the trial. Although we had planned to initiate a second Phase 3 efficacy study in the first quarter of 2010, we
have been informed by the FDA that a second pivotal efficacy study is not required for submission of our NDA if the top-line efficacy results we submitted in 2009 are confirmed during the NDA review. We have completed a pharmacokinetics trial in 23
adult smokers comparing them to 24 adult non-smokers. The trial was designed to measure whether the systemic absorption of LEVADEX is higher and exposure to dihydroergotamine mesylate, or DHE, is greater in smokers than in non-smokers. In the trial,
the systemic absorption of LEVADEX was not higher and systemic exposure to DHE was not greater in smokers than in non-smokers. We have completed a pharmacodynamics trial evaluating pulmonary artery pressure in approximately 24 healthy volunteers
using echocardiograms. The trial compared the acute effects on pulmonary artery pressure of LEVADEX, DHE administered intravenously and placebo. In the trial, there was no statistically significant difference between the LEVADEX and placebo groups
in the primary endpoint of pulmonary artery pressure over two hours after administration. We have completed a thorough QT trial in which LEVADEX did not increase QTc intervals as measured by electrocardiograms. We also completed a drug-drug
interaction trial in which co-administration of LEVADEX with a potent CYP3A4 inhibitor showed no effects on the plasma levels of DHE or its elimination. Our clinical development program for LEVADEX may not lead to regulatory approval from the FDA
and similar foreign regulatory agencies if we fail to demonstrate that the product candidate is safe and effective, and we may therefore fail to commercialize LEVADEX. Any failure to obtain regulatory approval of LEVADEX would have a material and
adverse impact on our business.
With the suspension of development for our UDB product candidate, LEVADEX is our only current
late stage product candidate. Our drug development efforts may not produce any other proprietary product candidates. We cannot be certain that we will be able to acquire or in-license other product candidates or develop other product candidates. Our
failure to develop product candidates will limit our ability to generate additional revenue.
We currently have no approved
drug products for sale and we cannot guarantee that we will ever have marketable drug products. The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by the
FDA and other regulatory authorities in the United States and other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States until we receive approval of an NDA from
the FDA for each product candidate. We have not received marketing approval for any of our product candidates in any country. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. Markets outside of the United States also have
requirements for approval of drug candidates which we must comply with prior to marketing.
We have entered into a
collaboration arrangement with Allergan, pursuant to which Allergan will commercialize LEVADEX, with us, to neurologists and pain specialists in the United States, following regulatory approval of LEVADEX. We may not fully realize the potential
benefits of our collaboration with Allergan which may lead to an inability to obtain significant sales within the neurology and pain specialist segment of the migraine market and we may not be able to commercialize LEVADEX to primary care
physicians.
We have entered into a collaboration agreement with Allergan targeting the neurology and pain specialist
segment of the United States and Canada markets. We believe that adoption of LEVADEX by neurologists and pain specialists, who regularly treat migraine patients, will help to lead to broader adoption in the United States market. Our dependence on
Allergan to help us to commercialize LEVADEX in this market segment and Allergans performance under our collaboration agreement may not lead to physician uptake in this market and we may not be able to successfully commercialize LEVADEX in the
neurology and pain specialist market. Our profits from the collaboration, if any, will be shared equally with Allergan and this arrangement may limit our overall profits and financial performance. While we believe that neurologists and pain
specialists, because they treat migraine patients, may be early prescribers of LEVADEX and drive market adoption in the primary care physician segment of the market, our ability to enter into a partnership targeting primary care physicians may have
an effect on the overall sales of LEVADEX. If we are unable to enter into a commercial partnership targeting primary care physicians, we may be unable to commercialize LEVADEX to primary care physicians on our own, and we may not realize significant
revenues from product sales relating to that segment.
We may enter into additional collaborations with third parties to
develop and commercialize our product candidates, including LEVADEX. These collaborations may place the development and commercialization of our product candidates outside our control, may require us to relinquish important rights or may otherwise
be on terms unfavorable to us.
We may enter into additional collaborations with third parties to develop and
commercialize our product candidates, including LEVADEX. If LEVADEX is approved, we plan to jointly develop and fund research and development for two additional LEVADEX indications together with our partner Allergan. In addition, we may enter into a
collaboration with a third party in the United States of America to commercialize LEVADEX to additional physicians including primary care physicians and/or to develop or commercialize LEVADEX outside the United States. Our dependence on current and
future partners for development and commercialization of our product candidates will subject us to a number of risks, including:
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we may not be able to control the amount and timing of resources that our partners may devote to the development or commercialization of product
candidates or to their marketing and distribution;
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partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,
repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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disputes may arise between us and our partners that result in the delay or termination of the research, development or commercialization of our product
candidates or that result in costly litigation or arbitration that diverts managements attention and resources;
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partners may experience financial difficulties;
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partners may not properly maintain or defend our intellectual property rights, or may use our proprietary information, in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property rights or proprietary information or expose us to potential litigation;
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business combinations or significant changes in a partners business strategy may adversely affect a partners willingness or ability to meet
its obligations under any arrangement;
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a partner could independently move forward with a competing product candidate developed either independently or in collaboration with others, including
our competitors; and
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the collaborations with our partners may be terminated or allowed to expire, which would delay the development and may increase the cost of developing
our product candidates.
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All of our product candidates in development require regulatory review and
approval prior to commercialization. Any delay in the regulatory review or approval of any of our product candidates in development will harm our business.
All of our product candidates in development require regulatory review and approval prior to commercialization, including review of pre-clinical data, clinical data and inspection of facilities and
processes, including those relating to clinical and manufacturing activities. Any delays in the regulatory review or approval of our product candidates in development would delay market launch, increase our cash requirements and result in additional
operating losses. In the March 26, 2012 Complete Response letter received from the FDA, the FDA requested that we address issues relating to the chemistry, manufacturing and controls, or CMC, of LEVADEX. The FDA also stated that manufacturing
deficiencies identified during a recent facility inspection of one of our third party manufacturers need to be resolved to the FDAs satisfaction. The FDA indicated in the Complete Response letter that it had not been able to complete its
review of inhaler usability information requested late in the review cycle by the FDA. We resubmitted the NDA for LEVADEX in October 2012. The FDA will not determine the type of resubmission (Class 1 or Class 2) and the resulting review
timeline until after the resubmission has been accepted for filing. Even though we submitted what we believe is a complete response to the items in the Complete Response letter, the FDA may not agree that we have completely addressed their concerns
or approve our NDA. If the FDA determines that our resubmission does not provide a complete response or identifies additional concerns or issues with our NDA, the FDA may request that we conduct additional studies or provide additional data or
analysis. If any additional studies, analysis or data are required by the FDA after our resubmission, it would require additional time and resources and may further delay our ability to obtain regulatory approval for LEVADEX, and our expenses will
increase beyond expectations.
The process of obtaining FDA and other required regulatory approvals, including foreign
approvals, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We or our partners may not be able
to maintain our proposed schedules for the submission of any NDA in the United States or any marketing approval application or other foreign applications for any of our products. If we or our partners submit any NDA, including any amended NDA or
supplemental NDA, to the FDA seeking marketing approval for any of our product candidates, the FDA must decide whether to either accept or reject the submission for filing. We cannot be certain that any of these submissions will be accepted for
filing and reviewed by the FDA, or that our marketing approval application submissions to any other regulatory authorities will be accepted for filing and review by those authorities. We cannot be certain that we or our partners will be able to
respond to any regulatory requests during the review period in a timely manner without delaying potential regulatory action. We also cannot be certain that any of our product candidates will receive favorable recommendation from any FDA advisory
committee or foreign regulatory bodies or be approved for marketing by the FDA or foreign regulatory authorities. In addition, delays in approvals or rejections of marketing applications may be based upon many factors, including regulatory requests
for additional analyses, reports, data and/or studies, regulatory questions regarding data and results, changes in regulatory policy during the period of product development and/or the emergence of new information regarding our products or other
products.
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Data obtained from pre-clinical studies and clinical trials are subject to different
interpretations, which could delay, limit or prevent regulatory review or approval of any of our products. In addition, as a routine part of the evaluation of any potential drug, clinical studies are generally conducted to assess the potential for
drug-drug interactions that could impact potential product safety. We conducted a drug-drug interaction trial in which co-administration of LEVADEX with a potent CYP3A4 inhibitor showed no effects on the plasma levels of DHE or its elimination.
Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, changing
policies and agency funding, staffing and leadership. We cannot be sure whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.
In addition, the environment in which our regulatory submissions may be reviewed changes over time. For example, average review times at
the FDA for marketing approval applications have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. In addition, review times can be affected by a variety of factors,
including budget and funding levels and statutory, regulatory and policy changes.
We may not be able to rely on
Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act, which could result in additional costly trials and would delay obtaining marketing approval for LEVADEX.
We submitted our NDA for LEVADEX under Section 505(b)(2) of the FFDCA. Section 505(b)(2) allows the NDA we submitted to rely in
part on data in the public domain or the FDAs prior conclusions regarding the safety and effectiveness of approved compounds. We may not be able to receive FDA marketing approval of this product candidate under Section 505(b)(2). If we
are unable to rely on this Section, we would likely have to conduct additional clinical trials, and we would be delayed in obtaining, or may not be able to obtain, marketing approval for this product candidate.
If clinical trials of our LEVADEX product candidate or future product candidates do not produce results necessary to support
regulatory approval in the United States or elsewhere or show undesirable side effects, we will be unable to commercialize these products.
To receive regulatory approval for the commercial sale of LEVADEX or any other product candidates, we must conduct adequate and well-controlled clinical trials to demonstrate efficacy and safety in
humans. Clinical testing is expensive, takes many years and has an uncertain outcome. Clinical failure can occur at any stage of the testing. Our clinical trials may produce negative or inconclusive results. In such cases, we may decide, or
regulators may require us, to conduct additional clinical and/or non-clinical testing, or we may decide not to pursue further development of a product candidate, such as the case of our UDB product candidate, where top-line results of our Phase 3
clinical trial indicated that the trial failed to meet the primary endpoints. Subsequently we suspended development of UDB. In addition, the results of our clinical trials may show that our product candidates may cause undesirable side effects,
which could interrupt, delay or halt clinical trials, resulting in our inability to obtain regulatory approval by the FDA and other regulatory authorities.
In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Government Accounting Office, medical professionals and the
general public have raised concerns about potential drug safety issues. These events have resulted in the 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. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical trials and regulatory approval. Data from clinical trials may
receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials 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.
Our failure to adequately demonstrate the efficacy and safety of LEVADEX or any other product candidates would prevent regulatory approval and, ultimately, the commercialization of that product
candidate.
Because the results of prior clinical trials are not necessarily predictive of future results, LEVADEX or
any other product candidate advanced into clinical trials may not have favorable results in subsequent clinical trials or receive regulatory approval.
Success in pre-clinical studies and clinical trials does not ensure that subsequent clinical trials will generate adequate data to demonstrate the efficacy and safety of the investigational drug. A number
of companies in the pharmaceutical industry, including those with greater resources and experience, have suffered significant setbacks in Phase 3 clinical trials, even after seeing promising results in prior clinical trials.
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The data collected from our clinical trials may not be adequate to support regulatory
approval of LEVADEX or any of our other product candidates. In May 2009, we announced top-line results from the efficacy portion of our Phase 3 trial of LEVADEX, indicating that the trial met all four of its co-primary endpoints when LEVADEX was
compared to placebo. We have completed a long-term safety extension of this Phase 3 trial, and no drug-related serious adverse events were reported in the trial. In July 2010, we announced that in a pharmacokinetics trial of LEVADEX, systemic
absorption of LEVADEX was not higher and systemic exposure to DHE was not greater in smokers than in non-smokers. In September 2010, we reported results from a pharmacodynamics trial comparing the acute effects on pulmonary artery pressure of
LEVADEX, DHE administered intravenously and placebo. In the trial, there was no statistically significant difference between the LEVADEX and placebo groups in the primary endpoint of pulmonary artery pressure over two hours after administration. In
November 2010, we announced that in a thorough QT trial, a supra-therapeutic dose of LEVADEX did not increase QTc intervals. We also completed a drug-drug interaction trial in which co-administration of LEVADEX with a potent CYP3A4 inhibitor showed
no effects on the plasma levels of DHE or its elimination. Even if we obtain regulatory approval of a product candidate, the FDA may require continuing evaluation and study of our product through clinical trials as a condition of any approval.
Despite the results reported in prior clinical trials for our product candidates, we do not know whether subsequent clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market our product
candidates. For example, after receiving positive data from a previous Phase 2 trial, in February 2009 we announced top-line results from our Phase 3 trial of UDB, indicating that the trial did not meet its co-primary endpoints in either dose
evaluated when compared to placebo. Subsequently, we suspended development of UDB.
Delays in the commencement,
enrollment and completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.
Delays in the commencement, enrollment and completion of clinical testing could significantly affect our product development costs. While
we have completed clinical development for our LEVADEX product candidate for the acute treatment of migraine in adults, we may be requested by the FDA to conduct additional clinical trials. In addition we will need to conduct clinical trials for
future product candidates. The commencement and completion of clinical trials requires us to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as
our product candidates or may be required to withdraw from our clinical trial as a result of changing standards of care or may become ineligible to participate in clinical studies. The commencement, enrollment and completion of clinical trials can
be delayed for a variety of other reasons, including delays related to:
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reaching agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject
to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining regulatory approval to commence a clinical trial;
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obtaining institutional review board, or IRB, approval to conduct a clinical trial at numerous prospective sites;
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recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study
and competition from other clinical trial programs for the same indication as our product candidates;
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retaining patients who have initiated a clinical trial but may be prone to withdraw due to the treatment protocol, lack of efficacy, personal issues or
side effects from the therapy or who are lost to further follow-up;
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maintaining and supplying clinical trial material on a timely basis; and
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collecting, analyzing and reporting final data from the clinical trials.
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In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities due to a number of factors,
including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues or any determination that a trial presents unacceptable health risks; and
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lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct
additional trials and studies and increased expenses associated with the services of our CROs and other third parties.
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We have completed a Phase 3 clinical program to support our NDA for LEVADEX. In October
2009, we submitted our top-line efficacy results for the double-blind efficacy portion of our pivotal Phase 3 study. We also have completed the long-term safety extension of our pivotal Phase 3 trial, a pharmacokinetics trial in healthy adult
smokers and non-smokers, a pharmacodynamics trial measuring pulmonary artery pressure in healthy adults, a thorough QT trial and a drug-drug interaction trial in support of our NDA for LEVADEX. FDA communicated its agreement with the design,
execution, and analyses for our pivotal Phase 3 trial, which we submitted to the FDA under the Special Protocol Assessment, or SPA, process and modified as suggested by FDA. Under a SPA, the FDA agrees to not later alter its position with respect to
adequacy of the design, execution, or analyses of the clinical trial intended to form the primary basis of an effectiveness claim in an NDA, without the sponsors agreement unless the FDA identifies a substantial scientific issue essential to
determining the safety or efficacy of the drug after testing begins. In March 2010, we held a pre-NDA meeting with the FDA to discuss the clinical portion of our anticipated NDA filing. The FDAs minutes of that meeting state that, while the
FDA did not have a record of a formal SPA, the FDA concurred with the selection of our co-primary endpoints and confirmed that a second pivotal efficacy study was not necessary if top-line efficacy results were confirmed during the NDA review. We
believe that our prior written correspondence and interactions with the FDA under the SPA process constitute an SPA with the agency. The FDA may take a different view and could request additional safety and efficacy studies without having to
identify a substantial scientific issue with our Phase 3 trial that is essential to determining the safety and efficacy of LEVADEX. If we are required to conduct additional clinical trials or other testing of our LEVADEX product candidate beyond
those that we currently contemplate, we may be delayed in obtaining, or may not be able to obtain, marketing approval for this product candidate. We may not be able to obtain approval for indications that are as broad as intended or we may obtain
approval for indications different than those indications for which we seek approval. Furthermore we may not be able to obtain approval for any of our other product candidates.
Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect
these changes with appropriate regulatory authorities. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. If we experience
delays in the completion of, or if we terminate, our clinical trials, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or
lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Even if we are able to ultimately commercialize our product candidates, other therapies for
the same or similar indications may have been introduced to the market and established a competitive advantage.
If any
of our product candidates for which we or our partners receive regulatory approval do not achieve broad market acceptance, the revenues that we generate from their sales will be limited.
The commercial success of our product candidates for which we or our partners obtain marketing approval from the FDA or
other regulatory authorities will depend upon the acceptance of these products among physicians, the medical community, patients, and coverage and reimbursement of them by third-party payors, including government payors. The degree of market
acceptance of any of our approved products will depend on a number of factors, including:
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a products FDA-approved labeling as well as limitations or warnings contained in the labeling;
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changes in the standard of care for the targeted indications for any of our product candidates, which could reduce the marketing impact of any claims
that we could make following FDA approval;
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limitations inherent in the approved indication and product labeling for any of our product candidates compared to more commonly understood or
addressed medical conditions;
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lower demonstrated efficacy and a less favorable safety or tolerability profile compared to other products;
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device-related difficulties associated with our TEMPO inhaler;
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prevalence and severity of adverse effects;
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our failure to establish an effective sales and marketing infrastructure;
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ineffective marketing and distribution efforts by us or our collaborators;
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lack of availability of reimbursement from managed care plans and other third-party payors;
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our ability to manufacture sufficient inventory and supply wholesale distributors;
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lack of cost-effectiveness;
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timing of market introduction and perceived effectiveness of competitive products;
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availability of alternative therapies, including generics, at similar or lower costs;
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extent of a Risk Evaluation and Mitigation Strategies, or REMS, program, if any;
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patients potential preferences to take oral medications over inhaled medications; and
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potential product liability claims.
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Our and our partners ability to effectively promote and sell our product candidates in the marketplace will also depend on pricing and cost effectiveness, including our and our partners
ability to manufacture a product at a competitive price. We will also need to demonstrate acceptable evidence of safety and efficacy and may need to demonstrate relative convenience and ease of administration. Inhaled versions of certain previously
approved drugs have suffered commercial failure, including inhaled insulin. If our product candidates are approved but do not achieve an adequate level of acceptance by physicians, health care payors and patients, we may not generate sufficient
revenue from these products, and we may not become or remain profitable. In addition, our and our partners efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant
resources and may never be successful. If our approved drugs fail to achieve market acceptance, we will not be able to generate significant revenue, if any.
We have never marketed a drug before, and if we are unable to establish, or access an effective and specialized sales force and marketing infrastructure, we will not be able to commercialize our
product candidates successfully.
We plan to market or co-promote our products where appropriate and build our own
specialized sales force in the United States. We have entered into a collaboration with Allergan pursuant to which we will co-promote LEVADEX to neurologists and pain specialists in the United States, following potential FDA approval of LEVADEX. We
currently do not have significant internal sales, distribution and marketing capabilities. The development of a sales and marketing infrastructure for our domestic operations will require substantial resources and additional personnel with sales,
distribution and marketing experience whom we do not currently employ, will be expensive and time consuming and could negatively impact our commercialization efforts, including delay of any product launch. Many of these costs are being incurred in
advance of notice to us that any of our product candidates has been approved. For example, in order to commercialize LEVADEX, we will need to hire, train and deploy a specialized sales force and establish marketing capabilities in the United States
directed at high prescribers, including specialists such as neurologists and pain specialists. We may not be able to hire a specialized sales force in the United States that is sufficient in size or has adequate expertise in the medical markets that
we intend to target, including neurology. If we are unable to establish our specialized sales force and marketing capability for our most advanced product candidate, we may not be able to generate any product revenue, may generate increased expenses
and may never become profitable.
We will also need to expend significant time and resources to train any sales force that we
do hire to be credible and persuasive in discussing LEVADEX with these specialists. We will also need to train our sales force to ensure that a consistent and appropriate message about LEVADEX is being delivered to our potential customers. In
addition, if we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits and risks of LEVADEX and its
proper administration, our efforts to successfully commercialize LEVADEX could be put in jeopardy, which could have a material adverse effect on our financial condition, stock price and operations.
If our patients are unable to obtain coverage of or sufficient reimbursement for our products, it is unlikely that our products
will be widely used.
Successful sales of our products depend on the availability of adequate coverage and
reimbursement from third-party payors to cover the costs to our patients. Healthcare providers that purchase medicine or medical products for treatment of their patients generally rely on third-party payors to reimburse all or part of the costs and
fees associated with the products. Adequate coverage and reimbursement from governmental payors, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Patients are unlikely to use our products if they do not
receive reimbursement adequate to cover the cost of our products.
In addition, the market for our future products will depend
significantly on access to third-party payors drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Industry competition to be included in such formularies results in downward pricing
pressures on pharmaceutical companies. Third-party payors may refuse to include a particular branded drug in their formularies when a generic drug for the same or similar indication is available.
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All third-party payors, whether governmental or commercial, whether inside the United States
or outside, are developing increasingly sophisticated methods for controlling healthcare costs. In addition, in the United States, no uniform policy of coverage and reimbursement for medical technology exists among all these payors. Therefore,
coverage of and reimbursement for medical products can differ significantly from payor to payor.
Further, we believe that
future coverage and reimbursement may be subject to increased restrictions both in the United States of America and in international markets, pursuant to currently proposed healthcare reforms or otherwise. Third-party coverage and reimbursement for
our products may not be available or adequate in either the United States or international markets, limiting our ability to sell our products on a profitable basis.
We expect intense competition with respect to our existing and future product candidates.
The pharmaceutical industry is highly competitive, with a number of established, large pharmaceutical companies, as well as many smaller companies. Many of these companies have greater financial
resources, marketing capabilities and experience in obtaining regulatory approvals for product candidates. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research
organizations actively engaged in research and development of products which may target the same indications as our product candidates. We expect any future products we develop to compete on the basis of, among other things, product efficacy and
safety, extent of adverse side effects, time to market, pricing and reimbursement, and convenience of treatment procedures. One or more of our competitors may develop alternative products or therapies that are safer, more effective and/or more cost
effective than any products developed by us, obtain approvals for such products from the FDA more rapidly than us or develop products based upon the principles underlying our proprietary technologies earlier than us.
Competitors may seek to develop alternative formulations of our product candidates that address our targeted indications. The commercial
opportunity for our product candidates could be significantly harmed if competitors are able to develop alternative formulations outside the scope of our products. Compared to us, many of our potential competitors have substantially greater:
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research and development resources, including personnel and technology;
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clinical trial experience;
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expertise in prosecution of intellectual property rights;
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manufacturing and distribution experience; and
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sales and marketing resources and experience.
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As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that
limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, useful and less costly than ours and may also be more successful than us in manufacturing and marketing their
products.
The migraine market is extremely competitive which may negatively impact our ability to commercialize
LEVADEX.
If approved for the acute treatment of migraine, we anticipate that LEVADEX would compete against other
marketed migraine therapies and may compete with products currently under development by both large and small companies. In 2011, there were approximately 13 million migraine-specific prescriptions written for the acute treatment of migraine,
generating approximately $1.7 billion in revenues in the U.S. The majority of the prescriptions written were in the triptan class, and the leading branded agent, Maxalt, generated approximately $450 million in revenues in the U.S. However, in 2008
when the leading migraine-specific agent, Imitrex, became generic, the total market for migraine-specific prescriptions generated approximately $2.5 billion in revenues in the U.S. There are at least six other branded triptan therapies being sold by
pharmaceutical companies. Alternative formulations of triptans are available that may have faster onset of action than solid oral dosage forms. In April 2008, GlaxoSmithKlines Treximet, a combination oral formulation of sumatriptan and
naproxen sodium, was approved by the FDA for the acute treatment of migraine. In July 2009, Zogenix, Inc.s Sumavel DosePro needle-free sumatriptan was approved by the FDA for the acute treatment of migraine
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and cluster headache. Alternative formulations of dihydroergotamine, or DHE, include Migranal, which is nasally delivered, and which may become generically available prior to any commercial
introduction of LEVADEX. In addition to the marketed migraine therapeutics, there may be product candidates under development by companies that could potentially be used for the acute treatment of migraine and compete with LEVADEX. In October 2010,
Allergan, Inc.s BOTOX botulinum toxin was approved by the FDA for the treatment of chronic migraine, a different indication than the acute treatment of migraine.
We would also face competition from generic sumatriptan, the active ingredient in Imitrex. The FDA has approved generic versions of sumatriptan. Although we believe generic sumatriptan could not be
substituted for LEVADEX, generic sumatriptan may be more quickly adopted by health insurers and patients than LEVADEX. Financial pressure to use generic products and uncertainty of reimbursement for single source alternatives, such as LEVADEX, may
encourage the use of a generic product over LEVADEX.
Even if our product candidates receive regulatory approval in the
United States, we or our partners may never receive approval or commercialize our products outside of the United States.
In order to market and commercialize any products outside of the United States, we and our partners must establish and comply with numerous and varying regulatory requirements of other countries regarding
safety and efficacy. Approval procedures and requirements vary among countries and can involve additional pre-clinical studies and clinical trials and additional administrative review periods. For example, European regulatory authorities generally
require clinical testing comparing the efficacy of the new drug to an existing drug prior to granting approval. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval
process in other countries may include all of the risks detailed above regarding FDA approval in the United States, as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in
obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval could have the same
adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that our product candidates may not be approved for all indications requested, which could limit the uses of our product
candidates and have an adverse effect on product sales and potential royalties, and that such approval may be subject to limitations on the indicated uses for which the product may be marketed or require costly, post-marketing follow-up studies.
Our product candidates may have undesirable side effects and cause our approved drugs to be subject to more restricted
use or to be taken off the market.
If our most advanced product candidate, LEVADEX, or any other product candidate,
receives marketing approval and we or others later identify undesirable side effects caused by such products:
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regulatory authorities may require the addition of labeling statements, specific warnings, contraindications or field alerts to physicians and
pharmacies;
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regulatory authorities may withdraw their approval of the product and require us to take our approved drug off the market;
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we may be required to change the way the product is administered, conduct additional clinical trials, change the labeling of the product or conduct a
Risk Evaluation and Mitigation Strategies, or REMS, program;
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we may have limitations on how we promote our drugs;
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sales of products may decrease significantly;
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we may be subject to litigation or product liability claims; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase our commercialization costs and expenses, which in turn could
delay or prevent us from generating significant revenues from its sale.
Even if our product candidates receive
regulatory approval, we and our partners may still face future development and regulatory difficulties.
Even if we
obtain U.S. regulatory approval for LEVADEX, the FDA may still impose significant restrictions on its indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Given the number of recent high
profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly risk management programs which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling,
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packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials and restrictions on direct-to-consumer advertising. In addition, the FDA could
condition any approval of LEVADEX on our implementation of a post-approval risk management plan. Furthermore, heightened Congressional scrutiny on the adequacy of the FDAs drug approval process and the agencys efforts to provide adequate
oversight of the safety of marketed drugs has resulted in the proposal of new legislation addressing drug safety issues. Any new legislation could result in delays or increased costs during the period of product development, clinical trials and
regulatory review and approval, as well as increased costs to assure compliance with any new post-approval regulatory requirements. Any of these restrictions or requirements could force us to conduct costly studies or increase the time for us to
become profitable. For example, any labeling approved for LEVADEX or any other product candidates may include a restriction on the term of its use, such as a black box warning, or it may not include one or more of our intended indications. The
FDA historically has required that labeling for products containing DHE include a contraindication for use in women who are, or who may become, pregnant. Although we believe that this contraindication is not applicable to our formulation of DHE, the
FDA may disagree and require the LEVADEX labeling to carry this contraindication.
Our product candidates will also be subject
to ongoing FDA requirements for the current Good Manufacturing Practices, or cGMP, labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. In addition, approved
products, manufacturers and manufacturers facilities are subject to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or
frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or us, including requesting withdrawal of the product from the market. If our product candidates fail to comply
with applicable regulatory requirements, or fail to be made in compliance with applicable regulatory requirements such as cGMP, a regulatory agency may:
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issue warning letters or untitled letters identifying violations;
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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for
specific actions and penalties for noncompliance;
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impose other civil or criminal penalties;
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suspend regulatory review of pending NDAs or approval of new products;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications filed by us;
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impose restrictions on operations, including costly new manufacturing requirements; or
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seize or detain products or require a product recall.
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We or our potential partners will need to obtain FDA approval of the proposed product names for our product candidates and any failure or delay associated with such approval may adversely impact our
business.
Any trade name we or our potential partners intend to use for our product candidates will require approval
from the FDA regardless of whether we or our partners have secured a formal trademark registration from the U.S. Patent and Trademark Office. The FDA typically conducts a rigorous review of proposed product names, including an evaluation of
potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims. If the FDA objects to our product names, we may be required to adopt an alternative name for
our product candidates. If we or our partners adopt an alternative name, we or our partners would lose the benefit of our existing trademark applications and may be required to expend significant additional resources in an effort to identify a
suitable product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We or our partners may be unable to build a successful brand identity for a new trademark in a
timely manner or at all, which would limit our ability to commercialize our product candidates.
Guidelines and
recommendations published by various organizations may affect the use of our products.
Government agencies issue
regulations and guidelines directly applicable to us and to our products. In addition, professional societies, practice management groups, private health/science foundations and organizations involved in various diseases from time to time publish
guidelines or recommendations to the medical and patient communities. These various sorts of recommendations may relate to such matters as product usage, dosage, route of administration and use of related or competing therapies. Changes to this
recommendation or other guidelines advocating alternative therapies could result in decreased use of our products, which may adversely affect our results of operations.
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We face potential product liability exposure and, if successful claims are brought
against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval, if any, expose
us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers or others using, administering or selling our products. If we cannot successfully defend ourselves against these
claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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the inability to commercialize our product candidates;
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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costs of related litigation;
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substantial monetary awards to patients or other claimants; and
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impairment of our business reputation.
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We have obtained limited product liability insurance coverage for our clinical trials domestically and in selected foreign countries where we conduct clinical trials. However, our insurance coverage may
not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable
cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may
be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful
product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
Our operations involve hazardous materials, which could subject us to significant liabilities.
Our research and development processes involve the controlled use of hazardous materials, including chemicals. Our operations produce
hazardous waste products. We cannot eliminate the risk of accidental contamination or discharge or injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of these
materials. We could be subject to civil damages in the event of an improper or unauthorized release of, or exposure of individuals, including employees, to hazardous materials. In addition, claimants may sue us for injury or contamination that
results from our use of these materials and our liability may exceed our total assets. We maintain limited insurance for the use of hazardous materials which may not be adequate to cover any claims. Compliance with environmental and other laws and
regulations may be expensive and current or future regulations may impair our research, development or production efforts.
Our insurance policies are expensive and protect us only from some business risks, which will leave us exposed to significant
uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. For
example, we do not carry earthquake insurance. In the event of a major earthquake in our region, our business could suffer significant and uninsured damage and loss. Some of the policies we currently maintain include general liability, property,
auto, workers compensation, products liability and directors and officers insurance policies. Our insurance is expensive and we do not know if we will be able to maintain existing insurance with adequate levels of coverage. Any
significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
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Risks Related to Our Dependence on Third Parties
If we are unable to establish additional marketing, sales and distribution collaborations with third parties, we may not be able to
commercialize LEVADEX successfully.
We have a collaboration agreement with Allergan to commercialize LEVADEX to
neurologists and pain specialists in the United States and Canada. We may establish additional marketing, sales and distribution collaborations with third parties where appropriate. For example, if we choose to expand the marketing and sales of
LEVADEX to additional physicians including primary care physicians beyond neurologists and pain specialists, we may establish partnerships with other companies to maximize the potential of the commercialization opportunity. Outside the United States
and Canada, we may establish commercial partnerships for LEVADEX in order to effectively reach target markets in order to maximize its commercial opportunities. We expect to face competition in our efforts to identify appropriate collaborators or
partners to help commercialize LEVADEX to primary care physicians or outside the United States and Canada. If we are unable to establish adequate marketing, sales and distribution collaborations to target primary care physicians, specialists and
other large groups of prescribing physicians within and outside the United States, then we may not be able to achieve the full commercial opportunity for LEVADEX.
We have no experience manufacturing large clinical-scale or commercial-scale pharmaceutical products and we do not own or operate a manufacturing facility. As a result, we are dependent on numerous
third parties for the manufacture of our product candidates and our supply chain, and if we experience problems with any of these suppliers the manufacturing of our products could be delayed.
We do not own or operate manufacturing facilities for clinical or commercial manufacture of our product candidates, which includes drug
substance and drug packaging, including the components of the TEMPO inhaler, the device used to administer certain of our drug candidates, including LEVADEX. We have limited personnel with experience in drug manufacturing and we lack the
capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently outsource all manufacturing and packaging of our pre-clinical and clinical product candidates to third parties. In addition, we do not
currently have all necessary agreements with third-party manufacturers for the long-term commercial supply of our product candidates. We may be unable to enter into agreements for commercial supply with all third-party manufacturers, or may be
unable to do so on acceptable terms. Even if we enter into these agreements or, for those agreements that we have already entered into, the various manufacturers of each product candidate will likely be single source suppliers to us for a
significant period of time. We may not be able to establish additional sources of supply for our products prior to commercialization. Such suppliers are subject to regulatory requirements covering manufacturing, testing, quality control and record
keeping relating to our product candidates, and are subject to pre-approval and ongoing inspections by the regulatory agencies. Failure by any of our suppliers to comply with applicable regulations may result in long delays and interruptions to our
manufacturing capacity while we seek to secure another supplier that meets all regulatory requirements.
Reliance on
third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves, including:
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reliance on the third parties for regulatory compliance, quality assurance and hazardous materials handling;
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the possible breach of the manufacturing and quality agreements by the third parties because of factors beyond our control; and
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the possibility of termination or nonrenewal of the agreements by the third parties because of our breach of the manufacturing agreement or based on
their own business priorities.
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Any of these factors could cause the delay of required approvals or
commercialization of our products, could prevent us from commercializing our product candidates successfully, could cause the suspension of initiation or completion of clinical trials and regulatory submissions, and could lead to higher product
costs. Furthermore, if our contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable
of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and we would lose potential revenue. It may take a significant period
of time to establish an alternative source of supply for our product candidates and to have any such new source approved by the FDA. In the March 26, 2012 Complete Response letter received from the FDA, the FDA requested that we address issues
relating to the chemistry, manufacturing and controls, or CMC, of LEVADEX. The FDA also stated that manufacturing deficiencies identified during a recent facility inspection of one of our third party manufacturers need to be resolved to the
FDAs satisfaction. While we believe that we have addressed the issues in the Complete Response letter, we continue to work closely with our third party manufacturer to ensure that the third party manufacturer has and will continue to meet all
FDA requirements; however, we are dependent on the third-party manufacturer to do so.
The FDA may not agree that we and our
third-party manufacturer have completely addressed their concerns or approve our NDA. If the FDA determines that our resubmission does not provide a complete response or identifies additional concerns or issues with our NDA, the FDA may request that
we conduct additional studies or provide additional data or analysis, or request that we make changes to our manufacturing processes or controls.
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We will rely on third parties to perform many essential services for LEVADEX and any
other products that we commercialize, including services related to warehousing and inventory control, distribution, customer service, accounts receivable management, cash collection and adverse event reporting, and if such third parties fail to
perform as expected or to comply with legal and regulatory requirements, our efforts to commercialize LEVADEX or any other products may be significantly impacted and we may be subject to regulatory sanctions.
We intend to rely on third-party service providers to perform a variety of functions related to the sale and distribution of LEVADEX, key
aspects of which are out of our direct control. The services provided by these third parties include warehousing and inventory control, distribution, customer service, accounts receivable management and cash collection. As a result, most of our
inventory will be stored at a single warehouse maintained by one such service provider. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines, or otherwise do not carry out their
contractual duties to us, or if our products encounter physical or natural damage at their facilities, our ability to deliver product to meet commercial demand would be significantly impaired. In addition, we have engaged, or will engage, third
parties to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests for medical information regarding LEVADEX and related services. If the quality or accuracy of the data
maintained or services performed by these third parties is insufficient, we could be subject to regulatory sanctions.
We may not be successful in maintaining or establishing collaborations, which could adversely affect our ability to develop and
commercialize certain of our product candidates.
We may not be able to establish or maintain collaborations around
our product candidates, which may adversely affect our ability to develop and commercialize our product candidates. We have entered into a collaboration agreement and co-promotion agreement with Allergan pursuant to which Allergan will co-promote
LEVADEX to neurologists and pain specialists in the United States, following potential FDA product approval, and will share expenses relating to the commercialization of LEVADEX. Under certain circumstances, Allergan has the right to terminate these
agreements. If Allergan terminates our agreement, we would not receive milestones due after the termination date, and we would be responsible for commercialization expenses previously shared with Allergan. Also in the event of a termination by
Allergan, we may have difficulty commercializing LEVADEX to neurologists and pain specialists, as we have no experience marketing pharmaceutical products on our own. In July 2009, we received a notice of termination of our AstraZeneca Agreement
related to our UDB product candidate. Our AstraZeneca Agreement provided that AstraZeneca could terminate the agreement in the event that the primary endpoints of our Phase 3 clinical trial of UDB were not met. Following the termination of the
AstraZeneca Agreement, we suspended development of UDB. In addition, our earlier stage product portfolio includes next generation budesonide, MAP0005 for the potential treatment of asthma and COPD and MAP0001 for the potential treatment of diabetes.
We have no current intention to further develop any of these earlier stage product candidates independently. Developing pharmaceutical products, conducting clinical trials, establishing manufacturing capabilities and marketing approved products is
expensive. Consequently, we may establish partnerships for further development and commercialization of these product candidates. We expect to face competition in seeking appropriate partners. Moreover, collaboration arrangements are complex and
time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements, if any. The terms of any
collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may not be successful. If we seek partners to help develop next generation budesonide, MAP0005 and MAP0001, but are
unable to reach agreements with suitable partners, we may fail to commercialize such products.
Risks Relating to Our
Intellectual Property
It is difficult and costly to protect our proprietary rights, and we may not be able to
ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and
trade secret protection of our product candidates and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to
sell or importing our products is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
We license certain intellectual property from third parties that covers our product candidates. We rely on certain of these third parties to file, prosecute and maintain patent applications and otherwise
protect the intellectual property to which we have a license, and we have not had and do not have primary control over these activities for certain of these patents or patent applications and other intellectual property rights. We cannot be certain
that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Our enforcement of certain of these
licensed patents or defense of any claims asserting the invalidity of these patents would also be subject to the cooperation of the third parties.
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The patent positions of pharmaceutical and biopharmaceutical companies can be highly
uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biopharmaceutical patents has emerged to date in the United
States. The biopharmaceutical patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our
intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license from a third-party. Further, if any of our patents are deemed invalid and unenforceable,
it could impact our ability to commercialize or license our technology.
The degree of future protection for our proprietary
rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make compositions or formulations that are similar to our product candidates but that are not covered by the claims of our
patents;
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we might not have been the first to make the inventions covered by our issued patents or pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents;
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our issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third
parties;
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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.
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We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or
willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the
United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our
technology.
If we or our partners choose to go to court to stop someone else from using the inventions claimed in our
patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we were
successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop a third party from using the inventions. There is also the
risk that, even if the validity of these patents is upheld, the court will refuse to prevent the other partys activities on the ground that such other partys activities do not infringe our rights to these patents. In addition, the U.S.
Supreme Court has recently invalidated some tests used by the U.S. Patent and Trademark Office in granting patents over the past 20 years. As a consequence, several issued patents may be found to contain invalid claims according to the newly revised
standards. Some of our own or in-licensed patents may be subject to challenge and subsequent invalidation in a re-examination proceeding before the U.S. Patent and Trademark Office or during litigation under the revised criteria which make it more
difficult to obtain patents.
Furthermore, a third party may claim that we or our manufacturing or commercialization partners
are using inventions covered by the third partys patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect
our results of operations and divert the attention of managerial and technical personnel. We are aware that claims in patents owned by others may relate to our business and technologies. If we are sued for patent infringement, we would need to
demonstrate that our products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it
requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If we are sued for patent infringement, there is a risk that a court would order us or our partners to
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stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other partys
patent rights. We have agreed to indemnify certain of our commercial partners against certain patent infringement claims brought by third parties. The biotechnology industry has produced a proliferation of patents, and it is not always clear to
industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent
applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that
others have not filed patent applications for technology covered by our issued patents or our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications
covering technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights to issued patents by others covering such technologies. If another party has
filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of
these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of
our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of
complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our
ability to raise the funds necessary to continue our operations.
If we fail to comply with our obligations in our
intellectual property licenses with third parties, we could lose license rights that are important to our business.
We are a party to a license agreement with Nektar Therapeutics UK Limited, pursuant to which we license the use of key intellectual
property, including intellectual property relating to our most advanced product candidate, LEVADEX. These existing licenses impose various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these
obligations, the licensors may have the right to terminate the license, in which event we might not be able to develop or market any product that is covered by the licensed patents. If we lose such license rights that are important to our product
candidate, our business may be materially adversely affected. We may enter into additional licenses in the future and if we fail to comply with obligations under those agreements, we could suffer similar consequences.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed
at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used
or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial
costs and be a distraction to management.
Risks Related to Employee Matters, Managing Growth and Accounting Matters
We need to transform our company by adding commercial expertise.
From inception to date, we have focused on research and development, including our pre-clinical development activities, clinical trials,
manufacturing-related activities and the preparation of our NDA for LEVADEX. In connection with the potential commercialization of LEVADEX, if approved, we will need to add personnel with expertise in new areas for our company, such as sales,
marketing and distribution, and to have our existing employees learn additional skills to support our commercialization efforts. We may not be able to attract or retain qualified employees with sales, marketing and distribution experience, due to
competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the Silicon Valley region of California. In addition, we will need to integrate employees with sales, marketing and distribution expertise
into our company, which to date has focused predominantly on research and development activities. If we are not able to attract and retain necessary personnel, we may experience constraints that will significantly impede the achievement of our
commercialization strategy.
We may need to increase the size of our company, and we may experience difficulties in
managing growth.
As September 30, 2012, we had 121 full-time employees. If LEVADEX is approved, we will need to
expand our managerial, operational, administrative and other resources in order to commercialize our product candidates, manage and fund our operations and
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continue our development activities. To support this growth, we intend to hire additional employees within the next 12 months. Our management, personnel, systems and facilities currently in
place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:
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manage our development program for LEVADEX, including manufacturing and regulatory activities in support of the NDA process with the FDA, and potential
approval from the FDA;
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begin activities related to commercialization, and effectively hire, train and manage a sales force, who will have no prior experience with our company
or LEVADEX, and establish appropriate systems, policies and infrastructure to support our commercial organization; and
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continue to improve our operational, financial and management controls, reporting systems and procedures.
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We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our development and
commercialization goals.
We may not be able to manage our business effectively if we are unable to
attract and retain key personnel.
We may not be able to attract or retain qualified management, commercial,
scientific and clinical personnel in the future due to competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the Silicon Valley region of California. If we are not able to attract and retain
necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business
strategy.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly
dependent on the development, regulatory, commercialization and product acquisition expertise of our senior management, particularly Timothy S. Nelson, our President and Chief Executive Officer, and Thomas A. Armer, our co-founder and Chief
Scientific Officer. If we lose one or more of these key employees, our ability to implement our business strategy successfully could be seriously harmed. Replacing key employees may be difficult and may take an extended period of time because of the
limited number of individuals in our industry with the breadth of skills and experience required to develop, obtain regulatory approval of and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be
unable to hire, train, retain or motivate these additional key personnel.
In addition, we have scientific and clinical
advisors who assist us in our product development and clinical strategies. These advisors are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, or may
have arrangements with other companies to assist in the development of products that may compete with ours. Because our business depends on certain key personnel and advisors, the loss of such personnel and advisors could weaken our management team
and we may experience difficulty in attracting and retaining qualified personnel and advisors.
Our managements
determination that there was a material weakness in our internal control over financial reporting and our disclosure controls and procedures, or any determination in the future that there are other deficiencies or weaknesses in our controls, could
have a material adverse impact on our reported financial results or the price of our security.
Section 404 of
the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal controls
over financial reporting in our annual report on Form 10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to, and report on, managements assessment of our internal controls
over financial reporting.
As discussed in item 9A of our Annual Report on Form 10-K for the year ended December 31,
2011, our management determined that there was a material weakness in our internal controls over financial reporting in that we had not maintained effective controls over complex multiple element revenue arrangements. Specifically, effective
controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were not designed and in place with regard to the evaluation of, and accounting for, a complex multiple element arrangement (in this case timing of
recognition of revenue related to an upfront payment from Allergan, which timing had no impact on the companys cash position, total assets or operating expenses). Due to this material weakness, our principal executive officer and principal
financial officer also concluded that our disclosure controls and procedures were not effective as of December 31, 2011, or as of March 31, 2012. Subsequent to the identification of the material weakness we enhanced our accounting
and financial reporting controls for complex multiple element revenue arrangements, and our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30,
2012 and as of September 30, 2012 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer
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and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. However, a controls system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the controls system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. If we have not adequately
remediated the matters that caused the control deficiencies underlying the material weaknesses, or if we have any additional material weaknesses in our controls in the future, our business and results of operations could be harmed, we may be unable
to report properly or timely the results of our operations, and investors may lose faith in the reliability of our financial statements. Accordingly, the price of our securities may be adversely and materially impacted.
Risks Relating to Owning Our Common Stock
Our share price may be volatile which may cause the value of our common stock to decline and subject us to securities class action litigation.
The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this
section, and others beyond our control, including:
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actual or anticipated fluctuations in our financial conditions and operating results;
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regulatory actions with respect to our products or our competitors products;
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actions and decisions by our collaborators or partners;
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status and/or results of our clinical trials;
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results of clinical trials of our competitors products;
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our growth rate and actual or anticipated changes in our growth rate relative to our competitors;
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rate of prescription growth for LEVADEX, if approved, and how that growth compares to analyst expectations;
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actual or anticipated fluctuations in our competitors operating results or changes in their growth rate;
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competition from existing products, new products or generics that may emerge;
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issuance of new or updated research or reports by securities analysts;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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market conditions for biopharmaceutical stocks in general; and
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general economic and market conditions.
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If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline.
The trading market for our common stock depends on the research and reports that securities or industry analysts
publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline. If one or more of these
analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
Future sales of our common stock may cause our stock price to decline.
Persons who were our stockholders prior to the sale of shares in our IPO continue to hold a large number of shares of our common stock
that they are now able to sell in the public market. Significant portions of these shares are held by a small number of stockholders. Sales by our current stockholders of a large number of shares, or the expectation that such sales may occur, could
significantly reduce the market price of our common stock. Moreover, the holders of a large number of shares of common stock may have rights, subject to certain conditions, to require us to file registration statements to permit the resale of their
shares in the public market or to include their shares in registration statements that we may file for ourselves or other stockholders.
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We have also registered or plan to register all common stock that we may issue under our
employee benefits plans. As a result, these shares can be freely sold in the public market upon issuance, subject to restrictions under the securities laws. In addition, our directors and executive officers may establish programmed selling plans
under Rule 10b5-1 of the Exchange Act for the purpose of effecting sales of our common stock. If any of these events cause a large number of our shares to be sold in the public market, the sales could reduce the trading price of our common
stock and impede our ability to raise future capital.
We will continue to incur significant increased costs as a result
of operating as a public company.
As a public company, we will continue to incur significant legal, accounting and
other expenses to comply with the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and Exchange Commission and by the NASDAQ Global Market. In addition,
any changes in such regulations will result in increased costs to us as we respond to these requirements. For example, we must use certain required internal controls and disclosure controls and procedures, as required by Section 404 of the
Sarbanes-Oxley Act of 2002. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our
compliance with Section 404 will require that we continue to incur substantial accounting expense and expend significant management efforts. In addition, we will continue to bear all of the internal and external costs of preparing and
distributing periodic public reports in compliance with our obligations under the securities laws.
Changing laws, regulations
and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the Securities and Exchange Commission and The NASDAQ Global Market, are creating uncertainty for
public companies, increasing legal and financial compliance costs and making some activities more time consuming. We are currently evaluating and monitoring developments with respect to new and proposed rules and cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We
will continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of managements time and attention from potentially
revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against us and our business may be harmed.
Anti-takeover provisions in our
charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our bylaws may delay or prevent an acquisition of us. In
addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for
appointing the members of our management team. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders
owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advanced notice requirements for nominations for election to our board of directors and for proposing matters that
can be acted upon at stockholder meetings. Although we believe these provisions together provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer
may be considered beneficial by some stockholders.
We have never paid dividends on our common stock, and because we do
not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, of our common stock will be your sole source of gain on an investment in our stock.
We have never paid cash dividends on our common stock and we currently intend to retain our cash and future earnings, if any, to fund the
development and growth of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable
future.
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We may become involved in securities class action litigation that could divert
managements attention and harm our business.
The stock markets have from time to time experienced significant
price and volume fluctuations that have affected the market prices for the common stock of biotechnology and biopharmaceutical companies. These broad market fluctuations may cause the market price of our common stock to decline. 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 biotechnology and biopharmaceutical companies have experienced
significant stock price volatility in recent years. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts managements attention and resources, which could adversely affect our business.