Our business faces many risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in this Quarterly Report on Form 10-Q and other filings with the SEC, press releases, communications with investors and oral statements. The risks described below may not be the only risks we face. Additional risks we do not yet know of or which we currently believe are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.
Risks Relating to Our Financial Position and Need for Additional Capital
We have incurred significant losses since inception, expect to incur losses for at least the next several years and may never achieve or sustain profitability.
We have incurred annual net operating losses in every year since our inception. Our net loss was $42.4 million for the six months ended June 30, 2019, $72.2 million for the year ended December 31, 2018 and $114.8 million for the year ended December 31, 2017. As of June 30, 2019, we had an accumulated deficit of $576.5 million. Prior to October 2018, when we commenced sales of Xerava in the United States, we had not generated any product revenues. For the six months ended June 30, 2019, we generated $1.1 million in net product revenues from sales of Xerava. We have financed our operations primarily through the public offerings and private placements of our equity securities, debt financings, revenue from United States government grants and contract awards and milestone payments from our licensing agreement.
In the third quarter of 2018, we received marketing approval in the United States and in Europe for Xerava for the treatment of complicated intra-abdominal infections, or cIAI. Prior to the marketing approval of Xerava we had devoted substantially all of our financial resources and efforts to research and
development, including preclinical and clinical development. In June 2019,
we determined
to devote all of our financial resources and efforts to supporting the ongoing commercialization of Xerava
and
announced a restructuring of our organization, including
a 20% reduction in headcount, designed to focus our cash resources on commercializing Xerava primarily in the hospital setting. As a result
of the
restructuring, we have eliminated
our internal research function and
are exploring out-licensing opportuniti
es for our pipeline of early-stage antibiotics and oncology product candidates.
Notwithstanding the initiation of sales of Xerava and our June 2019 restructuring, we expect to continue to incur significant expenses and operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter. Net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
We expect that our expe
nses will decrease in 2019 compared with 2018, as the lower costs that
we have incurred on our IGNITE (
I
nvestigating
G
ram-
N
egative
I
nfections with
E
ravacycline) clinical program in 2019, given its completion in 2018, will offset increased
sales, marketing,
distribution and outsourced manufacturing expenses related to the launch of Xerava and charges associated with our June 2019 restructuring. Our expenses could increase if and as we:
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maintain, expand and protect our intellectual property portfolio; and
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in-license or acquire other products and technologies.
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Our ability to become and remain profitable depends on our ability to generate revenue. Notwithstanding marketing approval of Xerava in the United States and Europe, we
have not commenced sales of Xerava
in Europe and
do not expect to generate significant revenue from Xerava sales
in the United States
in the near future. The successful commercialization of Xerava will require us to be effective in a range of challenging activities, including:
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establishing and maintaining sales, marketing and distribution capabilities to effectively market, sell and be reimbursed for Xerava;
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contracting for the manufacture of sufficient commercial quantities of Xerava; and
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protecting and maintaining our rights to our intellectual property portfolio related to Xerava.
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Because of the numerous risks and uncertainties associated with pharmaceutical product commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability.
We may be unable to successfully commercialize Xerava and, even if we do, we may never achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our company could cause our stockholders to lose all or part of their investment in us.
We expect that we will need additional funding to commercialize Xerava. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We believe that our existing cash and cash equivalents, our projected revenues from sales of Xerava, and the $2.0 million up-front payment related to expanded territories we expect to receive from Everest Medicines in August 2019 will be sufficient to fund our operations for at least 12 months, into the middle of the third
quarter of 2020. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to fund our expenses after that time.
This estimate is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.
Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, although we are
exploring out-licensing opportunities for our pipeline of early-stage antibiotics and oncology product candidates
, there can be no assurance that
we will be able to out-license these on a timely basis or on terms that are favorable to us, or at all.
Our failure to raise capital through financing or a license of our pipeline as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
In addition, if we are unable to raise capital, we may instead determine to dissolve and liquidate our assets or seek protection under the bankruptcy laws. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.
Our future funding requirements, both short-term and long-term, will depend on many factors, including:
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revenue received from commercial sales of Xerava;
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our ability to
enter into
collaborations, licensing, marketing, distribution or other arrangements
with respect to Xerava and our product candidates, and the terms and timing of any such arrangements into which we enter;
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our ability to remain in compliance with our obligations under, and access the remaining $45.0 million potentially available to us under, our Loan and Security Agreement, or the Loan Agreement, with Solar Capital Ltd., or Solar Capital, as collateral agent and lender and the other lenders named therein, collectively the Lenders, dated November 2, 2018, as amended on March 14, 2019.
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the timing and costs of manufacturing and other activities in connection with the commercialization of Xerava;
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the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including mileston
e and royalty payments and patent prosecution fees that we are obligated to pay to Harvard University, or Harvard, and other licenses under license agreements to which we may be a party;
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the costs of maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and
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the extent to which we in-license or acquire other products and technologies.
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We have a limited operating history and no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for our future viability.
We began operations in the third quarter of 2006. Our operations to date have been limited to financing and staffing our company, developing our technology and our product candidates, establi
shing a commercial infrastructure to launch Xerava in the United States and selling Xerava in the United States. We obtained marketing approval for Xerava in the United States and Europe in the third quarter of 2018 and commenced sales of Xerava in the United States in the fourth quarter of 2018. We have not yet demonstrated a long-term ability to conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.
Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it more difficult for us to fund our operations.
On November 2, 2018, we entered into the Loan Agreement with the Lenders. The Lenders have agreed to make available to us term loans in an aggregate principal amount of up to $75.0 million under the Loan Agreement. The Loan Agreement provides a term loan commitment of $50.0 million in two potential tranches: (i) a $30.0 million Term A loan facility that was funded on November 2, 2018 and (ii) a $20.0 million Term B loan facility to be funded at the request of the Company, subject to certain conditions being met, no later than October 31, 2020. Both of these term loans have a maturity date of May 2, 2023. The Loan Agreement also provides access to an additional Term C loan facility in the amount of $25.0 million, to be funded at the Lenders’ sole discretion.
All obligations under the Loan Agreement are secured by substantially all of our existing property and assets. This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important negative consequences, including:
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the need to repay our indebtedness by making payment of interest only initially and then interest and principal, which will reduce the amount of funds available to finance our operations, our research and development efforts and our general corporate activities; and
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our failure to comply with the restrictive covenants in the Loan Agreement could result in an event of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness, and the lenders could seek to enforce its security interest in the assets securing such indebtedness.
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To the extent additional debt is added to our current debt levels, the risks described above could increase.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies.
Currently, our only external committed source of funds is funding under subcontract awarded to us by CUBRC pursuant to a government contract from BARDA. Although the BARDA Contract and the Company subcontract with CUBRC under the BARDA Contract expire by their terms on December 31, 2019, BARDA is also entitled to terminate the project for convenience at any time and is not obligated to provide continued funding beyond current-year amounts from congressionally approved annual appropriations. To the extent that BARDA ceases to provide funding of the program to CUBRC, CUBRC has the right to cease providing funding to us. Committed funding from CUBRC under our BARDA subcontract is for up to approximately $41.3 million from the initial contract date through June
30
, 2019, of which $39.9
million had been received through June 30
, 2019.
Furthermore, we may not be able to access the additional $45.0 million of funding available under the Loan Agreement.
As a result, unless and until we can generate a substantial amount of revenue from Xerava, we expect to finance our future cash needs through public or private equity offerings, debt financings or collaborations and licensing arrangements. In addition, we
37
may seek additional capital due
to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.
To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interest of our stockholders may be materially diluted, and the terms of these securities could include liquidation or other preferences and anti-dilution protections that could adversely affect their rights. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific corporate actions, such as incurring additional debt, merging with or acquiring another entity, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. In addition, securing additional financing would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the commercialization of Xerava.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, products or product candidates or to grant licenses on terms that may not be favorable to us.
We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our Loan Agreement or otherwise in an amount sufficient to enable us to repay our indebtedness or fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before its maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms, on a timely basis or at all. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
Failure to satisfy our current and future debt obligations, either because we cannot make scheduled payments on our debt or because we cannot comply with the restrictive covenants under the Loan Agreement, which could result in an event of default and, as a result, the Lenders could accelerate all of the amounts due. In the event of an acceleration of amounts due under the Loan Agreement as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness. In addition, the Lenders could seek to enforce their security interests in the assets securing such indebtedness.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance and the condition of the debt and capital markets, which are subject to prevailing economic, industry and competitive conditions, as well as certain financial, business, legislative, political, regulatory and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems, be forced to reduce or delay capital expenditures, strategic acquisitions, investments and partnerships, dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements, and our financial position and results of operations could be materially adversely affected.
We are subject to certain restrictive covenants that may restrict our ability to pursue our business strategies, and the failure to comply with such restrictions could materially adversely affect our business.
The Loan Agreement imposes operating and other restrictions on us. Such restrictions will affect, and in many respects limit or prohibit, our ability and the ability of any future subsidiary to, among other things:
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invest in our subsidiaries and make other investments;
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dispose of certain assets;
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change our lines of business;
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engage in mergers or consolidations;
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incur additional indebtedness;
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create liens on assets;
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pay dividends and make distributions or repurchase our cap
ital stock;
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amend our material agreements;
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permit our qualified cash subject to a control account in favor of the Lenders to be below $10 million plus the amount (if any) of accounts payable aged over 90 days; and
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engage in certain transactions with affiliates.
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The restrictions contained in the Loan Agreement could limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or could otherwise restrict our business and growth
strategies, which could materially adversely affect our business, financial condition and operating results. We may not be able to comply with the minimum liquidity covenant or the covenant not to deliver a qualified opinion on our financial statements.
If we fail to comply with the covenants under the Loan Agreement, we will be in default and, as a result, the Lenders could accelerate all of the amounts due.
Risks Related to Product Development and Commercialization
We are dependent on the success of Xerava, and our ability to successfully commercialize Xerava. If we are unable to successfully commercialize Xerava or experience significant delays in doing so, our business could be materially harmed.
We have invested a significant portion of our efforts and financial resources in the development of Xerava for use as a first-line empiric monotherapy for the treatment of multidrug-resistant, or MDR, infections. We obtained marketing approval for Xerava for the treatment of cIAI in the United States and in Europe in the third quarter of 2018. Our prospects are substantially dependent on our ability to successfully commercialize Xerava for the treatment of cIAI. The success of Xerava will depend on several factors, including the following:
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successful commercial launch of Xerava in the United States;
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acceptance of Xerava by the medical community, patients and third-party payors;
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obtainment and maintenance of patent and trade secret protection and regulatory exclusivity;
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protection of our rights in our intellectual property portfolio;
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successful manufacturing of Xerava;
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favorable results of any additional clinical trials involving Xerava that we or others may conduct;
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competition with other therapies; and
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a continued acceptable safety profile of Xerava.
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If we are unable to successfully commercialize Xerava for the treatment of cIAI our business could be materially harmed.
Xerava or any additional product candidate of ours that a future collaborator develops and commercializes may fail to achieve the degree of market a
cceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for Xerava or the
additional product candidates may be smaller than we estimated.
Prior to Xerava, we had
never commercialized a product candidate for any indication
, and we do not plan to commercialize
any additional product candidates. Efforts to educate the medical community and third-party payors on the benefits of Xerava may require significant resources
and may not be successful. If Xerava does not achieve an adequate level of market acceptance, we may not generate significant product revenues. Therefore
, we may not become profitable.
If
any additional product candidate
of ours that a future collaborator
develops does not achieve market acceptance, the amounts we could receive under the licensing or collaboration agreement could be limited. We are exploring the degree of market acceptance of Xerava, or any other product candidate that is approved for commercial sale, will depend on a number of factors, including, but not limited to:
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the efficacy and safety of the product;
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the potential advantages of the product compared to alternative treatments, including convenience and ease of administration;
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the prevalence and severity of any side effects;
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the clinical indications for which the product is approved;
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limitations or warnings, including distribution or use restrictions
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our ability to offer the product for sale at competitive prices;
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the willingness of physicians to prescribe the product;
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whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy for particular infections;
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the strength of marketing and distribution support;
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the approval of other new products for the same indications;
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the timing of market introduction of our approved products as well as competitive products;
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the cost of treatment in relation to alternative treatments;
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availability and level of coverage and amount of reimbursement from government payors, managed care plans and other third-party payors;
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the effectiveness of our sales and marketing efforts;
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adverse publicity about the product or favorable publicity about competitive products; and
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the development of resistance by bacterial strains to the product.
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In addition, the potential market opportunity for Xerava
or any product candidate
is difficult to estimate. Our estimates of the potential market opportunity for Xerava are predicated on several key assumptions such as industry knowledge, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, then the actual market for Xerava could be smaller than our estimates of the potential market opportunity. If the actual market for Xerava is smaller than we expect, or if the product fails to achieve an adequate level of acceptance by physicians, health care payors and patients, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability.
If we are unable to successfully establish and maintain sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing Xerava.
To achieve commercial success for Xerava, we must develop a successful sales and marketing organization. We have built a commercial organization in the United States and recruited experienced sales, marketing and distribution professionals. If we are unable to successfully operate the sales force and maintain marketing and distribution capabilities, our operating results may be adversely affected.
Factors that may inhibit our efforts to commercialize Xerava on our own include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the ability of our sales personnel to obtain access to or persuade adequate numbers of physicians to appropriately prescribe any products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines;
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the inability of our medical science group to educate physicians on the benefits to patients of Xerava; and
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unforeseen costs and expenses associated with maintaining an independent sales and marketing organization.
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We plan to seek to commercialize Xerava outside the United States with the assistance of collaborators. If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of Xerava revenues to us may be lower than if we were to directly market and sell Xerava in those markets. As an example, if Everest Medicines Limited, or Everest Medicines, our collaboration partner for Xerava in certain Asian territories, is unsuccessful in developing and commercializing Xerava in the Chinese market, we may not receive any future milestone or royalty payments. Furthermore, we may be unsuccessful in entering into the necessary arrangements with third parties or may be unable to do so on terms that are favorable to us. In addition, we likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively.
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If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing Xerava or any other future products.
We face substantial competition from other pharmaceutical and biotechnology companies and our operating results may suffer if we fail to compete effectively.
The development and commercialization of new drug products is highly competitive. Xerava and any
product candidate of ours
that we license to a third party will face competition from major pharmaceutical companies, specialty pharmaceutical companies, generic manufacturers and biotechnology companies worldwide. There are a number of large pharmaceutica
l and biotechnology companies that currently market and sell products, or are pursuing the development of product candidates, for the treatment of MDR infections. Competitors may succeed in developing, acquiring or licensing technologies and drug products
that are more effective or less costly than Xerava or any of our
product candidates that we license to a third party, which could
impact the use of Xerava.
There are a variety of available therapies that are generic or marketed for the treatment of cIAI th
at we would expect would compete with Xerava. The generic agents include piperacillin/tazobactam, imipenem/cilastatin, ertapenem, meropenem, doripenem, ampicillin/sulbactam and tigecycline. The marketed products include Zerbaxa, Recarbrio and Invanz which are marketed by Merck & Co., Inc., Avycaz which is marketed by Allergan, Inc, and Vabomere which is marketed by Melinta Therapeutics, Inc. Many of the available therapies are well established and widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products.
There are also a number of products currently in phase 3 development by third parties to treat MDR infections, including
sulopenem, which is being developed by Iterum Therapeutics; azetronam/avibactam being developed by Pfizer, Inc.;
and cefiderocol, which is being developed by Shionogi. If these products are approved, they may also compete with Xerava.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials and obtaining regulatory approvals than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Even if we are able to commercialize Xerava or a future collaborator is able to commercialize any product candidates that we license to it, the product may become subject to unfavorable pricing regulations, third-party payor coverage and reimbursement policies or healthcare reform initiatives that could harm our business.
Marketing approvals, pricing, coverage and reimbursement for new drug products vary widely by country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketin
g or product approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we
or a future collaborator might obtain marketing approv
al for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues we are able to generate directly or indirectly f
rom the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in Xerava and any
of our product candidates that are commercialized, even if our product candidates obtain marketing approval.
Our
and our future collaborators’
ability to commercialize Xerava
or
any product candidate
of ours
that we license to a third party will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government authorities, private health insurers, health maintenance organizations and other third-party payors. The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. As a result, government authorities
and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect the
ability to sell Xerava or any such product candidates profitably.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authorities. Increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. Moreover, obtaining coverage does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based in part on existing reimbursement amounts for lower cost drugs or may be bundled into the payments for other services.
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We cannot be sure that coverage will be available for Xerava or any
of our product candidates
that we license to a third party that is
commercialized
and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries
where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse eff
ect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
We do not
plan
to conduct any additional
clinical trials of
Xerava or
any of our product candidates. However, if we determine t
o resume clinical development of any product candidates or license any product candidates to third parties,
we or our collaborators will be subject to the risk that such clinical trials fail to demonstrate safety and efficacy to the satisfaction of the FDA
or comparable foreign regulatory authorities or do not otherwise produce favorable results, and
we or our collaborators may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any product candidate.
A company is not permitted to commercialize, market, promote, or sell any product candidate in the United States without obtaining marketing approval from the FDA or in other countries without obtaining approvals from comparabl
e foreign regulatory authorities, such as the European Medicines Agency, or EMA, and may never receive such approvals. In addition, the company must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of ou
r product candidates in humans before it will be able to obtain these approvals. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome.
The clinical development of any p
roduct candidate is susceptible to the risk of failure inherent at any stage of drug development, including failure to achieve efficacy in a trial or across a broad population of patients, the occurrence of severe adverse events, failure to comply with protocols or applicable regulatory requirements, and determination by the FDA or any comparable foreign regulatory authority that a drug product is not approvable. The outcome of preclinical studies and early clinical trials may not be predictive of the succe
ss of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Success may not be achieved in any future clinical trial of any product candidate.
In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we believe that the results of clinical trials warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, adherence to the dosing regimen and othe
r trial protocols and the rate of dropout among clinical trial participants. In addition, in the case of clinical trials of antibiotics such as Xerava, results may differ on the basis of the type of bacteria with which patients are infected. We cannot be certain that other clinical trials will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market product candidates.
Numerous
unforeseen events may occur during, or as a result of, clinical trials that could delay or pr
event us or our collaborators from obtaining regulatory approval for any of our product candidates, including:
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clinical trials may produce unfavorable or inconclusive results;
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we or our collaborators
may decide, or regulators may require us or our collaborators
, to conduct additional clinical trials or abandon product development programs;
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the number of patients required for clinical trials of our product candidates may be larger than anticipated
, enrollment in these clinical trials may be slower than anticipated
, or participants may drop out of these clinical trials at a higher rate than anticipated;
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third-party contractors, including those manufacturing our product candidates or conducting clinical trials on our behalf, may fail to comply with regulatory requirements or meet their contractual obligations in a timely manner, or at all;
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regulators or institutional review boards may not authorize the commencement of
a clinical trial or the
conduct of a clinical trial at a prospective trial site;
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clinical trials
may need to be suspended or terminated
for various reasons, including a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;
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regulators or institutional review boards may require that clinical research be suspended or terminated for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we enter into agreement for clinical and commercial supplies;
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the supply or quality of our product candidates or other materials necessary to conduct clinical trials may be insufficient or inadequate; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering clinical data insufficient for approval.
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If we or our collaborators
are required to conduct additional clinical trials or other testing of any product candidate beyond the contemplated
trials and testing or are unable to successfully complete clinical trials or other testing, if the results of these trials or tests are unfavorable or are only modestly favorable or if there are safety concerns associated with our product candidat
es, we or our collaborators may:
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be delayed in obtaining marketing approval for our product candidates;
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not obtain marketing approval at all;
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obtain approval for indications or patient populations that are not as broad as intended or desired;
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obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;
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be subject to additional post-marketing testing or other requirements; or
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remove the product from the market after obtaining marketing approval.
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Serious adverse events or undesirable side effects or other unexpected properties of Xerava or any product candidate that we license to third parties may be identified during development or after approval, if obtained, that could delay, prevent or cause the withdrawal of the product candidates’ regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if obtained.
Serious adverse events or
undesirable side effects caused by, or other unexpected properties of, our product candidates could cause us or our collaborators, an institutional review board, or regulatory authorities to interrupt, delay or halt clinical trials and could result in a mo
re restrictive label, the imposition of distribution or use restrictions or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. If any product candidate is associated with serious adverse events or undesirable side effects or have properties that are unexpected, we or our collaborators may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause undesirable or unexpected side effects that prevented further development of the
compound. In our clinical trials of Xerava, some treatment-related adverse events were
reported. The most common treatment-related adverse events observed in clinical trials of Xerava were nausea and emesis. Additional adverse events, undesirable side effects or other unexpected properties could arise or become known either during clinical development or, if approved, after the approved product has been marketed. If such an event occurs during development, trials could be suspended or terminated, and the F
DA or comparable foreign regulatory authorities could order the cessation of further development of, or deny approval of, the product candidates. If such an event occurs with respect to Xerava or after an additional product candidate is approved, a number of potentially significant negative consequences may result, including:
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regulatory authorities may withdraw the approval of such product;
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regulatory authorities may require additional warnings on the label or impose distribution or use restrictions;
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regulatory authorities may require one or more post-marketing studies;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could prevent market acceptance of the affected product or product candidate, if approved, or could substantially increase commercialization costs and expenses, which could delay or prevent us from generating revenues from the sale of our products and harm our business and results of operations.
Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and limit commercialization of Xerava.
We face an inherent risk of product liability claims as a result of the commercialization of Xerava. For example, we may be sued if Xerava allegedly causes injury or is found to be otherwise unsuitable during manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
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reduced resources of our management to pursue our business strategy;
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decreased demand for Xerava;
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injury to our reputation and significant negative media attention;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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significant costs to defend resulting litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize Xerava.
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We maintain general liability insurance of $12 million in the aggregate and clinical trial liability insurance of $10 million in the aggregate for all product candidates, this insurance may not fully cover potential liabilities that we may incur. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims, it could prevent or inhibit the development and commercial production and sale of Xerava, which could adversely affect our business, financial condition and results of operations and prospects.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time, and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts,
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which could ad
versely affect our business, financial condition, results of operations or prospects. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Our Dependence on Third Parties
We expect to depend on collaborations with third parties for the development and commercialization of some of our products and product candidates. Our prospects with respect to those products and product candidates will depend in part on the success of those collaborations.
Although we are commercializing Xerava ourselves in the United States, we intend to seek to commercialize Xerava outside the United States through collaboration arrangements. For instance, in February 2018, we entered into a license agreement with Everest
Medicines under which we granted Everest Medicines an exclusive license to develop and commercialize Xerava for the treatment of cIAI and other indications, in mainland China and several other Asian territories and countries. In addition, we are exploring out-licensing opportunities for our pipeline of early-stage antibiotics and oncology product candidates. Our likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangements other than that with Everest Medicines.
We may derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product or product candidate that we license to a third party.
Collaborations involving our products and product candidates, such as our license arrangement with Everest Medicines, may pose a number of risks, including the following:
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collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
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collaborators may not perform their obligations as expected or in compliance with applicable regulatory requirements;
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collaborators may not pursue development and commercialization of our products and product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
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collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;
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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of products and product candidates, might lead to additional responsibilities for us with respect to products and product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
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collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
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collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
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collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.
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Collaboration agreements may not lead to development or commercialization of products or pro
duct candidates in the most efficient manner or at all. If a collaborator of ours is involved in a business combination, it could decide to delay, diminish or terminate the development or commercialization of any product or product candidate licensed to it
by us.
We contract with third parties for the manufacture of Xerava for commercialization. This reliance on third parties for manufacturing increases the risk that we will not have sufficient quantities of our product or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not currently have nor do we plan to build the internal infrastructure or capability to manufacture Xerava or any
product candidate for use in the conduct of clinical trials or for commercial supply. We currently rely on and expect to continue to rely on third-party contract manufacturers to manufacture commercial supplies of Xerava. Reliance on third-party manufacturers entails risks, including:
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delays in the
manufacture of our clinical drug supply, registration and validation batches and commercial supply if our third-party manufacturers give greater priority to the supply of other products over Xerava or otherwise do not satisfactorily perform according to the terms of the agreement between us;
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equipment malfunctions, power outages or other general disruptions experienced by our third-party manufacturers to their respective operations and other general problems with a multi-step manufacturing process;
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the poss
ible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;
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the possible breach of the manufacturing agreement by the third party;
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the failure of the third-party manufacturer to comply with applicable regulatory requirements; and
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the possible misappropriation of our proprietary information, including our trade secrets and know-how.
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Third-party manufacturers are required to comply with current Good Manufacturing Processes, or
cGMPs, and similar regulatory requirements outside the United States. Facilities used by our third-party manufacturers must be inspected by the FDA after we submit a NDA, and before potential approval of the product candidate. Similar regulations apply to manufacturers of our product candidates for use or sale in foreign countries. We do not control the manufacturing process and are completely dependent on our third-party manufacturers for compliance with the applicable regulatory requirements for the manufacture of our product candidates. If our manufacturers cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays in obtaining approval for the applicable product candidate as alternative qualified manufacturing facilities may not be available on a timely basis or at all. In addition, our manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMPs or other regulatory requirements could result in sanctions being imposed on us or the contract manufacturer, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a material adverse impact on our business, financial condition and results of operations.
Our current and anticipated future dependence upon others for the manufacture of Xerava may adversely affect our future profit margins and our ability to commercialize Xerava on a timely and competitive basis.
We may have to alter our development and commercialization plans if we are not able to establish collaborations.
For Xerava outside the U.S. and for our
product candidates, we intend to seek to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, we collaborate with Everest Medicines for commercialization of Xerava in certain countries outside the United States. We may not be able to enter into similar arrangements for any additional product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include:
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the likelihood of approval by the FDA or comparable foreign regulatory authorities;
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the potential market for the subject product or product candidate;
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the costs and complexities of manufacturing and delivering such product or product candidate to patients;
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the potential for competing products;
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our patent position protecting the product or product candidate, including any uncertainty with respect to our ownership of our technology or our licensor’s ownership of technology we license from them, which can exist if there is a challenge to such ownership without regard to the merits of the challenge;
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the need to seek licenses or sub-licenses to third-party intellectual property; and
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general industry and market conditions.
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A collaborator may also consider alternative products, product candidates or technologies for similar indications that may be available for collaboration and whether such collaboration could be more attractive than the one with us for our product or product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
If we are unable to reach agreements for
Xerava or any of our product candidates
on a timely basis, on acceptable terms, or at all, we expect
to curtail the development of Xerava
or the
product candidate, reduce or delay the
development program for Xerava or the product candidate or one or more of our other development programs, delay its potential commercialization, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product or product candidates or bring them to market and our business may be materially and adversely affected.
If we fail to comply with our obligations in the agreements under which we in-license or acquire development or commercialization rights to products or technology from third parties, we could lose commercial rights that are important to our business.
We are a party to a license agreement with Harvard that imposes, and we may enter into additional agreements, including license agreements, with other parties in the future that impose, diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. For example, under our license agreement with Harvard, we are obligated to satisfy diligence requirements, including using commercially reasonable efforts to develop and commercialize licensed compounds and to implement a specified development plan, meeting specified development milestones and providing an update on progress on an annual basis, and to pay royalties on sales of Xerava. If we fail to comply with these obligations, our counterparties may have the right to terminate these agreements, in which event
we might not be able to develop, manufacture or market any product that is covered by these agreements, which could materially adversely affect the value of the
product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain sufficient patent protection for our technology, products or our product candidates, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology, products and product candidates may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary chemistry technology, products and product candidates. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we file patent applications in the United States and abroad related to our novel technologies, products and product candidates that are important to our business. The patent application and approval process is expensive and time consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection.
Under our license agreement with Harvard, Harvard retains the right to prosecute and maintain specified Harvard patents and patent applications in the field of tetracycline chemistry, which are exclusively licensed to us under the agreement. Moreover, if we license technology or product candidates from third parties in the future, those licensors may retain the right to prosecute, maintain
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and enforce the patent rights that they license to us with or without our involvement. Because control of prosecution and maintenance rests with Harvard, and prosecution, mainte
nance and enforcement could rest with future licensors, we cannot be certain that these in-licensed patents and applications will be prosecuted, maintained and enforced in a manner consistent with the best interests of our business. If Harvard fails to pro
secute or maintain, or future licensors fail to prosecute, maintain or enforce, those patents necessary for any of our products or product candidates, our ability to develop and commercialize those products or product candidates may be adversely affected a
nd we may not be able to prevent competitors from making and selling competing products.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain. No consistent policy regarding the breadth of claims allowed in biotechnology and pharmaceutical patents has emerged to date in the United States or in many foreign jurisdictions. In addition, the determination of patent rights with respect to pharmaceutical compounds and technologies commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Furthermore, recent changes in patent laws in the United States, including the America Invents Act of 2011, may affect the scope, strength and enforceability of our patent rights or the nature of proceedings which may be brought by us related to our patent rights.
Our pending and future patent applications may not result in patents being issued that protect our technology, products or product candidates, in whole or in part, or that effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
As a result of the America Invents Act of 2011, the United States transitioned to a first-inventor-to-file system in March 2013, under which, assuming the other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent. However, as a result of the lag in the publication of patent applications following filing in the United States, we are not notified and therefore are not able to be certain upon filing that we are the first to file for patent protection for any invention. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination
, inter partes
review or interference proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of or invalidate our patent rights, allow third parties to commercialize our technology, products or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications to the FDA in which they claim that patents owned or licensed by us are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. For example, in August 2018 we received a Notice of Opposition from the European Patent Office notifying us that one of two European patents we own having claims directed to Xerava had been opposed by a third party. We filed a Response to the Opposition in November 2018 cancelling the opposed claims and maintaining the unopposed claims. Our other European patent covering Xerava is not impacted by the filing of this Opposition and cannot itself be opposed based on its grant date of July 3, 2013. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents, trademarks, copyrights or other intellectual property, or those of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other
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party from using the invention at issue on the grounds that our patents do not cover the inventi
on. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling si
milar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we hav
e asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our products and product candidates.
Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our products and product candidates and use our proprietary chemistry technology without infringing the intellectual property and other proprietary rights of third parties. Numerous third-party United States and non-U.S. issued patents and pending applications exist in the area of antibacterial treatment, including compounds, formulations, treatment methods and synthetic processes that may be applied towards the synthesis of antibiotics. If any of their patents or patent applications cover our product candidates or technologies, we may not be free to manufacture or market our product candidates as planned.
There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our technology, products or product candidates and Xerava. Other possible adversarial proceedings include interference proceedings before the U.S. Patent and Trademark Office. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
If we are fo
und to infringe a third party’s intellectual property rights, we could be ordered by a court, to cease developing, manufacturing, using, selling or offering for sale the infringing product. Alternatively, we may conclude that we need to obtain a license from such third-party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product or product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
We may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property or other proprietary information. Litigation may be necessary to defend against these claims.
In addition, while we typically require our employees, consultants and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Moreover, because we have licensed
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intellectual property from Harvard, w
e must rely on Harvard’s practices with regard to the assignment of intellectual property to it. To the extent we or Harvard has failed to obtain such assignments, or such assignments are breached, we may be forced to bring claims against third parties, or
defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected, and our business would be harmed.
In addition to seeking patents for some of our technology, products and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, in seeking to develop and maintain a competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our consultants, independent contractors, advisors, corporate collaborators, outside scientific collaborators, contract manufacturers, suppliers and other third parties. We, as well as our licensors, also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we or Harvard has executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.
We have not yet completed registration of our trademarks. Failure to secure those registrations could adversely affect our business.
Trademark applications for TETRAPHASE PHARMACEUTICALS, our logo, and combinations of those are allowed in the United States, and are expected to proceed to registration shortly as allegations of use have been filed and accepted. TETRAPHASE PHARMACEUTICALS is either registered or pending in twelve other jurisdictions, the logo is pending or registered in the same twelve jurisdictions, and the combination of the name and logo is pending in three jurisdictions. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would, which could adversely affect our business.
We own a pending trademark application in the United States for Xerava, the proprietary name for the Xerava product. The application has been allowed and is expected to proceed to registration in due course upon the filing and acceptance of an allegation of use.
We own two registrations and one application to register the Xerava trademark in three jurisdictions outside the United States and the availability of the proposed names for registration and use in foreign jurisdictions is not known. In addition, in the United States Patent and Trademark Office and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to seek to cancel registered trademarks. Cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. We have also obtained registration for our design mark in two jurisdictions, and applications remain pending for those design marks in the United States and one other jurisdiction.
50
Risks Related to Regulatory Approval and Other Legal Compliance Matters
Clinical development, including the conduct of clinical trials necessary to support an NDA, is a lengthy and expensive process with an uncertain outcome, and results of earlier preclinical studies and clinical trials may not be predictive of future trial results. Delays or failure can occur at any stage of clinical development and may adversely affect our business, operating results, and prospects.
Initiating and completing clinical trials necessary to support approval of products is time consuming and expensive and the outcome is unc
ertain. Clinical testing is expensive and can take many years to complete and its outcome is inherently uncertain. There is no guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Failure can occur at any time and for any number of reasons during the clinical trial process. The results of preclinical studies and early clinical trials and evaluations of products may not be predictive of the results of later stage clinical trials. Similarly, the final results from a clinical trial may not be as favorable as interim results reported earlier in the same clinical trial. Products in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.
Clinical
trial
failures
may
occur
at
any stage
of development
and may
result
from
a multitude
of factors
both within
and outside
our control,
including
flaws
in formulation
or manufacturing,
medical
device
design,
adverse
safety
or efficacy
profile
and flaws
in trial
design,
among
others. If
the
trials
result
in negative
or inconclusive
results,
we or our collaborators
may
decide,
or regulators
may require
us, to discontinue
trials
of the
products or conduct
additional
clinical
trials
or preclinical
studies.
In addition,
data
obtained
from
trials
and studies
are
susceptible
to varying
interpretations,
and
we cannot
guarantee
that the
FDA
or foreign
regulatory
authorities
will
interpret
data
the
same
way that
we
or our collaborators do, which may
delay,
limit or prevent
regulatory
approval
or clearance.
The
FDA
or foreign regulatory authorities
may
also
disagree
with the
design
of clinical
trials.
To the
extent
that
the
results
of the
trials
are
not satisfactory
to the
FDA
or foreign
regulatory
authorities
for
support
of a marketing
application,
we or our collaborators may
be required
to expend significant
resources to conduct
additional
trials
in support
of potential
approval
of the products. Other
potential
reasons
for
clinical
trial failures
include,
but are
not limited
to, inability
to enroll
sufficient
patients,
inability
to engage
sufficient
clinical sites,
inability
to obtain
or maintain
institutional
review
board,
or IRB, approval
of the
trial,
or cessation
of a trial for
futility
or safety
concerns
by us, or FDA, or foreign regulatory authorities,
or an independent
committee
such as an independent
data
monitoring committee.
As a result
of any number
of potential
reasons,
clinical
trials
may
not be successful
Development
of sufficient
and appropriate
clinical
protocols
to demonstrate
safety
and efficacy
are required
and we or our collaborators may
not adequately
develop
such protocols
to support
clearance
and approval
or the
results
from such studies
may
not sufficiently
demonstrate
safety
and efficac
y
. Further,
the
FDA
or foreign regulatory authorities
may, among
other
things, require
the
submission of
data
on a greater
number
of patients
than
origina
lly
anticipated
and/or
for
a longer
follow-up
period
or change
the
data
collection
requirements
or data
analysis
applicable
to clinical
trials. Delays
in patient
enrollment
or failure
of patients
to continue
to participate
in a clinical
trial
may
cause
an increase
in costs
and delays
in the
approval
and attempted
commercialization
of the products
or result
in the failure
of the
clinical
trial.
In addition,
despite
considerable
time
and expense
invested,
the FDA
or other regulatory authority may
not consider
the
data
adequate
to demonstrate
safety
and efficacy.
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.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize any future product candidate that we develop in addition to Xerava, and our ability to generate additional revenue will be materially impaired.
The design, testing, manufacture, safety, efficacy, record keeping, labeling,
storage, approval, advertising, promotion, marketing, export, sale and distribution of product candidates are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable foreign regulatory authorities
, with regulations differing from country to country. Failure to obtain marketing approval for any such future product candidate will prevent the commercialization of such product candidate.
Product
candidates may not be marketed
in the United States until receipt of approval of an NDA from the FDA. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and efficacy for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product candidate. Obtaining approval of an NDA is a lengthy, expensive and uncertain process. The drug development and FDA review process typically takes years to complete. The FDA has substantial discretion in the approval process and may refuse to accept for filing any application or may decide that data are insufficient for approval and require additional preclinical, clinical or other studies or additional
information regarding chemistry, manufacturing and controls for the product candidate. Foreign regulatory authorities have differing requirements for approval of drug candidates which must be complied with prior to marketing. Obtaining marketing approval
for marketing of a product candidate in one country does not ensure that marketing approval will be received
in other countries, but the failure to obtain marketing approval in one jurisdiction could negatively impact the ability to obtain marketing approval in other jurisdictions. Delays in approvals or rejections of marketing applications in the United States or foreign countries
51
may be based upon many factors, including regulatory requests for additional analyses, reports, data and studies, regulatory qu
estions regarding, or different interpretations of, data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding product candidates or related products. The FDA or equivalent foreign
regulatory authorities may determine that
a
product candidate is not effective, or is only moderately effective, or has undesirable or unintended side effects, toxicities, safety profile or other characteristics that preclude marketing approval or prevent
or limit commercial use. The FDA may also find during its pre-approval inspection that the facilities identified in
the
NDA fail to comply with cGMP requirements, thereby delaying or preventing approval. In addition, any marketing approval may be limited
or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Delays
in obtaining approval or
the failure
to obtain approval of any product candidate
would harm
the commercial prospects for such product c
andidate.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad. Any approval we are granted for our product candidates in the United States would not assure approval of our product candidates in foreign jurisdictions.
In order to market and sell our products in the European Union and other foreign jurisdictions, we, and any future collaborators, must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, a product must be approved for reimbursement before the product can be approved for sale in that country. We, and any future collaborators, may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may file for marketing approvals but not receive necessary approvals to commercialize our products in any market.
Additionally, on June 23, 2016, the electorate in the United Kingdom voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29, 2017, the country formally notified the European Union of its intention to withdraw
pursuant to Article 50 of the Lisbon Treaty. Since a significant proportion of the regulatory framework in the United Kingdom is derived from European Union directives and regulations, Brexit could materially impact the regulatory regime with respect to the approval of our product candidates in the United Kingdom or the European Union and could prevent or delay our marketing approval in the European Union or United Kingdom in addition to delaying the pricing arrangements or reimbursements for any approved product candidates. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.
The United Kingdom had a period of a maximum of two years from the date of its formal notification to negotiate the terms of its withdrawal from, and future relationship with, the European Union. If no formal withdrawal agreement can be reached between the United Kingdom and the European Union, then it is expected that the United Kingdom's membership in the European Union would automatically terminate on the deadline, which has been extended to October 31, 2019 to allow the parties to negotiate a withdrawal agreement. Such negotiations have proven to be extremely difficult to date. On July 24, 2019, Boris Johnson, who has previously suggested the country should leave the European Union without an agreement, was elected prime minister of the United Kingdom. Discussions between the United Kingdom and the European Union will continue to
focus on finalizing withdrawal issues and transition agreements. However, limited progress to date in these negotiations and ongoing uncertainty within the UK Government and Parliament sustains the possibility
of the United Kingdom leaving the European Union without a withdrawal agreement and associated transition period in place, which is likely to cause significant market and economic disruption.
52
We are subject to ongoing obligations and continuing regulatory review following the marketing approval of X
erava, which may result in significant additional expense. Xerava could be subject to restrictions or withdrawal from the market, and we may be subject to penalties, if we fail to comply with regulatory requirements or if we experience unanticipated proble
ms with Xerava or our product candidates, when and if approved.
Xerava is subject to, and any product candidate for which a future collaborator may obtain marketing approval will also be subject to, ongoing regulatory requirements, including for labeling, manufacturing, packaging, storage, distribution, advertising, promotion, record-keeping and submission of safety and other post-market information. For example, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements or requirements of equivalent foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to cGMPs. As such, we and our contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We are also required to report certain adverse reactions and production problems, if any, to the FDA or equivalent foreign authorities and to comply with requirements concerning advertising and promotion for our products.
In addition, even if marketing approval of a product candidate is granted to us or a future collaborator, the approval may be subject to limitations on the indicated uses for which the product may be marketed, may be subject to significant conditions of approval or may impose requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling and regulatory requirements. The FDA also imposes stringent restrictions on manufacturers’ communications regarding uses not described in the FDA-approved label, known as off-label uses, and if we do not restrict the marketing of our products only to their approved indications, we may be subject to enforcement action for off-label promotion.
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, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us. In addition, if any product fails to comply with applicable regulatory requirements, a regulatory agency may:
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issue warning or untitled letters;
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mandate modifications to promotional materials or require provision of corrective information to healthcare practitioners and patients;
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impose restrictions or requirements on the product or its manufacturers or manufacturing processes or suspension of manufacturing processes;
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impose restrictions on the labeling or marketing of the product;
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impose restrictions on product distribution or use;
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require post-marketing clinical trials;
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require withdrawal of the product from the market;
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refuse to approve pending applications or supplements to approved applications that we submit;
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require recall of the product;
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require entry into a consent decree, which can include imposition of various fines (including restitution or disgorgement of profits or revenue), reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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suspend, vary, modify or withdraw marketing approvals;
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refuse to permit the import or export of the product;
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seize or detain supplies of the product; or
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issue injunctions, levy fines or impose other civil penalties or bring criminal prosecution.
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53
A recall
of our products,
or the discovery
of serious
safety
issues
with our products,
could have a significant adverse
impact
on us.
The FDA
and equivalent
foreign
authorities
have the
authority
to require
the
recall
of commercialized
drugs
in the
event
of material
deficiencies,
defects
in design
or manufacture, or stability
failures.
Manufacturers
may,
under
their
own initiative,
recall
a product
if
any material
deficiency
in a drug
is
found. A government-mandated
or voluntary
recall
by us or one of our distributors
could
occur as a result
of an unacceptable
risk
to health,
component
failures,
manufacturing
errors,
stability
failures,
drug contamination
or impurities,
design
or labeling
defects
or other
deficiencies
and issues.
Recalls
of any of our products
would divert
managerial
and financial
resources
and have an adverse
effect
on our reputation,
financial condition
and operating
results,
which could
impair
our ability
to produce
our products
in a cost-effective
and timely
manner.
The FDA
and equivalent
foreign
authorities
require
that
certain
classifications
of recalls
be reported
to them
within
a defined
period
of time
(within
ten
working days for
the
FDA)
after
the
recall
is
initiated.
Companies
are
required
to maintain
certain
records
of recalls,
even if
they
are
not reportable
to the
FDA or equivalent
foreign authorities.
We may
initiate
voluntary
recalls
involving
our products
in the
future
that we determine
do not require
notification
of the
FDA
or equivalent
foreign
authorities.
If
the
FDA
or equivalent
foreign
authorities
disagree
with our determinations,
they
could
require
us to report
those
actions as recalls.
A future
recall
announcement
could
harm
our reputation
with customers
and negatively
affect
our
sales.
In addition,
the
FDA
or equivalent
foreign
authorities
could
take
enforcement
action
for
failing
to report
the
recalls
when they
were conducted.
An increase
in the
frequency
or severity
of adverse
events,
or repeated
product
complaints
or malfunctions
may
result
in a voluntary
or involuntary
product
recall,
which could
divert
managerial
and financial resources,
impair
our ability
to manufacture
our products
in a cost-effective
and timely
manner
and have an adverse
effect
on our reputation,
financial
condition,
and operating
results.
Any adverse
event
involving
our products
could
result
in future
voluntary
corrective
actions,
such as recalls
or customer
notifications,
or regulatory
agency
action,
which could
include
inspection,
mandatory
recall or other
enforcement
action.
Any corrective
action,
whether
voluntary
or involuntary,
will
require
the
dedication of our time
and capital,
distract
management
from
operating
our business
and may
harm
our reputation
and financial
results.
Our relationships with customers and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Our arrangements with third-party payors, healthcare professionals and customers who purchase, recommend or prescribe our products are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products, and it is possible that our business activities could be subject to challenge or enforcement under one or more of these laws and regulations. These laws and regulations include the United States federal healthcare Anti-Kickback Statute, the federal civil False Claims Act, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the federal Physician Payments Sunshine Act, and analogous state laws and regulations.
The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that we or our partners may fail to comply fully with one or more of these requirements, and we will be required to spend substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. If governmental authorities find that our operations violate any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and we may be required to curtail or restructure our operations, any of which could adversely affect our ability to operate our business and our financial results. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating to healthcare fraud and abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
Similar restrictions are imposed on the promotion and marketing of medicinal products in the EU Member States and other foreign countries. These include restrictions prohibiting the promotion of a compound prior to its approval. Laws (including those governing promotion, marketing and anti-kickback provisions), industry regulations and professional codes of conduct often are strictly enforced. Even in those countries where we may decide not to directly promote or market our products, inappropriate activity by our international distribution partners could have implications for us.
54
We also are subject to state and federal laws governing the collection, use, and disclosure and protection of health-related and other personal information, including
state security breach notification laws, state health information privacy laws, and federal and state consumer protection laws. Failure to comply with these laws and regulations promulgated thereunder could result in government enforcement actions and crea
te liability, private litigation, or adverse publicity. In addition, we may obtain health information from third parties, such as research institutions, that are subject to privacy and security requirements under HIPAA. Although we are not directly subject
to HIPAA – other than with respect to providing certain employee benefits – we could potentially be subject to criminal penalties if we, our affiliates, or our agents knowingly obtain or disclose individually identifiable health information maintained by
a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. In addition, HIPAA does not replace federal, state, or other laws that may grant individuals even greater privacy protections.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate program or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We have substantial reporting and payment obligations under the Medicaid Drug Rebate Program and other governmental programs. Our failure to comply with these price reporting and rebate payment obligations could negatively impact our financial results.
The Centers for Medicare & Medicaid Services, or CMS, issued a final regulation, which became effective on April 1, 2016, to implement the changes to the Medicaid Drug Rebate Program under the Affordable Care Act. The issuance of the final regulation, as well as any other regulations and coverage expansion by various governmental agencies relating to the Medicaid Drug Rebate Program, has increased and will continue to increase our costs and the complexity of compliance, and could have a material adverse effect on our results of operations, particularly if CMS challenges the approach we take in our implementation of the final regulation.
We also participate in the 340B program. The U.S. Department of Health and Human Services’ Health Resources and Services Administration, or HRSA, which administers the 340B program, issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, which became effective on January 1, 2019. It is currently unclear how HRSA will apply its enforcement authority under the new regulation. Implementation of this regulation could affect our obligations and potential liability under the 340B program in ways we cannot anticipate.
We have obligations to report the average sales price for certain of our drugs to the Medicare program. Statutory or regulatory changes or CMS guidance could affect the average sales price calculations for our products and the resulting Medicare payment rate, and could negatively impact our results of operations.
Pricing and rebate calculations vary across products and programs, are complex, and are often subject to interpretation by us, governmental or regulatory agencies and the courts. In the case of our Medicaid pricing data, if we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for up to three years after those data originally were due. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid Drug Rebate Program and could result in an overage or underage in our rebate liability for past quarters. Price recalculations also may affect the ceiling price at which we are required to offer our products under the 340B program.
We participate in the U.S. Department of Veterans Affairs, or VA, Federal Supply Schedule, or FSS, pricing program and the Tricare Retail Pharmacy program. Pursuant to applicable law, knowing provision of false information in connection with price reporting under these programs can subject a manufacturer to civil monetary penalties. These program obligations also contain extensive disclosure and certification requirements. If we overcharge the government in connection with our FSS contract or Tricare Agreement, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We are subject to United States and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the United States domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We may have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals,
55
universit
ies, and other organizations. In addition, we may engage third party intermediaries to promote our clinical research activities abroad and/or to obtain necessary permits, licenses, and other regulatory approvals. We can be held liable for the corrupt or ot
her illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize or have actual knowledge of such activities.
We have adopted a Code of Business Conduct and Ethics that mandates compliance with the FCPA and other anti-corruption laws applicable to our business throughout the world. We cannot assure you, however, that our employees and third-party intermediaries will comply with this code or such anti-corruption laws. Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas, investigations, or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management's attention and resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even cause us to appoint an independent compliance monitor which can result in added costs and administrative burdens.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.
Our products and solutions are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, United States Customs regulations, and various economic and trade sanctions regulations administered by the United States Treasury Department's Office of Foreign Assets Controls. Exports of our products and solutions outside of the United States must be made in compliance with these laws and regulations. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges; fines, which may be imposed on us and responsible employees or managers; and, in extreme cases, the incarceration of responsible employees or managers.
In addition, changes in our products or solutions or changes in applicable export or import laws and regulations may create delays in the introduction, provision, or sale of our products and solutions in international markets, prevent customers from using our products and solutions or, in some cases, prevent the export or import of our products and solutions to certain countries, governments or persons altogether. Any limitation on our ability to export, provide, or sell our products and solutions could adversely affect our business, financial condition and results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, but this insurance may not provide adequate coverage against potential liabilities. We do not, however, maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. Current or future environmental laws and regulations may impair our research, development or production efforts. In addition, failure to comply with these laws and regulations may result in substantial fines, penalties or other sanctions.
Risks Related to Employee Matters
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.
Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the research and development, regulatory, commercialization and business development expertise of our executive management team,
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as we
ll as the other principal members of our management, scientific and clinical team. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. For in
stance, in December 2017, our former chief medical officer
terminated his employment with us, in March 2018, our former chief financial officer terminated her employment with us and in June 2019, our former chief medical officer terminated his employment w
ith us.
Also, in connection with our June 2019 restructuring, our board of directors appointed
our current
chief operating officer as our president and chief executive officer, effective August 1, 2019, with
our current
president and chief executive office
r transitioning to a consulting role.
We do not have formal employment agreements with any of our other employees. If we lose one or more of our executive officers or key employees, our ability to implement our business strategy successfully could be seriously harmed. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain 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 on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to continue to commercialize Xerava will be limited.
We have recently reduced the size of our org
anization,
and we may
encounter difficulties in managing
our business
as a result of this reduction, or the attrition that may occur following this reduction, which could disrupt our
operations. In addition, we may not achieve anticipated benefits and savings from the reduction.
In June 2019, we authorized the implementation of a restructuring of our organization, including a 20% reduction in headcount, designed to focus our cash resources on commercializing Xerava primarily in the hospital setting. The restructuring, and the attrition thereafter, resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect our o
perations. Given the complexity
and nature of our business, we must continue to implement and improve our managerial, operational and financial systems, manage our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the restructuring described above and additional measures we may take to reduce costs. As a result, our management may need to divert a disproportionate amount of its attention away from our day-to-day strategic and operational activities, and devote a substantial amount of time to managing these organizational changes. Further, the restructuring and possible additional cost containment measures may yield unintended consequences, such as attrition beyond our intended reduction in headcount and reduced employee morale. In addition, the restructuring may result in employees who were not affected by the reduction in headcount seeking alternate employment, which would result in us seeking contract support at unplanned additional expense. In addit
ion, we may not achieve anticipated benefits from the restructuring. Due to our limited resources, we
may not be able to
effectively manage our operations or recruit and retain qualified personnel
, which may result in weaknesses in our infrastructure and o
perations, risks
that we
may not be able
to comply with legal and regulatory requirements, loss of business opportunities, loss of employees and reduced productivity among remaining employees. We may also determine to take additional measures to reduce cos
ts, which could result in further disruptions to our operations and present additional challenges to the effective management of our company. If our management is
unable to effectively manage this transition and restructuring and additional cost containment measures, our expenses may be more than expected, and we may not be able to implement our business strategy.
The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.
Although our operations are based in the United States, we conduct business outside the United States and expect to continue to do so in the future. For instance, many of the sites at which our clinical trials are or may be conducted are outside the United States. In addition, we plan to seek approvals to sell our products in foreign countries. Any business that we conduct outside the United States will be subject to additional risks that may materially adversely affect our ability to conduct business in international markets, including:
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potentially reduced protection for intellectual property rights;
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the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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workforce
uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting a product candidate being developed by a future collaborator and/or finished drug product supply or manufacturing capabilities abroad;
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business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and
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failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act.
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Our internal computer systems, or those of any collaborators, contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs or overall business operations.
Our internal computer infrastructure and those of any collaborators, contractors or consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. In June 2019, we experienced unauthorized access to an employee’s e-mail. We continue to investigate this security breach. While this event did not cause an interruption in our operations any future event could result in a material disruption of our business operations, whether due to a loss of our trade secrets or other proprietary information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our competitive position could be harmed, and the further development and commercialization of our product candidates by future collaborators could be delayed or halted.
Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financial information or data accurately, or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
Risks Related to Our Common Stock
If we
fail to meet the requirements for continued listing on the Nasdaq Global Select Market, our common stock could be delisted from trading, which would decrease the liquidity of our common stock
and our ability to raise additional capital.
Our common stock is currently listed for quotation on the Nasdaq Global Select Market. We are required to meet specified requirements in order to maintain our listing on the Nasdaq Global Select Market, including, among other things, a minimum bid price of $1.00 per share. On June 24, 2019, we received a deficiency letter from the Listing Qualifications Department, or the Staff, of the Nasdaq Stock Market notifying us that, for the last 30 consecutive business days, the bid price for our common stock had closed below the mini
mum $1.00 per share requirement for continued inclusion on the Nasdaq Global Select Market. We have been provided an initial period of 180 calendar days, or until December 23, 2019, to regain compliance with the listing requirements. If,
at any time before
December 23, 2019, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days,
we may be eligible to regain compliance with the minimum bid requirement. Under certain circumstances, Nasdaq could require that the minimum bid price exceed $1.00 for more than ten consecutive days before determining that we comply with Nasdaq’s continued listing standards.
If we fail to satisfy the Nasdaq Global Select Market’s continued listing requirements, we may transfer to th
e Nasdaq Capital Market, which generally has lower financial requirements for initial listing, to avoid delisting, or,
if we fail to meet its listing requirements, the OTC Bulletin Board. A transfer of our listing to the Nasdaq Capital Market or having our
common stock trade on the OTC Bulletin Board
could adversely affect the liquidity of our common stock. Any such event could make it more difficult to
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dispose of, or obtain accurate quotations for the price of, our common stock, and there also would likely
be a reduction in our coverage by securities analysts and the news media
, which could
cause the price of our common stock to decline further. We may also face other material adverse consequences in such event, such as negative publicity, a decreased
abili
ty to
obtain additional financing, diminished investor and/or employee confidence, and the loss of business development opportunities, some or all of which may contribute to a further decline in our stock price.
There are many factors that may adversely affect our minimum bid price, including those described throughout this section titled “Risk Factors”. Many of these factors are outside our control. As a result, we may not be able to sustain compliance with the minimum bid price rule in the long term. Any potential delisting of our common stock from the Nasdaq Global Select Market would likely result in decreased liquidity and increased volatility for our common stock and would adversely affect our ability to raise additional capital or enter into strategic transactions. Any potential delisting of our common stock from the Nasdaq Global Select Market would also make it more difficult for our stockholders to sell our common stock in the public market.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of our common stock.
Our stock price may be volatile. The stock market in general and the market for smaller pharmaceutical and biotechnology companies in particular have experience
d extreme volatility that has often been unrelated to the operating performance of particular companies. For example, our stock traded within a range of a high price of $52.90 per share and a low price of $0.32 per share for the period beginning March 20, 2013, our first day of trading on the Nasdaq Global Select Market,
through August 6, 2019
. As a result of this volatility, investors may not be able to sell their common stock at or above the prices they paid for it. The market price for our common stock may be influenced by many factors, including:
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revenues related to Xerava;
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the filing and approval of marketing applications for our product candidates by future collaborators;
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the timing and results
of clinical trials of any
product candidates that we licen
se to third parties;
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regulatory actions by the FDA or equivalent authorities in foreign jurisdictions with respect to Xerava and any product candidate
that we license
to a third party;
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failure or discontinuation of any development programs of our future collaborators;
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the success of existing or new competitive products or technologies;
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results of clinical trials of product candidates of our competitors;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning patent applications, issued patents or other proprietary rights;
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the recruitment or departure of key personnel;
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the results of our efforts to out-license our product candidates;
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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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announcement or expectation of additional financing efforts or licensing or other strategic transactions;
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sales of our common stock by us, our insiders or other stockholders;
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variations in our financial results or those of companies that are perceived to be similar to us;
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changes in estimates or recommendations by securities analysts, if any, that cover our stock;
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changes in the structure of healthcare payment systems;
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market conditions in the pharmaceutical and biotechnology sectors;
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general economic, industry and market conditions; and
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the other factors described in this “Risk Factors” section.
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We have been, currently are and may again be subject to class action litigation and have been and
may again be subject to shareholder derivative litigation, which could distract our management and could result in substantial costs or large judgments against us.
The stock market frequently experiences extreme price and volume fluctuations. We have experienced significant declines in our stock price following our announcements that IGNITE2 and IGNITE3, our phase 3 clinical trials for Xerava for the treatment of patients with cUTI, did not meet the primary endpoints of those trials. In addition, the market prices of securities of companies in the biotechnology and pharmaceutical industry have been extremely volatile and have experienced fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. These fluctuations could adversely affect the market price of our common stock. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market prices of their securities. For instance, in Janu
ary 2016 and March 2016, two class action lawsuits were filed against us, our chief executive officer and certain former executives in the United States District Court for the District of Massachusetts. These cases were subsequently consolidated. The court dismissed the consolidated cases in May 2017 and in November 2017, the plaintiffs withdrew a pending appeal in the United States Court of Appeals for the First Circuit.
In addition, in May 2016, a shareholder derivative action was filed against our chief executive officer, certain former executive officers, all the members of our current board of directors, a former board member, and against us as nominal defendant, in Massachusetts Superior Court (Suffolk County). This case was subsequently dismissed by the court without prejudice due to the plaintiff’s failure to properly perfect service of process.
Furthermore, in July 2018 a class action lawsuit was filed against us, or chief executive officer, our chief scientific officer and other third parties in the United States District Court for the Southern District of New York in connection with the failure of IGNITE3 to meet its co-primary endpoints. This case has subsequently been moved to the United States District Court for the District of Massachusetts.
In August 2019, the United States District Court for the District of Massachusetts granted an unopposed motion for the appointment of a lead plaintiff.
Due to the volatility in our stock price, we may be the target of similar litigation in the future.
In conn
ection with our current litigation and any such future litigation, we could incur substantial costs and such costs, and any related settlements or judgments, may not be covered by insurance. We could also suffer an adverse impact on our reputation and a diversion of management’s attention and resources, which could cause serious harm to our business, operating results and financial condition.
An active trading market for our common stock may not be sustained.
Although we have listed our common stock on the Nasdaq Global Select Market, an active trading market for our common stock may not be sustained. In the absence of an active trading market for our common stock, investors may not be able to sell their common stock at or above the price at which they acquired the common stock or at the times that they would like to sell. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend 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. There can be no assurance that analysts will cover us, or provide favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if one or more 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 share price or trading volume to decline.
We have broad discretion in the use of our cash reserves and may not use them effectively.
Our management has broad discretion to use our cash reserves and could spend these reserves in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our products and product candidates. Pending their use, we may invest our cash reserves in a manner that does not produce income or that loses value.
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Failure to maintain effective
internal controls in accordance with Section 404 of the Sarbanes-Oxley Act in the future could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us, on an annual basis, to review and evaluate our internal controls. To maintain compliance with Section 404, we are required to document and evaluate our internal control over financial reporting, which has been both costly and challenging. We will need to continue to dedicate internal resources, continue to engage outside consultants and follow a detailed work plan to continue to assess and document the adequacy of internal control over financial reporting, continue to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. There is a risk that in the future neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future; accordingly, stockholders must rely on capital appreciation, if any, for any return on their investment.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the operation, development and growth of our business. The terms of the Loan Agreement precluded us from paying dividends, and any future debt agreements may also preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for our stockholders for the foreseeable future.
Provisions in our corporate 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 corporate charter and our by-laws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified board of directors such that all members of the board are not elected at one time;
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allow the authorized number of our directors to be changed only by resolution of our board of directors;
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limit the manner in which stockholders can remove directors from the board;
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establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings;
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require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
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limit who may call a special meeting of stockholder meetings;
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authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
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require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or by-laws.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. This could discourage, delay or prevent someone from acquiring us or merging with us, whether or not it is desired by, or beneficial to, our stockholders.
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