ITEM 1. BUSINESS
Overview
ViroPharma Incorporated is an international biotechnology company dedicated to the development and commercialization of novel solutions
for physician specialists to address unmet medical needs of patients living with diseases that have few if any clinical therapeutic options including therapeutics for rare and orphan diseases. We
intend to grow through sales of our marketed products, through continued development of our product pipeline, through expansion of sales into additional territories outside the United States, through
potential acquisition or licensing of products and product candidates and the acquisition of companies. We expect future growth to be driven by sales of Cinryze for hereditary angioedema (HAE), both
domestically and internationally, sales of Plenadren for treatment of adrenal insufficiency (AI) and Buccolam in Europe for treatment of paediatric seizures, and by our development programs, including
C1 esterase inhibitor [human], maribavir for cytomegalovirus (CMV) infection, VP20621 for the prevention of recurrent
C.
difficile-
associated diarrhea (CDAD) and VP20629 for the treatment of Friedreich's Ataxia (FA).
The
following chart generally describes our approved products:
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Product
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Marketplace
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Disease
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Program Indication
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Product Status
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CinryzeIV
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US
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HAE
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Prophylaxis
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Marketed
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CinryzeIV
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EU
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HAE
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Prophylaxis, pre-procedural and acute
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Marketed
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Buccolam
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EU
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Pediatric Epilepsy
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Treatment
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Marketed
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Plenadren
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EU
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AI
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Treatment
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Marketed
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Vancocin
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US
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CDAD
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Treatment
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Marketed
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We
market and sell Cinryze in the United States for routine prophylaxis against angioedema attacks in adolescent and adult patients with HAE. Cinryze is a C1 esterase inhibitor therapy
for routine prophylaxis against HAE, also known as C1 inhibitor (C1-INH) deficiency, a rare, severely debilitating, life-threatening genetic disorder. We acquired rights to
Cinryze for the United States in October 2008 and in January 2010, we acquired expanded rights to commercialize Cinryze and future C1-INH derived products in certain European countries and
other territories throughout the world as well as rights to develop future C1-INH derived products for additional indications and new formulations. In June 2011, the European Commission
(EC) granted us Centralized Marketing Authorization for Cinryze® in adults and adolescents with HAE for routine prevention, pre-procedure prevention and acute treatment of
angioedema attacks. The approval also includes a self administration option for appropriately trained patients. We have begun to commercialize Cinryze in Europe and continue to evaluate our
commercialization opportunities in countries where we have distribution rights.
We
acquired Buccolam® (Oromucosal Solution, Midazolam [as hydrochloride]) in May 2010. In September 2011, the EC granted a Centralized Paediatric Use
Marketing Authorization (PUMA) for Buccolam, for treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents, from 3 months to less than 18 years of
age. With the grant of the PUMA, we began to commercialize Buccolam in Europe.
On
November 15, 2011, we acquired worldwide rights to Plenadren® (hydrocortisone, modified release tablet) for treatment of AI. The acquisition of Plenadren further
expanded our orphan disease commercial product portfolio. On November 3, 2011, the EC granted European Marketing Authorization for Plenadren, an orphan drug for treatment of adrenal
insufficiency in adults, which will bring these patients their first pharmaceutical innovation in over 50 years. We are in the process of launching Plenadren in various countries in Europe and
a named patient program is available to
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patients
in countries in which we have not launched Plenadren commercially. We are currently conducting an open label trial with Plenadren in Sweden and have initiated a registry study that was
required as a condition of approval in Europe. We also are currently exploring commercialization opportunities in additional geographies including the United States.
We
also sell branded and authorized generic Vancocin HCl capsules, the oral capsule formulation of vancomycin hydrochloride, in the U.S. and its territories. Vancocin is indicated for
the treatment of CDAD. Vancocin capsules are also used for the treatment of enterocolitis caused by
Staphylococcus aureus
, including
methicillin-resistant strains.
Our
product development portfolio is primarily focused on the following programs: C1 esterase inhibitor [human], maribavir for cytomegalovirus (CMV) infection,
VP20621 (prevention of recurrent CDAD) and VP20629 (treatment of Friedreich's Ataxia).
The
following chart generally describes our investigational products:
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Product
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Marketplace
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Disease
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Proposed Indication
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Product Status
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C1 esterase inhibitor [human]IV
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ROW*
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HAE
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Prophylaxis, pre-procedural and acute
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Filing/Pre-filing
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C1 esterase inhibitor [human]subcutaneous administration
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Worldwide
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HAE
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Prophylaxis
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Phase 2
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C1 esterase inhibitor [human]antibody-mediated rejection
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Worldwide
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AMR
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Treatment
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Phase 2
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C1 esterase inhibitor [human]IV
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Worldwide
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Additional indications under evaluation
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Preclinical
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maribavir
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Worldwide (other than Japan)
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CMV
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Treatment
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Phase 2
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Non-toxigenic strain of C. difficile (VP20621)
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Worldwide
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CDAD
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Prevention
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Phase 2
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VP20629
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Worldwide
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FA
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Treatment
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Phase 1
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-
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ROW
is defined in the Business Development and Strategic Relationships section of this document.
We are currently undertaking studies on the viability of subcutaneous administration of Cinryze. In May 2011, Halozyme Therapeutics Inc.
(Halozyme) granted us an exclusive worldwide license to use Halozyme's proprietary Enhanze technology, a proprietary drug delivery platform using Halozyme's recombinant human
hyaluronidase enzyme (rHuPH20) technology, in combination with a C1 esterase inhibitor which we intend to apply initially to develop a subcutaneous formulation of Cinryze for routine prophylaxis
against attacks of HAE. In the first quarter of 2012, we completed a Phase 2 study to evaluate the safety, and pharmacokinetics and pharmacodynamics of subcutaneous administration of Cinryze in
combination with rHuPH20 and announced the presentation of positive data. In December 2012, we initiated a Phase 2b double blind, multicenter, dose ranging study to evaluate the safety and
efficacy of subcutaneous administration of Cinryze® (C1 esterase inhibitor [human]) in combination with PH20 in adolescents and adults with HAE for prevention of
HAE attacks. We will continue to evaluate the subcutaneous administration of Cinryze as a standalone therapy. We are also investigating a recombinant forms of C1-INH.
Additionally,
we are working on developing our C1 esterase inhibitor in further therapeutic uses and potential additional indications in other C1 mediated diseases. We intend to support
Investigator Initiated Studies (IIS) to identify further therapeutic uses for Cinryze. An IIS evaluating C1 INH as a
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treatment
for Autoimmunie Hemolytic Anemia (AIHA) and Neuromyelitis Optica (NMO) were initiated in 2012. We are also sponsoring a clinical trial in Antibody-Mediated Rejection (AMR) and are
evaluating, the potential effect of C1-INH in Refractory Parozysmal Nocturnal
Hemoglobinuria and may conduct clinical and non-clinical studies to evaluate additional therapeutic uses in the future.
During
the second quarter of 2012, we announced the initiation of a Phase 2 program to evaluate maribavir for the treatment of CMV infections in transplant recipients. The program
consists of two independent Phase 2 clinical studies that include subjects who have asymptomatic CMV, and those who have failed therapy with other anti-CMV agents
(resistant/refractory study). During the third quarter of 2012 and first quarter of 2013, we presented interim data from the Phase 2 open label clinical study being conducted in Europe
evaluating maribavir as a treatment for patients with asymptomatic cases of CMV. Results from this study, as well as data from a second Phase 2 open label study of maribavir as a treatment for
patients with resistant or refractory cases of CMV, will periodically be evaluated.
We
are also developing VP20621 for the prevention of recurrent CDAD. In May 2011, we initiated a Phase 2 dose-ranging clinical study to evaluate the safety,
tolerability, and efficacy of VP20621 for prevention of recurrence of CDAD in adults previously treated for CDAD. We presented interim data from this study during the third quarter of 2012. We closed
enrollment of patients in December 2012 and anticipate having the complete dataset in 2013.
On
September 30, 2011, we entered into a license agreement with Intellect Neurosciences, Inc. (INS) for the worldwide rights to its clinical stage drug candidate, VP20629,
which we expect to develop for the treatment of Friedreich's Ataxia (FA), a rare, hereditary, progressive neurodegenerative disease. VP20629, or indole-3-propionic acid, is a
naturally occurring, small molecule that has potent anti-oxidant properties that can protect against neurodegenerative disease. In a Phase 1 safety and tolerability study conducted
in the Netherlands, VP20629 was demonstrated to be safe and well tolerated at all dose levels tested. We expect to initiate a single and repeat dose phase 1 study in patients in 2013 and expect
to initiate a subsequent phase 2 study after completion of the phase1 study. Following completion of the phase 2 study, a phase 3 study is planned. We intend to file for Orphan
Drug Designation upon review of the Phase 2 proof of concept data.
On
December 22, 2011, we entered into an exclusive development and option agreement with Meritage Pharma, Inc. (Meritage) , a private company based in San Diego, CA focused
on developing oral budesonide suspension (OBS) as a treatment for eosinophilic esophagitis (EoE). EoE is a newly recognized chronic disease that is increasingly being diagnosed in children and adults.
It is characterized by inflammation and accumulation of a specific type of immune cell, called an eosinophil, in the esophagus. EoE patients may have persistent or relapsing symptoms, which include
dysphagia (difficulty in swallowing), nausea, stomach pain, chest pain, heartburn, loss of weight and food impaction.
We
intend to continue to evaluate in-licensing or other opportunities to acquire products in development, or those that are currently on the market. We plan to seek products
that treat serious or life threatening illnesses with a high unmet medical need, require limited commercial infrastructure to market, and which we believe will provide both revenue and earnings growth
over time.
We
were incorporated in Delaware in September 1994 and commenced operations in December 1994. Our executive offices are located at 730 Stockton Drive, Exton, Pennsylvania 19341, our
telephone number is 610-458-7300 and our website address is www.viropharma.com. Information contained on our website is not incorporated into this Annual Report on
Form 10-K or any other filings we make with the SEC.
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Marketed Products
The FDA granted approval for Cinryze in October 2008 for routine prophylaxis against attacks in adolescent and adult patients with HAE.
In June 2011, the EC granted us Centralized Marketing Authorization for Cinryze in adults and adolescents with HAE for routine prevention, pre-procedure prevention and acute treatment of
angioedema attacks. HAE is a genetic disorder characterized by episodes of edema (swelling) in the extremities, face, abdomen, and airway passages. The majority of patients have episodes of severe
abdominal pain, nausea and vomiting that is caused by swelling in the intestinal wall. Attacks that involve the face and throat must be taken seriously and medical treatment should be sought without
delay. Swelling of the throat can close the air passage and cause death by suffocation. The mortality rate from untreated airway obstruction has been reported to be over 40% with death most frequently
caused by asphyxiation due to airway closure. The course of the disease is diverse and unpredictable, even within a single patient over his or her lifetime. Swelling caused by HAE usually lasts for
24-72 hours, but the length of an attack can range from four hours to four days. On average, patients experience approximately one attack per month, but the frequency is highly
variable.
HAE
is caused by a defective gene for C1 inhibitor (C1-INH), and this defect is passed on in families, such that a child has a 50% chance of inheriting this disease if one
parent is affected. The absence of family history, however, does not rule out HAE diagnosis, and as many as 20% of HAE cases involve patients who appear to have had a spontaneous mutation of the
C1-INH gene. This genetic defect results in the production of either inadequate levels or poorly functioning C1-INH protein.
C1-INH
is a normal constituent of human blood and primarily regulates activation of key inflammatory and coagulation biochemical pathways, specifically the contact and
complement pathways in addition to the fibrinolytic system. Regulation of these systems is performed through the formation of complexes between pathway proteinase enzyme and C1-INH,
resulting in inactivation of both and consumption of C1-INH. HAE patients have low levels of endogenous or functional C1-INH. Although the events that induce angioedema attacks
in HAE patients are not well defined, it is thought that increased blood vessel permeability leading to swelling and the clinical manifestations of HAE attacks are mediated primarily through contact
system activation. Administration of Cinryze increases plasma levels of C1-INH activity. Increased levels of functional C1-INH are thought to suppress contact system activation
through the inactivation of plasma kallikrein and factor XIIa, preventing the generation of bradykinin, a natural peptide thought to be responsible for modulation of blood vessel permeability.
Because
HAE is rare and has a wide variability in disease expression, it is not uncommon for patients to remain undiagnosed or misdiagnosed for many years. Many patients report that
their frequent and severe abdominal pain was inappropriately diagnosed as psychosomatic. Although rare, HAE is a disease with potentially catastrophic consequences for those affected. Aside from the
potentially fatal acute respiratory compromise, unnecessary exploratory surgery has been performed on patients experiencing gastrointestinal edema because abdominal HAE attacks mimic conditions
requiring surgery.
Traditionally,
HAE has been classified into two types (I and II). The most common form of the disease, Type I, is characterized by low levels of C1-INH and affects
about 85% of patients, whereas Type II HAE affects 15% of patients and is characterized by poorly functioning C1-INH. A third type of HAE has been identified in which the abnormal
C1-INH protein binds to albumin, effectively reducing the amount of functional C1-INH.
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Therapeutic Approaches of HAE
Treatment of HAE can be categorized as: (i) mitigation or acute treatments to remedy the symptoms of infrequent episodic acute
attacks; and (ii) preventive or
prophylactic treatments for patients severely affected by HAE. Current therapies primarily focus upon treating the symptoms of an acute attack. Two therapeutic agents that can be used for treatment of
acute attacks were approved by the FDA in 2009, a kallikrein inhibitor and a C1-INH. Additionally, in August 2011, the FDA approved a self-administered icatibant for treatment
of acute attacks of HAE in adults 18 years of age and older. For swelling of the intestinal wall, which can cause debilitating pain, narcotics such as morphine and antiemetics for nausea are
often given. In January 2012, the FDA approved a label expansion for the self administration of a competitor's C1-INH for facial and abdominal attacks and also indicates it to treat
life-threatening laryngeal HAE attacks. For severe laryngeal swelling, which can be life threatening, rescue therapy such as intubation or tracheotomy may be required. The use of fresh
frozen plasma, which contains C1-INH but which also contains a wide variety of other factors that may activate multiple inflammatory pathways and exacerbate an attack, is also used in some
instances.
Cinryze
is the only FDA approved C1-INH product for prevention of HAE attacks. Prior to the approval of Cinryze, patients who experience more than one attack per month have
historically been treated with anabolic steroids that reduce the frequency of attacks of edema. The most commonly used steroids are alpha-alkylated androgens. Use of such anabolic steroids can have
numerous side effects ranging from hepatotoxicity (liver toxicity), virilization (development of male sexual characteristics in a female), weight gain, acne and hirsutism (unwanted hair growth).
The
FDA granted Cinryze seven years of marketing exclusivity for routine prophylaxis of HAE upon FDA approval in October 2008 pursuant to the Orphan Drug Act.
C1-INH
concentrate has been marketed to HAE patients for acute treatment in Europe for more than 25 years. Our ability to compete in this marketplace is contingent
upon our success in differentiating Cinryze IV over existing CI-INH products.
In May 2010, we acquired Buccolam® (Oromucosal Solution, Midazolam [as hydrochloride]). In
September 2011, the European Commission granted a Centralized Pediatric Use Marketing Authorization (PUMA) for Buccolam, for treatment of prolonged, acute, convulsive seizures in infants, toddlers,
children and adolescents, from three months to less than 18 years of age. With the grant of the PUMA we began to commercialize Buccolam in Europe.
Seizures
occur because of sudden and abnormal electrical activity in the brain. There are many causes of seizures affecting pediatric patients; many are the result of epilepsy, but other
triggers can include medicines, head injuries, certain diseases, and high fevers (called 'febrile seizures'). Febrile seizures are
the most common type of seizure in children; approximately one in every 25 children will have at least one febrile seizure, and more than one-third of these children will have additional
febrile seizures before they outgrow the tendency to have them. Epilepsy is among the most common childhood neurological disorders in developed countries, affecting nearly one percent of the
population. There are approximately six million people affected by epilepsy in Europe; nearly one million European children and adolescents have active epilepsy. Epilepsy commonly causes physical
manifestations including neurological and muscle destruction and degradation of renal function, as well as numerous negative cognitive, behavioral and neurological effects. Seizures can last from a
few seconds to several minutes or longer in some cases. If left untreated, seizures can lead to status epilepticus (SE) and patients may require hospitalization and intensive care.
Buccolam
is oromucosal midazolam provided in an individual dose formulation for buccal delivery. It is provided as a convenient, portable, ready to use, pre-filled oral
syringe containing an age-specific
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dose.
Buccolam is approved throughout the European Union and the EEA for treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents, from three months to less
than 18 years of age. Buccolam must only be used by parents/carers where the patient has been diagnosed to have epilepsy.
On November 15, 2011, we acquired the worldwide rights to Plenadren® (hydrocortisone, modified release tablet) for
treatment of adrenal insufficiency (AI). The acquisition of Plenadren further expanded our orphan disease commercial product portfolio. On November 3, 2011, the EC granted European Marketing
Authorization for Plenadren, an orphan drug for treatment of adrenal insufficiency in adults, which will bring these patients their first pharmaceutical innovation in over 50 years. We are in
the process of launching Plenadren in various countries in Europe and a named patient program is available to patients in countries in which we have not launched Plenadren commercially. We are
currently conducting an open label trial with Plenadren in Sweden and have initiate a registry study as a condition of approval in Europe. We also are currently exploring commercialization
opportunities in additional geographies including the United States.
Plenadren
is a dual release hydrocortisone replacement therapy designed to better mimic the normal physiological cortisol profile in order to improve outcomes for patients suffering from
adrenal
insufficiency. Plenadren is given as an oral tablet once daily. It has an outer layer releasing hydrocortisone immediately and an inner core releasing the rest of the drug more slowly during the day.
AI
is a disorder caused by dysfunction of the adrenal gland resulting in low levels of the hormone cortisol, which normally follows a circadian rhythm and regulates many critical body
functions. To survive, AI patients need replacement therapy with glucocorticoids (usually hydrocortisone). Primary AI is referred to as Addison's disease, which affects up to 15 in every 100,000
people. Common symptoms of Addison's disease include fatigue, muscle weakness, fever, weight loss, difficulty in standing up, changes in personality, and gastrointestinal involvement. Severe adrenal
insufficiency, which can manifest as shock (very low blood pressure with loss of consciousness), dehydration, and imbalance of sodium and potassium levels, can be life threatening. These cases of
adrenal crisis (sometimes called 'Addisonian crisis') can occur after a significant stress such as infection or trauma, and can be fatal if not promptly diagnosed and treated with glucocorticoid
therapy. To maintain a reasonable quality of life, these patients rely on cortisol replacement therapy. Because it is a chronic condition, these patients require this therapy throughout their entire
lives.
In November 2004, we acquired all rights in the U.S. and its territories to manufacture, market and sell Vancocin, as well as rights to
certain related vancomycin products, from Eli Lilly and Company (Lilly). Lilly retained its rights to Vancocin outside of the U.S. and its territories. Vancocin is indicated for the treatment of
C. difficile-
associated diarrhea (CDAD). Vancocin also is used for the treatment of enterocolitis caused by Staphylococcus aureus (including
methicillin-resistant strains). Both are potentially serious infections of the gastrointestinal (GI) tract.
S. aureus
enterocolitis is rare;
accordingly, CDAD is the indication that accounts for the significant majority of Vancocin's use.
CDAD
is an infection of the GI tract. The clinical manifestations, ranging from diarrhea to toxic megacolon and sometimes death, are a result of toxins produced by the bacterium that
cause inflammation in the colon. Hospitalized patients, those residing in long-term care centers, those greater than 65 years of age, and patients that have received broad-spectrum
antibiotic therapy, are at greatest risk to acquire CDAD.
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Historically,
metronidazole has been commonly used as first-line treatment for CDAD, while Vancocin has been reserved for those patients who have failed metronidazole, have
recurrent disease, or who are suffering from severe CDAD. In May 2011, FDA approved Optimer Pharmaceuticals' product, Dificid® (fidaxomicin), for the treatment of CDAD. On April 9,
2012, the FDA denied the citizen petition we filed on March 17, 2006 related to the FDA's proposed in vitro method for determining bioequivalence of generic versions of Vancocin (vancomycin
hydrochloride, USP) capsules. The FDA also informed us in the same correspondence that the recent supplemental new drug application (sNDA) for Vancocin which was approved on December 14, 2011
would not qualify for three additional years of exclusivity, as the agency interpreted Section 505(v) of the FD&C Act to require a showing of a significant new use (such as a new indication)
for an old antibiotic such as Vancocin in order for such old antibiotic to be eligible for a grant of exclusivity. FDA also indicated that it approved three ANDA's for generic vancomycin capsules and
the companies holding these ANDA approvals indicated that they began shipping generic vancomycin hydrochloride, USP. In June 2012, the FDA approved a fourth ANDA for generic vancomycin capsules.
We
granted a third party a license under our NDA for Vancocin to distribute and sell vancomycin hydrochloride capsules as an authorized generic product. We are also obligated to pay
Genzyme royalties of 10 percent, 10 percent and 16 percent of our net sales of Vancocin for the three year period following the approval of the sNDA as well as a lower royalty on
sales of our authorized generic version of Vancocin in connection with our purchase of exclusive rights to two studies of Vancocin.
Product Pipeline
Our product development portfolio is primarily focused on four programs: Cinryze (C1 esterase inhibitor
[human]) for management of hereditary angioedema, maribavir for cytomegalovirus (CMV) infection, VP 20621 for the management of CDAD and VP20629, which we expect to develop for
the treatment of Friedreich's Ataxia. We are also working on developing alternative modes of administration for Cinryze and additional therapeutic uses for C1 esterase inhibitor in other
complement-mediated diseases.
HAE Program
In January 2010, we obtained expanded rights to commercialize Cinryze in certain countries in Europe and ROW as well as rights to
develop future C1-INH derived products for additional indications. We continue to evaluate our commercialization plans in countries outside of the United States and Europe where we have
distribution rights. We are currently in the process of identifying the steps necessary to launch in other territories where we have distribution rights and have made regulatory filings in several
countries.
We are currently evaluating the feasibility of other (non-IV) formulations and modes of administration for Cinryze. We have
conducted a Phase 1 study utilizing subcutaneous administration of Cinryze, and results of this study supported the conduct of a Phase 2 study. In October 2010, we announced the
completion of enrollment in this Phase 2 study which is designed to evaluate the safety, pharmacokinetics and pharmacodynamics of subcutaneous versus intravenous administration of Cinryze in
adolescent and adult subjects with HAE.
In
the first quarter of 2012, we completed a Phase 2 study to evaluate the safety, and pharmacokinetics and pharmacodynamics of subcutaneous administration of Cinryze in
combination with rHuPH20 and announced the presentation of positive data. In December 2012, we initiated a Phase 2b double blind, multicenter, dose ranging study to evaluate the safety and
efficacy of
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subcutaneous
administration of Cinryze (C1 esterase inhibitor [human]) in combination with PH20 in adolescents and adults with HAE for prevention of HAE attacks. We will
continue to evaluate a subcutaneous formulation of Cinryze as a standalone therapy. We are also investigating a recombinant form of C1-INH.
Additionally,
we are working on developing our C1 esterase inhibitor in further therapeutic uses and potential additional indications in other C1 mediated diseases. We intend to support
IISs to identify further therapeutic uses for Cinryze. An IIS evaluating C1 INH as a treatment for Autoimmune
Hemolytic Anemia (AIHA) and Neuromyelitis Optica (NMO) were initiated in 2012. We are also sponsoring a clinical trial in Antibody-Mediated Rejection (AMR) and are evaluating, the potential effect of
C1-INH in Refractory Parozysmal Nocturnal Hemoglobinuria (PNH) and may conduct clinical and non-clinical studies to evaluate additional therapeutic uses in the future.
CMV Program
On June 4, 2012, we announced the initiation of a Phase 2 program to evaluate maribavir for the treatment of CMV in
transplant recipients. The program will consist of two independent Phase 2 clinical studies that will include subjects at different ends of the spectrum of CMV infection or disease, namely
those who have asymptomatic CMV, and those who have failed therapy with other anti-CMV agents. The first study, a randomized, dose blinded multicenter Phase 2 study intended to
enroll up to 160 subjects (recipients of either hematopoietic stem cell or solid organ transplant) who have demonstrated CMV viremia but do not have CMV organ disease. The study is being conducted at
multiple transplant centers in countries in Europe.
The
second study, a randomized, dose blinded multicenter Phase 2 study intended to enroll up to 120 subjects (recipients of either hematopoietic stem cell or solid organ
transplant) who have demonstrated CMV viremia with or without CMV organ disease. All subjects will have failed to have an adequate virologic response to prior treatment with ganciclovir,
valganciclovir, or foscarnet, and may have documented viral genetic resistance to any of these anti-CMV agents. The study is being conducted at multiple transplant centers in the United
States.
Maribavir
was granted U.S. Orphan Drug Designation in May 2011 for treatment of clinically significant cytomegalovirus viremia and disease in at-risk patients. Maribavir, a
member of a new class of drugs called benzimidazole ribosides, is a potent and selective, orally bioavailable antiviral drug with a unique mechanism of action against cytomegalovirus and a favorable
clinical safety profile. Unlike currently available anti-CMV agents that inhibit CMV DNA polymerase, maribavir inhibits viral DNA assembly and inhibits egress of viral
capsids from the nucleus of infected cells. Maribavir is active
in vitro
against strains of CMV that are resistant to commonly used anti-CMV
drugs. The previous focus of clinical development of maribavir as an anti-CMV agent was on the prevention of CMV disease in transplant patients. Results from Phase 3 studies
indicated that maribavir at a dose of 100mg BID failed to meet its efficacy endpoints; however, maribavir has demonstrated a favorable safety and tolerability profile in all clinical
studies to date. While Phase 3 studies of CMV prophylaxis at the 100mg BID dose did not show sufficient activity to prevent CMV disease, the overall safety profile of maribavir and limited data
from cases in which open-label maribavir was used as CMV treatment suggest that higher doses may provide clinical activity.
CMV
is a member of the herpes virus group, which includes the viruses that cause chicken pox, mononucleosis, herpes labialis (cold sores), and herpes genitalis (genital herpes). Like
other herpes viruses, CMV has the ability to remain dormant in the body for long periods of time. Human CMV infection rates average between 50 percent and 85 percent of adults in the
U.S. by 40 years of age, but in healthy adults causes little to no apparent illness. However, in immunocompromised individuals including cancer patients, HIV patients, and transplant patients,
and in children born with primary
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CMV
infection, CMV can lead to serious disease or death. Patients who are immunosuppressed following hematopoietic stem cell (bone marrow) or solid organ transplantation are at high risk of CMV
infection. In these patients, CMV can lead to severe conditions such as pneumonitis or hepatitis, or to complications such as acute or chronic rejection of a transplanted organ. While currently
available systemic anti-CMV agents are effective against the virus, their use is limited by toxicities, most notably bone marrow suppression and renal impairment.
CDAD Program
In February 2006, we announced that we had entered into a licensing agreement with Dr. Dale Gerding, of the Hines VA, for the
rights to develop a non-toxigenic strain of
C. difficile
(VP20621) for the treatment and prevention of CDAD. Under the license agreement, we
are required to make royalty payments to Dr. Gerding based on a low single digit percentage of our net sales of the product. If certain milestones are achieved, we will be obligated to pay
Dr. Gerding additional milestone payments, if and when, certain regulatory developments are achieved, in an aggregate amount equal to $850,000 in total, with no single milestone payment
exceeding $250,000. The license agreement will remain in effect for ten years from the date
any product is first commercialized, on a country-by-country basis, unless earlier terminated. The agreement contains a standard early termination provision which provides for
early termination by either party in the event certain conditions have occurred, including, but not limited to, either party's breach of the agreement, either party's filing for bankruptcy or either
party making an assignment for the benefit of its creditors.
We
plan to initially focus our efforts on the opportunity to prevent recurrence of CDAD, using oral administration of VP20621 spores. According to published literature, approximately 20
to 30 percent of patients suffering from CDAD will have at least one episode of relapse of disease. The goal of this VP20621 program is to prevent such recurrence of disease using a novel
non-antibiotic approach. The underlying concept of this approach is to first treat the disease with an effective product like Vancocin and eradicate the dangerous toxin-producing
C. difficile
which
causes severe CDAD. The treated patient could potentially then be dosed with oral VP20621 to re-colonize the GI tract and
prevent the pathogenic
C. difficile
bacteria from re-infecting the colon until normal GI flora returns and the patient is no longer
susceptible to disease.
In
September 2010, we announced results of a completed Phase 1 study which was designed to determine the safety and tolerability of VP20621 dosed orally as single and repeat
escalating doses in healthy young (18 to 45 years of age) and older (60 years of age and older) adults. After VP20621 was shown to be generally well tolerated following single and repeat
doses in younger and older healthy subjects, we also performed repeat dosing in older adults following exposure to oral antibiotic. Subjects above 60 years of age were pre-dosed
with oral vancomycin to disrupt their gastrointestinal flora and render them potentially susceptible to
C. difficile
colonization; these subjects were
subsequently given either placebo or VP20621 doses of 10(4), 10(6), or 10(8) spores once daily for 14 days. The study demonstrated that VP20621 was generally well tolerated at all dose levels;
there were no serious or severe adverse events, and no discontinuations from study drug due to adverse events. All 27 volunteers (100%) who were given VP20621 had positive non-toxigenic
C. difficile
stool cultures by day 6, suggesting that VP20621 rapidly colonizes the susceptible GI tract. No subject dosed with VP20621 tested positive
for toxin-producing strains of
C. difficile
during the 28-day study period. By comparison, 5 of 9 subjects (56%) who received placebo
(i.e. did not receive VP20621) tested positive for either toxin-negative or toxin-positive C. difficile during the study period. Based on these results, during the second half of 2011, we
started a Phase 2 clinical trial for the prevention of recurrence of CDAD in patients recently treated with an antibiotic for CDAD. We closed enrollment of patients in December 2012 and
anticipate having the complete data set in 2013.
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FA Program
On September 30, 2011, we entered into a license agreement with Intellect Neurosciences, Inc. (INS) for the worldwide
rights to its clinical stage drug candidate, VP20629, which we expect to develop for the treatment of Friedreich's Ataxia (FA).
Friedreich's
Ataxia is a rare hereditary disease caused by a mutation in a gene which encodes frataxin, a protein essential for proper functioning of mitochondria, the energy pumps of
the cell. In the absence of frataxin, iron in the cytoplasm builds up and causes free radical damage. The disease causes progressive damage to the nervous system, resulting in symptoms ranging from
gait disturbance to speech problems; it can also lead to heart disease and diabetes. Ataxia in general refers to the inability to coordinate voluntary muscular movements. The ataxia of Friedreich's
Ataxia results from the degeneration of nerve tissue in the spinal cord, in particular sensory neurons essential for directing muscle movement of the arms and legs. The spinal cord becomes thinner and
nerve cells lose some of their myelin sheath. The primary sites of pathology are the spinal cord and peripheral nerves. Symptoms typically begin sometime between the ages of 5 and 15 years, but
may occur in patients between the ages of 20 to 30. The disease usually presents with progressive staggering or stumbling and frequent falling. The symptoms are slow and progressive with a median age
of death at 35 years old. FA is the most common form of hereditary ataxia, and is thought to affect about 1 in every 50,000 people or approximately 6,000 patients in the United States.
Currently there are no FDA approved drugs for FA.
VP20629,
or indole-3-propionic acid, is a naturally occurring, small molecule that has potent anti-oxidant properties that can protect against
neurodegenerative disease. In a recent Phase 1 safety and tolerability study conducted in the Netherlands, VP20629 was demonstrated to be safe and well tolerated at all dose levels tested. We
expect to initiate a single and repeat dose phase 1 study in patients in 2013 and expect to initiate a subsequent phase 2 study after completion of the phase1 study. Following completion
of the phase 2 study, a phase 3 study is planned.
Business Development and Strategic Relationships
We intend to continue to evaluate in-licensing or other opportunities to acquire development stage or marketed products. We
plan to seek products that treat serious or life threatening illnesses with a high unmet medical need, require limited commercial infrastructure to market, and that have the potential to provide both
top and bottom line growth over time.
Competition
for products currently in clinical development, or that are currently on the market, is intense and may require significant resources. There is no assurance that we will be
successful in acquiring such products, or that such products can be acquired on terms acceptable to us. Additionally, if we are successful in acquiring a marketed product, we may have to expand our
sales and marketing infrastructure both in the US and internationally. There is no assurance that we would be successful in expanding our commercial capabilities, that we would be able to penetrate
the markets for any such products or that we could achieve market acceptance of our products. The costs associated with evaluating or acquiring any additional product or product candidate can vary
substantially based upon market size of the product, the commercial effort required for the product, the product's current stage of development, and actual and potential generic and
non-generic competition for the product, among other factors. Due to the variability of the cost of evaluating or acquiring business development candidates, it is not feasible to predict
what our actual evaluation or acquisition costs would be, if any, however, the costs could be substantial. There are also no assurances that we will be able to obtain financing for acquiring such
products or to expanding our operations to realize the product's potential.
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Cinryze and Sanquin
Pursuant to the terms of an existing Distribution and Manufacturing Services Agreement between our subsidiary ViroPharma
Biologics, Inc. ("VP Biologics") with Stichting Sanquin Bloedvoorziening (Sanquin Blood Supply Foundation) ("Sanquin") (the "Original Sanquin Agreement"), we held (i) the exclusive right
to distribute, market, offer for sale, sell, import and promote C1-INH derived from human plasma (including Cinryze) manufactured by Sanquin for the treatment of HAE in all countries in
North America and South America (other than the Dutch Overseas Territories, Argentina and Brazil) and Israel, and (ii) a right of first refusal to distribute, market, offer for sale, sell,
import and promote C1-INH derived from human
plasma manufactured by Sanquin for the treatment of HAE in certain other geographic regions and under certain conditions.
On
January 8, 2010, we amended and restated the Original Sanquin Agreement (the "Restated US Agreement"). Pursuant to the terms of the Restated US Agreement, we retained the
rights to distribute, market, offer for sale, sell, import and promote C1-INH derived from human plasma (including Cinryze) manufactured by Sanquin for the treatment of HAE in all
countries in North America and South America (other than the Dutch Overseas Territories, Argentina and Brazil) and Israel.
The
initial term of the Restated US Agreement ends on December 31, 2015. The term will automatically renew for up to eighteen years (comprised of six three-year
periods), unless the Restated US Agreement is earlier terminated by either party. Sanquin may terminate this Restated US Agreement by providing written notice to us at least three years prior to the
end of the initial term or any subsequent renewal period. We may terminate the Restated US Agreement by providing written notice to Sanquin at least two years prior to the end of the initial term or
any subsequent renewal period. Each party may terminate the Restated US Agreement upon written notice in the event of: (i) an uncured material breach of the other party or (ii) the other
party is declared insolvent or bankrupt, a voluntary petition of bankruptcy is filed by the other party, the other party makes or executes any assignment for the benefit of creditors or a receiver is
appointed to control the business of the other party.
Also,
on January 8, 2010, we obtained the exclusive rights to research, develop, import, use, sell and offer for sale C1-INH derived products (other than Cetor)
worldwide, other than the Excluded Territory (as defined below) for all potential indications pursuant to a Manufacturing and Distribution Agreement (Europe and ROW) between our European subsidiary,
ViroPharma SPRL ("VP SPRL") and Sanquin (the "ROW Agreement"). The excluded territory includes (i) certain countries with existing distributors of Cinryze, Cetor and Cetor NF
namely France, Ireland, the United Kingdom , Egypt, Iran, Israel, Indonesia, Turkey, Argentina and Brazil (the "Third Party Distributors") and (ii) countries in which Sanquin has historically
operated namely, Belgium, Finland, Luxemburg and The Netherlands (including the Dutch Overseas Territories) (the "Precedent Countries"). In the event that any agreement with a third party distributor
in the Excluded Territory is terminated, we have a right of first refusal to obtain the foregoing exclusive licenses to the C1-INH derived products with respect to such terminated country.
On
December 6, 2012, we entered into a first amendment to ROW Agreement. The first amendment to the ROW Agreement (the "First Amendment") expands our territory to worldwide, with
the exception of all countries in North America and South America (other than the Dutch Overseas Territories, Argentina and Brazil) and Israel, which remain the subject of the Restated US Agreement.
The First Amendment also grants Sanquin the license to commercialize Cinryze in certain countries in which Sanquin has pre-existing marketing arrangements, including Belgium, Luxembourg,
The Netherlands, Finland, Turkey, Indonesia, and Egypt (the "Sanquin Licensed Territories"). In the event that the marketing arrangements in the Sanquin Licensed Territories expire or are terminated,
VP SPRL has a right of first refusal to include such country in its territory and/or to exclude such country
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from
the countries covered by its license to Sanquin. As a result of the First Amendment, we have worldwide rights to commercialize C1-INH products other than in the Sanquin Licensed
Territories. In connection with the First Amendment, we made a payment of $1.3 million to Sanquin.
Additionally,
under the First Amendment, Sanquin agreed to withdraw its Cetor and Cebitor product from certain markets in which it is currently being sold in order to transition to
Cinryze and its future forms and formulations. The transition will be on a country by country basis and on a schedule agreed by VP SPRL and Sanquin to avoid supply interruptions to patients using
Sanquin's Cetor and/or Cebitor products. The First Amendment also provides that in the countries in which Sanquin is licensed to commercialize VP SPRL C1-INH product, Sanquin shall have
the right to liaise with regulators to set the reimbursement price, unless regulators require VP SPRL to do so.
We
and Sanquin also agreed to certain provisions restricting the sale of competitive products relating to C1-INH without the other's consent. We may not directly or
indirectly commercially exploit competitive products in our territory without Sanquin's consent. On a country by country basis, following the applicable transition date in each country, Sanquin agrees
not to directly or indirectly commercially exploit competitive products to any person anywhere in the world. The First Amendment provides Sanquin with the right to sell and supply Cetor and/or Cebitor
before the transition date and VP SPRL's C1-INH product thereafter to a named manufacturer provided that the named manufacturer uses the products solely in connection with
the manufacturer's manufacture of certain plasma products under its own marketing authorization and corporate brand.
The
initial term of the ROW Agreement will end on December 31, 2019, but shall automatically renew for up to eighteen years (comprised of six three-year periods),
unless the ROW Agreement is earlier terminated by either party. Sanquin may terminate the ROW Agreement by providing written notice to us at least three years prior to the end of the initial term or
any subsequent renewal period. We may terminate the ROW Agreement by providing written notice to Sanquin at least two years prior to the end of the initial term or any subsequent renewal period. Each
party may terminate the ROW Agreement upon written notice to the other in the event of: (i) an uncured material breach of the other party or (ii) in the event that other party
(1) applies for or consents to an appointment of a receiver for itself or all or substantially all of its assets, (2) makes an assignment for the benefit of creditors,
(3) commences a voluntary case or bankruptcy or consents to any bankruptcy or restructuring relief or the appointment of or taking possession of its property in any such proceeding or
(4) takes any corporate action to effect any of the foregoing.
In
January 2010, both parties established a Joint Steering Committee comprised of an equal number of representatives from each of the parties to the agreements. The Joint Steering
Committee shall serve as a forum to establish and discuss progress under, among others, (i) a global commercialization plan; (ii) clinical development programs of ViroPharma and Sanquin
early stage research programs;
(iii) manufacturing capacity schedules; (iv) pharmacovigilence matters; (v) quality matters; (vi) manufacturing improvement programs; and (vii) regulatory matters.
Subject
to certain terms of each of the Restated US Agreement and the ROW Agreement, if we do not use commercially reasonable efforts to file applications for marketing authorization of
Cinryze or launch Cinryze in accordance with a commercialization plan for the applicable territories, as approved by the Joint Steering Committee, Sanquin may (upon prior written notice to us)
terminate our rights in the applicable country.
In
addition, pursuant to the terms of the ROW Agreement, Sanquin may conduct certain early stage research programs (the "Early Stage Research Programs"), and we will provide to Sanquin
€1,000,000 (approximately $1.3 million) per year for a period of five years to support such Early Stage Research Programs. We have a right of first refusal to further develop
and commercialize the subject matter of each such Early Stage Research Program worldwide (except for the Excluded Territory) subject to Sanquin's and its research partners' right to use any such
intellectual property for their
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internal,
non-commercial research purposes. Except for the Early Stage Research Programs, we will be solely responsible for conducting all clinical trials and other development activities
necessary to support our efforts to obtain regulatory approval of Cinryze in additional territories as well as any future C1-INH derived products developed pursuant to the ROW Agreement.
Sanquin has the right to approve any such clinical trials and development activities through the Joint Steering Committee.
Sanquin
may include in its regulatory dossiers improvements to Cinryze for the hereditary angioedema ("HAE") indication, solely for the marketing and sale of Cetor or Cetor NF in the
Excluded Territory. If there are (i) new indications relating to any C1-INH product or (ii) improvements relating to the HAE-indication that cannot be included in
Sanquin's regulatory dossiers, Sanquin will receive a royalty-free license to sell Cinryze or the future product for these new indications or improvements in the Precedent Countries.
Sanquin
has agreed to indemnify us and our affiliates for certain losses, except to the extent we have an obligation to indemnify Sanquin. We have agreed to indemnify Sanquin and its
affiliates for all losses arising from (i) our infringement of any third party's intellectual property as a result of the sale of Cinryze or any future C1-INH derived products in
the territories covered by the agreements, (ii) a breach by us of the terms of the agreements, (iii) certain tax liabilities and (iv) our negligence or willful misconduct, except,
in each case, to the extent Sanquin has an obligation to indemnify us.
Without
Sanquin's prior written consent, we shall not enter into a merger, be acquired by or sell substantially all of our assets to a manufacturer and/or distributor of a plasma derived
C1 esterase inhibitor or another plasma-derived product approved under applicable law for marketing for the same or comparable clinical indications as Cinryze or any future C1-INH derived
products. We may not, without the consent of Sanquin, distribute, market, offer for sale, sell, import or promote any competitive product in the territory covered by the Restated US Agreement until
December 31, 2018. In addition, we may not, without the consent of Sanquin, distribute, market, offer for sale, sell, import or promote any competitive product in the territories covered by the
ROW Agreement until December 31, 2019.
In
the event that VP Biologics has become bankrupt or insolvent and has committed an uncured breach of the Restated US Agreement, Sanquin will immediately obtain VP Biologics' rights to
the marketing authorizations for Cinryze obtained by us and the applications for marketing authorization of Cinryze filed by us. ViroPharma Incorporated will guarantee VP Biologics' performance under
the Restated US Agreement. In the event that VP SPRL becomes bankrupt or insolvent and commits an uncured breach of the ROW Agreement, Sanquin will immediately obtain our rights to the regulatory
approvals for the products obtained by us under the ROW Agreement and the applications for regulatory approval of the product filed by us under the ROW Agreement. ViroPharma Incorporated will
guarantee VP SPRL's performance under the ROW Agreement in the event of a bankruptcy.
Cinryze and Halozyme
In May 2011, Halozyme granted us an exclusive worldwide license to use Halozyme's proprietary Enhanze technology, a
proprietary drug delivery platform using Halozyme's recombinant human hyaluronidase enzyme (rHuPH20) technology in combination with a C1 esterase inhibitor. Under the terms of the license agreement,
we paid Halozyme an initial upfront payment of $9 million. In the fourth quarter of 2011, we made a milestone payment of $3 million related to the initiation of a Phase 2 study
begun in September 2011 to evaluate the safety, and pharmacokinetics and pharmacodynamics of subcutaneous administration of Cinryze in combination with rHuPH20. Pending successful completion of an
additional series of clinical and regulatory milestones, anticipated to begin during 2012, we may make further milestone payments to Halozyme, which could reach up to an additional $41 million
related to HAE and up to $30 million of additional milestone payments for three additional indications. Additionally, we will pay an annual maintenance fee of $1 million to Halozyme
until specified events have occurred. Upon regulatory approval, Halozyme will receive up to a 10% royalty on net sales of the combination product utilizing Cinryze and rHuPH20, depending on the
existence of a valid patent claim in the country of sale.
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Meritage
On December 22, 2011, we entered into an exclusive development and option agreement with Meritage Pharma, Inc. (Meritage)
, a private company based in San Diego, CA focused on developing oral budesonide suspension (OBS) as a treatment for eosinophilic esophagitis (EoE). OBS is a proprietary formulation that is viscous
and is designed to coat the esophagus with budesonide where it acts topically. Budesonide is an anti-inflammatory corticosteroid that is the active pharmaceutical ingredient in several
products approved by the FDA, including products for the treatment of pediatric asthma, allergic rhinitis and Crohn's disease. The FDA has granted Orphan Drug Status designation to OBS for the
treatment of eosinophilic esophagitis. In addition, OBS has pending patent applications, which may result in patent protection to approximately 2028. EoE occurs when eosinophils, a type of white blood
cell involved in allergic reactions, infiltrate the surface of the esophagus. Eosinophil infiltration leads to inflammation of the esophagus and is believed to cause tissue remodeling and fibrosis if
left untreated. There are no approved products for the treatment of EoE. There are approximately 160,000 patients diagnosed with EoE in the U.S.
We
have an exclusive option to acquire Meritage, at our sole discretion, by providing written notice at any time during the period from December 22, 2011 to and including the date
that is the earlier of (a) the date that is 30 business days after the later of (i) the receipt of the final study data for the
Phase 2 study and (ii) identification of an acceptable clinical end point definition for a pivotal induction study agreed to by the FDA. As consideration for the option, we paid an
initial $7.5 million. If we exercise this option, we have agreed to pay $69.9 million for all of the outstanding capital stock of Meritage. Meritage stockholders could also receive
additional payments of up to $175 million, upon the achievement of certain clinical and regulatory milestones.
During
the second quarter of 2012, Meritage completed the delivery of all the documents and notifications needed to satisfy the conditions of the First Option Milestone, as defined in
the agreement. As a result of achieving this milestone we made a $5.0 million milestone payment in the third quarter of 2012. We retain the option to provide Meritage up to an additional
$7.5 million for the development of OBS. Meritage will utilize the funding to conduct additional Phase 2 clinical assessment of OBS.
Plenadren
On November 15, 2011, we acquired a 100% ownership interest in DuoCort , a private company based in Helsingborg, Sweden focused
on improving glucocorticoid replacement therapy for treatment of adrenal insufficiency, or Addison's Disease (AD). We paid approximately 213 million Swedish Krona (SEK) or approximately
$32.1 million in upfront consideration. We have also agreed to make additional payments ranging from SEK 240 million up to SEK 860 million or approximately $37 million to
$132 million, contingent on the achievement of certain milestones. Up to SEK 160 million or approximately $25 million of the contingent payments relate to specific regulatory
milestones; and up to SEK 700 million or approximately $108 million of the contingent payments are related to commercial milestones based on the success of the product. As part of the
closing of this transaction, we also paid approximately SEK 9.3 million or $1.4 million to certain of DuoCort's creditors. We incurred approximately $1.4 million of transaction
cost as part of this acquisition.
On
September 30, 2011, we entered into an exclusive license agreement with Intellect Neurosciences, Inc. and Intellect USA, Inc. (together, INS) whereby INS grants
us an exclusive license and an exclusive sublicense of its rights pursuant to a license agreement with New York University and South Alabama Medical Science Foundation for the worldwide rights to its
clinical stage drug candidate, indole-3-proprionic acid, also known as VP20629, which we expect to develop for the treatment of Friedreich's Ataxia (FA), a rare, hereditary,
progressive neurodegenerative disease. Under the terms of the agreement, we have exclusive worldwide rights to develop and commercialize VP20629
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for
the treatment, management or prevention of any disease or condition covered by Intellect's patents. We paid INS a $6.5 million up-front licensing fee and may pay additional
milestones up to $120 million based upon defined events. We will also pay a tiered royalty of up to a maximum percentage of low teens, based on annual net sales.
Vancocin Capsules and Lilly
In November 2004, we acquired all rights in the U.S. and its territories to manufacture, market and sell Vancocin, the oral capsule
formulation of vancomycin hydrochloride, as well as rights to certain related vancomycin products, from Lilly. Vancocin is indicated for the treatment of
C.
difficile-
associated diarrhea (CDAD). Vancocin capsules are also used for the treatment of enterocolitis caused by
Staphylococcus
aureus
, including methicillin-resistant strains. Lilly retained its rights to vancomycin outside of the U.S. and its territories.
We
paid Lilly an upfront cash payment of $116.0 million and were obligated to pay additional purchase price consideration based on annual net sales of Vancocin through 2011. In
June 30, 2011, we satisfied our obligations to Lilly to make additional purchase price consideration payments under the purchase agreement. In aggregate we paid $51.1 million to Lilly in
additional purchase price consideration.
In
the event we develop any product line extensions, revive discontinued vancomycin product lines (injectable or oral solutions), make improvements of existing products, or expand the
label to cover new indications, Lilly would receive a royalty on net sales on these additional products for a predetermined time period.
Vancocin Capsules and Genzyme
On June 12, 2009, we entered into an Exclusive Clinical Study and Data License Agreement with Genzyme Corporation (Genzyme).
Under the agreement, we exclusively licensed certain clinical studies that Genzyme has performed and/or sponsored relating to its proprietary product, tolevamer, including the data generated from the
clinical studies. In consideration for exclusive rights to the clinical studies and data generated from such clinical studies, we agreed to pay Genzyme royalties of 10%, 10% and 16% on the net sales
of Vancocin (vancomycin hydrochloride capsules, USP) for the three year period following approval of a supplemental new drug application to
update Vancocin's label based on the data licensed from Genzyme. We will pay lower royalties on sales of any authorized generic depending on the number of parties selling a generic vancomycin product.
The agreement continues in effect unless terminated earlier pursuant to its terms. In addition to standard termination rights, we also may terminate the agreement at any time after the expiration of
the royalty term. The royalty term commenced on December 15, 2011, the day following approval by FDA of the sNDA, and will continue until December 15, 2014, the third anniversary.
Cytomegalovirus and GlaxoSmithKline
In August 2003, we entered into a license agreement with GlaxoSmithKline (GSK) under which we acquired worldwide rights (excluding
Japan) to an antiviral compound, maribavir, for the treatment of CMV disease. Maribavir is a benzimidazole compound that was in development by GSK for the treatment of CMV retinitis in HIV positive
patients.
Under
the terms of the agreement, we have exclusive worldwide rights (excluding Japan) to develop and commercialize maribavir for the prevention and treatment of cytomegalovirus
infections related to transplant (including solid organ and hematopoietic stem cell / bone marrow transplantation), congenital transmission, and in patients with HIV infection. The patents covering
maribavir expire in 2015. We paid GSK a $3.5 million up-front cash licensing fee and will pay additional milestone payments based upon defined clinical development and regulatory
events. In the third quarter of 2006,
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we
recorded a $3.0 million milestone payment due to GSK associated with the initiation of the Phase 3 study of maribavir, which was paid in February 2007. No additional amounts were
recorded in 2007. We also will pay royalties to GSK and its licensor on product sales in the U.S. and rest of world (excluding Japan). We will be dependent on GSK to prosecute and maintain the patents
related to maribavir, and to file any applications for patent term extension. We also may be dependent on GSK to protect such patent rights. We have the right to sublicense our rights under the
agreement, which under certain circumstances requires consent from GSK.
Manufacturing and Distribution
We currently utilize a virtual supply manufacturing and distribution chain in which we do not have our own facilities to manufacture
commercial or clinical trial supplies of drugs and we do not have our own distribution facilities. Additionally, we do not intend to develop such facilities for any product in the near future.
Instead, we contract with third parties for the manufacture, warehousing, order management, billing and collection and distribution of our products and product candidates.
We
expect to continue to rely solely on third-party manufacturers to manufacture drug substance and final drug products for both clinical development and commercial sale. However, there
are numerous factors that could cause interruptions in the supply of our products, including regulatory reviews; changes in our sources for manufacturing; disputes with a manufacturer; or financial
instability of manufacturers, which could negatively impact our operation.
Cinryze
In conjunction with the Lev acquisition, we acquired a Distribution and Manufacturing Services Agreement with Sanquin, which was
amended and restated in January 2010 as described above. Additionally, in January 2010, we entered into the ROW Agreement as described above.
The terms of the Restated US Agreement related to manufacturing provide that Sanquin shall manufacture Cinryze for us on a toll
manufacturing basis, using plasma supplied by us, for a manufacturing fee. During the term, we shall purchase from Sanquin an annual minimum quantity of Cinryze established by the parties for such
calendar year.
Sanquin
is implementing structural and equipment changes to its Amsterdam and Brussels manufacturing facilities. We previously funded such changes to the Brussels manufacturing facility
and a portion of such changes to the Amsterdam manufacturing facility, each through a loan facility of an aggregate amount of €7,500,000 (approximately $9.9 million). Pursuant
to the Restated US Agreement, Sanquin will implement additional structural and equipment changes to the
Brussels manufacturing facility, financed through an additional €5,000,000 (approximately $6.6 million) loan facility provided by us. The €5,000,000 loan
facility was satisfied during 2011 and we anticipate that Sanquin will repay the remaining loan amount during 2013 by providing us with a discount to the per unit purchase price of product.
Sanquin
will use commercially reasonable efforts to obtain regulatory approval to manufacture Cinryze in the Amsterdam manufacturing facility prior to a date agreed to by the parties.
Sanquin will enter into manufacturing agreements with one or more third party manufacturers, which may include affiliates of Sanquin, (reasonably acceptable to us) pursuant to which such third party
manufacturers shall provide certain back-up manufacturing facilities for Cinryze. In the event that certain events occur which result in Sanquin permanently ceasing to manufacture Cinryze,
Sanquin will grant us a perpetual license under its intellectual property related to Cinryze and assign to us each of the agreements with such third party manufacturers. In consideration thereof, we
will pay a one-time fee to Sanquin as well as a royalty on future sales of Cinryze or any future C1-INH product.
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The terms of the ROW Agreement related to manufacturing provide that Sanquin will manufacture Cinryze either based on a supply of
plasma provided by Sanquin or on a toll-manufacturing basis using plasma supplied by us for a manufacturing fee. The manufacturing fee will be comprised of a base fee and a royalty which
shall vary based upon the source of the plasma utilized. The parties will negotiate in good faith a new purchase price and manufacturing fee for any additional new products developed in accordance
with the terms of the ROW Agreement. Beginning in 2015, we shall purchase at least a minimum quantity of Cinryze or future C1-INH product from Sanquin annually, which quantities shall be
determined by the Joint Steering Committee in 2013.
Sanquin
will enter into manufacturing agreements with one or more third party manufacturers, which may include affiliates of Sanquin, (reasonably acceptable to us) pursuant to which such
third party manufacturers shall provide certain back-up manufacturing facilities for the products. In the event that certain events occur which result in Sanquin permanently ceasing to
manufacture Cinryze of future C1-INH derived products, Sanquin will grant us a perpetual license under its intellectual property related to Cinryze or any future C1-INH product
and assign to us each of the agreements with such third party manufacturers. In consideration thereof, we will pay a one-time fee to Sanquin as well as a royalty on future sales of Cinryze
or any future C1-INH product.
Cinryze is derived from human plasma sourced from commercial plasma suppliers. The sourcing of plasma, and the production of products
derived from plasma, is regulated extensively by the FDA, the EMA and other medical product and health care regulatory agencies. We rely on a combination of sources for plasma including
(i) long term supply agreements, (ii) periodic "spot purchases" of plasma from third party plasma suppliers, and (iii) we have an option to acquire our own plasma centers.
Supply Agreement with DCI Management Group, LLC
In connection with our acquisition of Lev, we became party to a supply agreement for the purchase and sale of plasma with DCI
Management Group, LLC (DCI) pursuant to which we will purchase quantities of U.S. Source Plasma to be utilized in the production of product under our Distribution and Manufacturing Services
Agreement with Sanquin Blood Supply Foundation. In July 2009, we amended the terms of the agreement. Under the amended agreement, the supplier agreed to sell us specified annual quantities of plasma
in accordance with applicable good manufacturing practices. Our annual purchase commitment is approximately $37 million. Beginning in 2014, the annual purchase commitment will range between
approximately $33 million and $37 million, subject to annual adjustments to the purchase price based on market conditions. Our contractual purchase commitments are subject to annual
percentage increases based on market conditions and do not include the cost of additional pre-delivery testing which we may require the supplier to undertake. We estimate our remaining
commitment under this agreement to be approximately $175 million.
The
amended agreement expires December 31, 2017, unless sooner terminated in accordance with its terms. Either party may terminate the agreement upon written notice if the other
party is in material breach of any provision thereof, subject to applicable cure periods. Subject to the supplier's ability to mitigate damages, in the event we are in default of our payment
obligation under the contract, we will be liable to purchase the minimum quantities of plasma specified under the contract for the balance of the term. Upon expiration of the agreement, or in the
event the agreement is terminated for reasons other than as set forth above, we will be obligated to purchase a closing inventory of plasma in the quantity specified in the agreement.
In
February 2010, we amended the agreement to fix the pricing of product for 2011. Beginning in 2012, the annual price adjustment shall depend on market conditions and increases or
decreases shall
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be
limited to the maximum percentage per year. In May 2012, we amended the agreement to extend the term to December 31, 2017 and to extend the payment terms. In October 2012 we amended the
agreement to increase the base purchase price per liter of plasma, increase the minimum purchase requirements, adjust the base price in the event certain testing is performed by certain third parties,
and modified the price adjustment terms for future periods. In addition, the October 2012 amendment allows DCI to use an additional testing laboratory.
On June 19, 2009, we entered into an intermediate supply agreement (the "Supply Agreement") with Biotest AG ("Biotest") pursuant
to which we will sell to Biotest all excess output of specific intermediate plasma products (the "Intermediates") derived from the plasma processed by Sanquin in manufacturing Cinryze. In addition, we
offered Biotest a right of first refusal to purchase unprocessed plasma in the event we elect to sell unprocessed plasma to a third party. Biotest also agreed to provide us with a right of first
refusal, subject to certain exceptions, to repurchase certain by products derived from the Intermediates. The Supply Agreement has an initial term expiring December 31, 2014, unless sooner
terminated. In addition, we established pricing for a pre-determined volume of source plasma (the "Target Volume"), provided that the parties shall renegotiate pricing terms upon
achievement of the Target Volume. Either party may terminate the Supply Agreement upon written notice if the other party is in material breach of any provision thereof, subject to applicable cure
periods. In the event of a breach of the Supply Agreement by Biotest, Biotest shall be liable to purchase all amounts of Intermediates deliverable under the Supply Agreement during its remaining term.
In
February 2012, we amended the Supply Agreement to terminate as of December 31, 2012, which represents a two year reduction in the term of the Supply Agreement. The amendment
also set forth volume ranges and prices for the 2012 calendar year for the Intermediates. Prior to the amendment, we sold all excess output of the Intermediates to Biotest. In addition, the amendment
terminated our right of first refusal, subject to certain exceptions, to repurchase certain byproducts derived from the Intermediates. We also agreed to swap certain quantities of plasma with Biotest
during 2012.
In February 2010, we entered into a Strategic Supply Agreement (the "2010 Agreement") with Biotest Pharmaceuticals Corporation (BPC)
pursuant to which we will purchase certain quantities of plasma. Our contractual purchase commitments are subject to annual percentage increases based on changes in the consumer price index and is
subject to other market conditions. BPC has built three additional plasma centers (the "Initial Centers"). The Initial Centers are open and fully licensed by the FDA and the EMA. The 2010 Agreement
was terminated in September 2012.
In
September 2012, we entered into the 2012 Strategic Supply Agreement (the "2012 Agreement") with BPC pursuant to which we will purchase certain quantities of U.S. source plasma. In
addition to the Initial Centers, BPC will construct and operate four additional plasma collection centers, instead of the two additional plasma collections centers set forth in the 2010 Agreement. The
2012 Agreement expires on December 31, 2017.
The
purchase commitment for 2012 was approximately $11 million, which includes purchases made during 2012 under the 2010 Agreement, and the purchase commitment for 2013 is
approximately $27 million, subject to purchase price discounts, annual adjustments to the purchase price based on market conditions and changes in the consumer price index. Beginning in 2014,
the annual purchase commitment will range between approximately $40 million and $44 million, subject to purchase price discounts, annual adjustments to the purchase price based on market
conditions and changes in the consumer price index. We estimate our remaining commitment under the 2012 Agreement to be
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approximately
$217 million. If we require plasma in addition to the plasma provided under the 2012 Agreement plus a specified amount, then BPC will have a right of first refusal to supply the
additional plasma.
Over
the course of the three years after the effective date of the 2012 Agreement, BPC has committed to open four additional new plasma collection centers in the United States (the "New
Centers") and we will have the right to acquire the Initial Centers and the New Centers subject to the terms of the 2012 Agreement. We will provide BPC with funding, a portion of which is
non-refundable, to develop and open the New Centers, pursuant to the terms of the 2012 Agreement.
As described above, we entered into the ROW Agreement with Sanquin on January 8, 2010. Under the terms of the ROW Agreement,
Sanquin will manufacture Cinryze either based on a supply of plasma provided by Sanquin or on a toll-manufacturing basis using plasma supplied by us.
In December 2005, we entered into a toll manufacturing agreement with Norwich Pharmaceuticals, Inc. (NPI) (formerly OSG Norwich
Pharmaceuticals, Inc.) to produce finished Vancocin product. The qualification process required to transfer Vancocin manufacturing from Lilly to NPI was completed in February 2006. All
approvals were finalized in the second quarter of 2006 and, since June 30, 2006, all of our finished product has been supplied from NPI. In April 2011, we amended the agreement to extend the
term to August 31, 2016. The amendment fixed the pricing of product for the remainder of 2011 and the full year 2012.
In
April 2006, we also entered into an agreement with Alpharma, Inc. for the manufacturing of API for Vancocin. In October, 2007, we amended this agreement with Alpharma to extend
the agreement until December 2011 and identified an additional production facility from which we began to acquire API during 2010. In January 2011, we extended our agreement with Xellia
Pharmaceuticals, Inc. (formerly Alpharma Inc.) through December 2015.
In
November 2007, we entered into a Distribution and Supply Agreement with Prasco, LLC (Prasco) granting to Prasco a license under our New Drug Application (NDA) for Vancocin
(vancomycin hydrochloride capsules, USP) to distribute and sell vancomycin hydrochloride capsules as an authorized generic product. We delivered the commencement notice to Prasco on April 10,
2012. In consideration for the license to distribute vancomycin hydrochloride capsules as an authorized generic, Prasco will pay us (i) a supply price for each carton of vancomycin
hydrochloride capsules and (ii) a specified percentage of the net distributable profits. The supply price and the percentage of the net distributable profits will vary depending on the number
of additional generic versions of vancomycin hydrochloride capsules that are available. The agreement continues in effect for an initial term of five (5) years from the date of the commencement
notice (or April 9, 2017) unless terminated earlier pursuant to its terms.
We
require in our manufacturing and processing agreements that all third-party contract manufacturers and processors produce drug substance and product in accordance with the FDA's
current Good Manufacturing Practices and all other applicable laws and regulations. We maintain confidentiality
agreements with potential and existing manufacturers in order to protect our proprietary rights related to our marketed drug and drug candidate
Customers
We have principally sold our products directly to wholesale drug distributors and specialty pharmacies/specialty distributors in the
United States who then distribute the product to pharmacies,
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hospitals,
patients, physicians and long-term care facilities, among others. In the fourth quarter of 2011, we began to sell product to drug distributors in Europe who then distribute the
product to pharmacies, hospitals, and physicians.
Net
product sales to customers who accounted for 10% or more of our net product sales during the years ended December 31, 2012, 2011 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of total revenues
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Customer A
|
|
|
43
|
%
|
|
27
|
%
|
|
25
|
%
|
Customer B
|
|
|
25
|
%
|
|
24
|
%
|
|
24
|
%
|
Customer C
|
|
|
11
|
%
|
|
20
|
%
|
|
21
|
%
|
Customer D
|
|
|
|
|
|
17
|
%
|
|
16
|
%
|
Customer E
|
|
|
|
|
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
Total
|
|
|
79
|
%
|
|
88
|
%
|
|
96
|
%
|
|
|
|
|
|
|
|
|
In
2012, three customers represented approximately 79% of our total net product sales. We do not believe that the loss of any one of these customers would have a material adverse effect
on product
sales because product sales would shift to other customers or alternative forms of distribution. However, the loss of a customer could increase our dependence on a reduced number of customers.
Marketing and Sales
Our U.S. Cinryze sales force targets doctors who treat patients who have been diagnosed with HAE. Given the relatively limited HAE
patient population, our U.S. sales force is small compared to other drugs with similar gross revenues. Our sales force primarily focuses its efforts towards allergists, immunologists,
gastroenterologists and home healthcare providers.
In
2010, we established a sales organization in Europe, initially focusing on Germany and the UK. The aim of this effort was to target key healthcare professionals in preparation for the
launches of Cinryze and Buccolam. During 2011 and 2012 the sales teams expanded to cover both new European geographies, to meet the specific needs of Cinryze and Buccolam customers and to support the
commercial launch of Plenadren. Today the primary focus of our sales teams is allergists, immunologists, neurology, pediatricians and endocrinologists. We also support a wider group of healthcare
professional to deliver care at home and training support for patients, parents and care givers.
Foreign Operations
We conduct business in several European countries as well as Australia, Bermuda and Canada through wholly-owned subsidiaries. Our
international businesses are subject to risks customarily encountered in foreign operations, including fluctuations in foreign currency exchange rates and controls, import and export controls and
other economic, political and regulatory policies of local governments. We currently have operations in Australia, Belgium, Bermuda, Canada, France, Italy, Germany, Puerto Rico, Spain, Sweden,
Switzerland and the United Kingdom. We have begun to expand our own commercial organizations in such territories in order to market and sell Cinryze, Buccolam and Plenadren through our own sales force
in these territories. Outside of the United States and European territories, we will evaluate sales efforts on a country-by-country basis, and it is possible that we will rely
on relationships with one or more companies with established distribution systems and direct sales forces in such countries.
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Patents and Proprietary Technology
We believe that patent protection and trade secret protection are important to our business and that our future will depend, in part,
on our ability to maintain our technology licenses, maintain trade secret protection, obtain patents and operate without infringing the proprietary rights of others both in the U.S. and abroad. There
are no core patents protecting Cinryze. There are no core patents protecting Buccolam. We own, through a subsidiary, 3 non-U.S. issued patents and 4 pending U.S. patent applications
covering technology related to glucocorticoid therapy. We have three pending U.S. patent applications covering benzimidazole related technology. We also file international, regional and
non-U.S. national patent applications as appropriate in order to pursue patent protection in major foreign countries. The last core patent protecting Vancocin expired in 1996. We own one
issued U.S. patent covering vancomycin related technology.
As
patent applications in the U.S. are maintained in secrecy until patents are issued (unless earlier publication is required under applicable law or in connection with patents filed
under the PCT) and as publication of discoveries in the scientific or patent literature often lags behind the actual discoveries, we cannot be certain that we or our licensors were the first to make
the inventions described in each of these pending patent applications or that we or our licensors were the first to file patent applications for such inventions. Furthermore, the patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, and, therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents or their enforceability cannot be predicted. We cannot be sure that any patents will issue from any of these patent applications or, should any patents issue, that we will be provided with
adequate protection against potentially competitive products. Furthermore, we cannot be sure that should patents issue, they will be of commercial value to us, or that private parties, including
competitors, will not successfully challenge these patents or circumvent our patent position in the U.S. or abroad. In the absence of adequate patent protection, our business may be adversely affected
by competitors who develop comparable technology or products.
Pursuant
to the terms of the Uruguay Round Agreements Act, patents filed on or after June 8, 1995 have a term of twenty years from the date of filing, irrespective of the period
of time it may take for the patent to ultimately issue. This may shorten the period of patent protection afforded to our products as patent applications in the biopharmaceutical sector often take
considerable time to issue. Under the Drug Price Competition and Patent Term Restoration Act of 1984, a sponsor may obtain marketing exclusivity for a period of time following FDA approval of certain
drug applications, regardless of patent status, if the drug is a new chemical entity or if new clinical studies were used to support the marketing application for the drug. Pursuant to the FDA
Modernization Act of 1997, this period of exclusivity can be extended if the applicant performs certain studies in pediatric patients. This
marketing exclusivity prevents a third party from obtaining FDA approval for a similar or identical drug under an Abbreviated New Drug Application or a "505(b)(2)" New Drug Application.
The
Drug Price Competition and Patent Term Restoration Act of 1984 also allows a patent owner to obtain an extension of applicable patent terms for a period equal to one-half
the period of time elapsed between the filing of an Investigational New Drug Application, or IND, and the filing of the corresponding New Drug Application, or NDA, plus the period of time between the
filing of the NDA and FDA approval, with a five year maximum patent extension. We cannot be sure that we will be able to take advantage of either the patent term extension or marketing exclusivity
provisions of this law.
In
order to protect the confidentiality of our technology, including trade secrets and know-how and other proprietary technical and business information, we require all of
our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the use or disclosure of confidential information. The agreements also oblige our
employees, and to the extent practicable, our consultants, advisors and collaborators, to assign to us ideas, developments, discoveries and inventions made by such persons in connection with their
work with us. We cannot be sure that these agreements
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will
maintain confidentiality, will prevent disclosure, or will protect our proprietary information or intellectual property, or that others will not independently develop substantially equivalent
proprietary information or intellectual property.
The
pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success depends, in part, on
our ability to develop and maintain a strong patent position for our products and technologies in clinical development, both in the U.S. and in other countries. Litigation or other legal proceedings
may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could result in substantial cost to us and diversion of our efforts. We intend
to file applications as appropriate for patents describing the composition of matter of our drug candidates, the proprietary processes for producing such compositions, and the uses of our products and
drug candidates.
U.S. Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements on
the clinical development, licensure, manufacture, distribution and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development
activities and the testing, manufacture, processing, quality control, safety, effectiveness, labeling, packaging, storage, handling, distribution, record keeping, approval, advertising, marketing, and
promotion of our products. All of our products will require FDA regulatory approval before commercialization. In particular, therapeutic products for human use are subject to rigorous preclinical and
clinical testing and other requirements of the Federal Food, Drug, and Cosmetic Act, and in the case of biological products the Public Health Service Act, each implemented by the FDA, as well as
similar statutory and regulatory requirements of foreign countries. Obtaining these marketing approvals and subsequently complying with ongoing statutory and regulatory requirements is costly and time
consuming. Any failure by us or our collaborators, licensors or licensees to obtain or maintain, or any delay in obtaining, regulatory approval or in complying with other requirements, could adversely
affect the commercialization of products then being developed by us and our ability to receive product or royalty revenues.
The
steps required before a new drug product may be distributed commercially in the U.S. generally include:
-
-
conducting appropriate preclinical laboratory evaluations of the product's chemistry, formulation and stability, and
animal studies to assess the potential safety and efficacy of the product;
-
-
submission to the FDA of an Investigational New Drug Application, including the results of preclinical evaluations and
tests, along with manufacturing information and analytical data plus any clinical data if the product previously was administered to humans including outside the US;
-
-
obtaining approval of Institutional Review Boards, or IRBs, to introduce the drug into humans in clinical studies;
-
-
conducting adequate and well-controlled human clinical trials that establish the safety and efficacy of the
drug product candidate for the intended use, typically in the following three sequential, or slightly overlapping stages:
-
-
Phase 1: The drug is initially introduced into healthy human subjects or patients and tested for safety, dose
tolerance, absorption, metabolism, distribution, excretion and evidence of biological activity;
-
-
Phase 2: The drug is studied in controlled, exploratory therapeutic trials in a limited number of patients to
identify possible adverse effects and safety risks, to determine dose
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-
-
submitting the results of basic research, including pharmacology and mechanisms of action animal studies, and clinical
studies as well as chemistry, manufacturing and controls information and patent information on the drug to the FDA in a NDA or BLA;
-
-
undergoing a successful FDA pre-approval inspection prior to approval of an NDA or BLA; and
-
-
obtaining FDA approval of the NDA or BLA with accompanying labeling prior to any commercial sale or shipment of the drug
or biologic product.
This
process generally takes a number of years and typically requires substantial financial resources, and we cannot be certain that any approval will be granted on a timely or
commercially viable basis, if at all. The results of preclinical studies and initial clinical trials are not necessarily predictive of the results from large-scale clinical trials, and all clinical
trials may be subject to additional costs, delays or modifications due to a number of factors, including the difficulty in obtaining enough patients, clinical investigators, drug supply, or financial
support, or because of unforeseen adverse effects or efficacy issues. In addition, an independent IRB for each clinical site proposing to conduct the clinical trials must review and approve each study
protocol and oversee the conduct of the trial. The FDA may also raise questions about the conduct of the trials as outlined in the IND and impose a clinical hold on the trial. If a clinical hold is
imposed, all of FDA's concerns must be resolved before the trial may begin again. Some studies also use a special committee often referred to as a data safety monitoring board to review data from the
study as it progresses and determine whether it is appropriate for the study to continue.
Preclinical
and clinical studies take several years to complete, and there is no guarantee that an IND we submit will result in a submission of an NDA or BLA within any specific time
period, if at all. Similar risks and uncertainties apply to the conduct and approval for licensure and marketing a product in non-U.S. markets around the world.
The
FDA has issued regulations intended to expedite the approval process for the development, evaluation and marketing of new therapeutic products intended to treat
life-threatening or severely debilitating diseases, especially where no alternative therapies exist. If applicable, these provisions may streamline the traditional product development
process in the U.S. Similarly, products that represent a substantial improvement over existing therapies may be eligible for priority review and a FDA expedited review time. Nonetheless, even if a
product is eligible for these programs, or for priority review, approval may be denied or delayed by the FDA or additional trials may be required. As a condition of approval FDA also can require
further testing of the product and monitoring of the effect of commercialized products, restrict the approved conditions of use in the product labeling, or impose other limitations or requirements
such as in a Risk Evaluation and Mitigation Strategy (REMS) requirement. The limitations on approval can include restricted access to the product and potential registries in the US and to a greater
extent in Europe. In addition, all new products are subject to requirements to assess pediatric safety and effectiveness, unless a waiver or deferral is obtained. The FDA has the power to prevent or
limit further marketing of a product based on the results of these post-approval commitments. Upon approval, a drug or biologic product may be marketed only in those dosage forms and for
those uses approved in the NDA or BLA.
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Any products manufactured or distributed by us pursuant to FDA approval are subject to extensive continuing post-approval regulation by the FDA,
including record-keeping requirements, obligations to investigate, analyze and report adverse experiences, other reporting requirements and restrictions on advertising and promotional activities. In
addition to continued compliance with standard regulatory requirements, the FDA also may require post-marketing testing and surveillance to monitor the safety and efficacy of the marketed
product. Results of post-marketing studies may limit or expand the further marketing of the products. If we propose any modifications to a product, including changes in indication,
formulation, manufacturing process, manufacturing facility or labeling, we may need to submit a NDA or BLA supplement to the FDA, and will not be able to commercialize any product with these
modifications until FDA approval is received. Product approvals may be withdrawn or limited if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of
the product are discovered following approval.
An
abbreviated approval process is currently available under the Federal Food, Drug and Cosmetic Act (FDCA) for generic versions of conventional chemical drug products, sometimes
referred to as small molecule drugs. The applicant for a generic version of a small molecule drug must refer to an approved drug for which full clinical data demonstrating safety and effectiveness
were submitted (the "reference drug"). Generally, the generic applicant must show that its product has the same active ingredient or ingredients, dosage form, strength, route of administration, and
labeling as the reference drug, and is absorbed in the body at the same rate and to the same extent as the referenced drug. It is possible to obtain permission to deviate from some of these
requirements. A generic applicant must seek approval for conditions of use for which FDA approved the reference drug, it must include certifications to
patents listed with FDA for the reference drug, and it must wait for the expiry of any applicable non-patent exclusivity in order to receive final approval, unless the exclusivity is
associated with a condition of use that the generic applicant is permitted to omit for its product. A generic applicant must also manufacture its product in accordance with current good manufacturing
practices and other product quality standards. FDA also permits abbreviated applications that cite to reference drugs and propose new conditions of use or other changes that require clinical data. For
these applications, FDA may require substantially less data and information than it requires for reference drugs. These abbreviated approval processes could have a material impact on our business as
generic products that compete with our products may be significantly less costly to bring to market and may be priced significantly lower than our products.
An
abbreviated approval process is also available under the Public Health Service Act (PHSA) for biosimilar versions of biologics licensed under full BLAs ("reference biologics"). A
biosimilar applicant generally must submit analytical, animal, and clinical data showing that the proposed product is "highly similar" to the reference product and has no "clinically meaningful
differences" from the reference product in terms of the safety, purity, and potency, although FDA may waive some or all of these requirements. The proposed product also must have the same route of
administration, dosage form, strength, and mechanism(s) of action (if known) as the reference biologic, and the application must seek approval for a condition of use for which FDA already approved the
reference biologic. FDA cannot license a biosimilar until 12 years after it first licensed the reference biologic. After expiry of the applicable exclusivity, our biologics may face direct
competition from licensed biosimilar products. Biosimilar manufacturers may price these products at material discounts to our products. Therefore, this competition could have a negative effect on
sales and gross profits for our product, and on our overall profitability and financial condition.
In
addition to obtaining FDA approval for each indication for which we plan to market product, each drug or biologic product manufacturing establishment must register with the FDA, list
its drug products with the FDA, comply with current Good Manufacturing Practices (cGMPs) and undergo periodic inspections by the FDA.
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In
complying with the FDA's cGMP regulations, manufacturers must continue to spend time, money and effort on facilities and equipment, process control, recordkeeping, personnel training,
quality control validation, and auditing to ensure that the marketed product meets applicable specifications and other requirements. The FDA periodically inspects drug or biologic product
manufacturing facilities to ensure compliance with cGMPs. Failure to comply with FDA requirements, including cGMPs, subjects the manufacturer to possible FDA enforcement action, such as untitled
letters, Warning Letters, suspension of manufacturing operations, seizure of the product, voluntary or mandatory recall of a product, injunctive action, consent decrees and/or suspension or revocation
of product approval, as well as possible civil and criminal penalties. We currently rely on, and intend to continue to rely on, third parties to manufacture our compounds and products. Such third
parties will be required to comply with FDA requirements, including cGMPs. We cannot be certain that we, or our present or future suppliers
or third-party manufacturers, will be able to comply with all FDA regulatory requirements, and potential consequences of non-compliance could have a material adverse impact on our
business.
Products
manufactured in the U.S. for distribution abroad will be subject to FDA regulations regarding export, as well as the requirements of the country to which they are shipped. These
latter requirements are likely to cover the conduct of clinical trials, the submission of marketing applications and all aspects of product manufacture and marketing. Such requirements can vary
significantly from country to country. As part of possible strategic relationships, our collaborators may be responsible for the foreign regulatory approval process of our products, although we may be
legally liable for noncompliance. Foreign establishments manufacturing drug or biologic products for distribution in the U.S. also must register their establishments and list their products with the
FDA, and comply with cGMPs. They also are subject to periodic inspection by the FDA or by local authorities under agreement with the FDA.
The
FDA's laws, regulations and policies may change, and additional governmental regulations or requirements may be enacted that could delay, limit or restrict, or prevent regulatory
approval of our products or affect our ability to test, manufacture, market, or distribute our products following approval.
The
Medicare Prescription Drug, Improvement and Modernization Act (MMA) established outpatient prescription drug coverage to eligible Medicare beneficiaries under Medicare Part D.
Medicare Part D coverage began in January 2006. The Part D prescription drug benefit is administered regionally through Medicare-approved insurance plans. The MMA also allows for the
importation of prescription drugs from Canada, but only if the Secretary of the U.S. Department of Health and Human Services certifies to Congress that such importation would pose no additional risk
to the public's health and safety and would result in significant reduction in the cost to customers, which the Secretary thus far has not done. There can be no assurance that this certification
requirement will be maintained in future legislation or that the certification will continue to be withheld. The impact of the MMA and/or amendments to the MMA could be negative over the intermediate
and longer term for our business generally as greater federal involvement and budget constraints may increase the likelihood of additional pricing pressures or controls in the future.
In
March 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law and was subsequently amended by the Health Care and Education Reconciliation Act of 2010. The
PPACA, as amended, is a sweeping measure intended to expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and
expansion of the Medicaid program. Several provisions of the new law, which have varying effective dates, will affect us. These include new restrictions on private insurance companies that prohibit
coverage denials because of a pre-existing condition; prohibit the application of annual and lifetime benefits limits on health insurance policies; and prohibit coverage rescissions
(except for fraud) and health-based insurance rating. In addition, the PPACA, as amended, funds an interim high risk pool
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that
states can draw on. Following the expiration of this high risk pool funding, the PPACA provides for the creation of state-run "exchanges" that will allow people without
employer-provided coverage, or who cannot afford their employer's plan, to buy health insurance. The PPACA will also provide federal subsidies to those who cannot afford premiums. Collectively, these
factors may increase the availability of insurance reimbursement to patients seeking the products that ViroPharma commercializes. However, PPACA's amendments to the Social Security Act will likely
increase certain of our costs. For example, PPACA increased the Medicaid rebate rate on branded prescription drugs from 15.1% to 23.1%, and manufacturers must now pay rebates on drugs dispensed to
beneficiaries in Medicaid managed care organizations. The PPACA also imposed a manufacturer's fee based on the sale of branded Pharmaceuticals (excluding orphan drugs) to specified government
programs, expanded the 340B drug discount program (excluding orphan drugs), and required manufacturers to fund a 50% discount on brand name drugs for Medicare Part D participants in the
coverage gap, or "doughnut hole". The PPACA has and will continue to affect our business, and we will also continue to monitor the trends and changes that may be encouraged by the legislation that may
potentially impact on our business over time.
Federal
and state governments also have pursued direct methods to reduce the cost of drugs for which they pay. We participate in state government-managed Medicaid programs, as well as
certain other qualifying federal and state government programs, whereby discounts and mandatory rebates are provided to participating state and local government entities. We also participate in other
programs with government entities, the most significant of which are the U.S. Department of Defense and the U.S. Department of Veterans Affairs under the Veterans Health Care Act ("VHCA"). These
entities receive minimum discounts based off a defined "non-federal average manufacturer price" for purchases. Additional programs in which we participate provide mandatory discounts for
outpatient medicines purchased by certain Public Health Service entities and "disproportionate share" hospitals (hospitals meeting certain criteria regarding the percentage of needy population served)
, through a program also created by the VHCA. As a part of our VHCA obligations, we are required to enter into several agreements with the Government, including a Federal Supply Schedule contract with
the VA which imposes certain compliance requirements of the Federal Acquisition Regulations ("FAR") and agency procurement regulations.
In
connection with several of these government programs, we are required to report prices to various government agencies. Pricing calculations vary among programs. The calculations are
complex and are often subject to interpretation by the reporting entities, government agencies and the courts. Our methodologies for calculating these prices could be challenged under false claims
laws or other laws. We could make a mistake in calculating reported prices and required discounts, which could result in retroactive liability to government agencies. Government agencies may also make
changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If we make these mistakes or if
governmental agencies make these changes, we could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of our
products from reimbursement under government programs, criminal fines or imprisonment, or prosecutors may impose a Corporate Integrity Agreement, Deferred Prosecution Agreement, or similar
arrangement.
Our
operations are also subject to federal and state anti-kickback laws. Certain provisions of the Social Security Act prohibit entities such as us from knowingly and
willfully offering, paying, soliciting or receiving any form of remuneration (including any kickbacks, bribe or rebate) in return for the referral of items or services for which payment may be made
under a federal health care program, or in return for the recommendation, arrangement, purchase, lease or order of items or services for which payment may be made under a federal health care program.
Violation of the federal anti-kickback law is a felony, punishable by criminal fines and imprisonment for up to five years or both. In addition, the Department of Health and Human Services
may impose civil penalties and exclude violators from participation in federal health care programs such as Medicare and Medicaid. Many states have
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adopted
similar prohibitions against payments intended to induce referrals of products or services paid by Medicaid or other third party payors. Several states have also enacted laws requiring
companies to adopt compliance programs; banning gifts to healthcare providers; and requiring companies to report of gifts, certain payments, and other value given to healthcare providers. Under the
PPACA and forthcoming regulations, pharmaceutical manufacturers will be required to report payments or other transfers of value made to healthcare providers during the preceding calendar year. These
reports will be available on a public database. Similarly, pharmaceutical manufacturers will be required to report samples of prescription drugs requested by and distributed to healthcare providers
during the preceding calendar year. The PPACA does not state whether the sample reports will be made publicly available. Because of the far-reaching nature of these laws, there can be no
assurance that the occurrence of one or more violations of these laws would not result in a material adverse effect on our business, financial condition and results of operations.
Moreover,
we anticipate that Congress, state legislatures and the private sector will continue to review and assess controls on health care spending. Any such proposed or actual changes
could cause us or our collaborators to limit or eliminate spending on development projects and may otherwise affect us. We cannot predict the likelihood, nature, or extent of adverse governmental
regulation that might result from future legislative or administrative action, either in the U.S. or abroad. Additionally, in both domestic and foreign markets, sales of our proposed products will
depend, in part, upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other
organizations. Significant uncertainty often exists as to the reimbursement status of newly approved health care products. In addition, third-party payors are increasingly challenging the price and
cost effectiveness of medical products and services. There can be no assurance that our proposed products will be considered cost-effective or that adequate third-party reimbursement will
be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development.
In
the United States, the Orphan Drug Act provides incentives to drug manufacturers to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases
that affect fewer than 200,000 individuals in the United States, or for a disease that affects more than 200,000
individuals in the United States, where the sponsor does not realistically anticipate its product becoming profitable. The FDA has granted Cinryze seven years of marketing exclusivity to Cinryze (C1
esterase inhibitor [human]) for routine prophylaxis in adolescent and adult patients with hereditary angioedema (HAE) pursuant to the Orphan Drug Act. Lev originally received
orphan drug designation for Cinryze by the Office of Orphan Products Development on July 16, 2004. Under the Orphan Drug Act, a manufacturer of a designated orphan product can seek certain tax
benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for that product for the orphan indication.
While the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication unless the subsequent sponsors could
demonstrate clinical superiority or a market shortage occurs, it would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of drugs
for the same use as the orphan drug. The U.S. Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of the market exclusivity of an orphan drug
and, thus, we cannot be sure that the benefits of the existing statute will remain in effect. Additionally, we cannot be sure that other governmental regulations applicable to our products will not
change. We rely on the marketing exclusivity provided by the Orphan Drug Act for Cinryze as there are no core patents protecting Cinryze.
We
are also subject to various other federal, state and local laws, rules, regulations and policies relating to safe working conditions, clinical, laboratory and manufacturing practices,
environmental protection, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents,
previously used in
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connection
with our research work. Although we believe that our safety procedures for handling and disposing of such materials comply with current federal, state and local laws, rules, regulations and
policies, the risk of accidental injury or contamination from these materials cannot be entirely eliminated. We may also incur significant costs to comply with such laws and regulations now and in the
future, and the failure to comply may have a material adverse impact on our business.
Foreign Regulation
In addition to regulations in the United States, we are subject to a variety of foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above, as well as additional regional and
country-specific regulations. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can
commence clinical trials or marketing of the product in those
countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to country.
For
example, under European Union regulatory systems, we may submit marketing authorizations either under a centralized or decentralized procedure. The centralized procedure provides for
the grant of a single marketing authorization that is valid for all European Union member states, and is required for certain categories of products including biological products. The decentralized
procedure provides for mutual recognition of national approval decisions, and the holder of a national marketing authorization may submit an application to the remaining member states. We submitted
our Marketing Authorization Application for Cinryze for the acute treatment and prophylaxis of HAE to the European Medicines Agency (EMA), using the centralized procedure.
Before
submitting a Marketing Authorization Application (MAA) for a new medicinal product in the EU, a company must obtain approval of a Paediatric Investigation Plan (PIP) from the EMA.
The PIP describes the pediatric development of a product and may include pharmaceutical development, non-clinical and clinical activities. The PIP will also define the age ranges of the
children for whom the product must be developed and the timelines that the sponsor must meet, including, for example, the deferral of some studies. The PIP can be updated as new information is
obtained. The incentives for completing the PIP include 6 months extension of the term of the supplementary protection certificate (the European patent term extension) and, for orphan medicinal
products, an additional 2 years orphan exclusivity. In October 2009 a PIP was approved for Cinryze (C1 inhibitor deficiency). The PIP has not yet been completed.
Legislation
similar to the Orphan Drug Act has been enacted in other countries outside of the United States, including the European Union. The orphan legislation in the European Union is
available for therapies addressing conditions that affect five or fewer out of 10,000 persons. The market exclusivity period is for ten years, although that period can be reduced to six years if, at
the end of the fifth year, available evidence establishes that the product is sufficiently profitable not to justify maintenance of market exclusivity. In October 2009 and December 2007, the Company
was granted orphan medical product designation for Cinryze and maribavir, respectively, by the European Commission. In addition, the Commission must reconfirm the orphan designation in connection with
the approval of an MAA.
In
some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to
country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and
to control the prices and/or reimbursement of medicinal products for human use. A member state may approve a specific price or level of reimbursement for the medicinal product, or it may instead adopt
a system of
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direct
or indirect controls on the profitability of the company placing the medicinal product on the market. After having received regulatory approval of Cinryze in the EU, we engaged with appropriate
authorities on the operational, reimbursement, price approval and funding processes that are separately required in each country.
Competition
Other companies are developing treatments for the disease states for which we market products or are developing product candidates,
including compounds in preclinical and clinical development for HAE and
C. difficile
. These companies include both public and private entities,
including well-known, large pharmaceutical companies, chemical companies, biotechnology companies and research institutions. Our ability to compete successfully will be based on our
ability to:
-
-
develop proprietary products;
-
-
attract and retain scientific personnel;
-
-
obtain patent or other protection for our products;
-
-
obtain required regulatory approvals; and
-
-
manufacture and successfully market our products either alone or through outside parties.
HAE
We
do not have patent protection for the composition of Cinryze and we rely on the exclusivity provided by the Orphan Drug Act. The FDA granted Cinryze seven
years of marketing exclusivity to Cinryze C1 inhibitor (human) for routine prophylaxis of HAE pursuant to the Orphan Drug Act. Steroid based products are currently used for prophylaxis of HAE.
Two
therapeutic agents that can be used for treatment of acute attacks were approved by the FDA in 2009, a kallikrein inhibitor and a C1-INH. Additionally, in August 2011,
the FDA approved a self-administered icatibant for treatment of acute attacks of HAE in adults 18 years of age and older.
In
the fourth quarter of 2009 the FDA granted marketing approval of CSL Behring's product, Berinert® C1-Esterase Inhibitor, Human, for the treatment of acute
abdominal or facial attacks of hereditary angioedema and Berinert has received exclusivity pursuant to the Orphan Drug Act. This approval will prevent us from obtaining FDA licensure and marketing our
C1-INH product for the treatment of acute abdominal or facial attacks HAE for up to seven years. In January 2012, the FDA approved a label expansion for self-administration of
Berinert. As part of the label expansion, Berinert is now also indicated to treat life-threatening laryngeal HAE attacks, as well as facial and abdominal attacks. In addition, CSL Behring
has stated that they are developing a subcutaneous version of their C1 inhibitor for treatment of HAE attacks and that they plan to commence clinical efficacy trials in the second half of 2013.
In
August 2011, the FDA granted Shire plc a marketing approval for FIRAZYR® (icatibant injection) for the self-administered treatment of acute attacks of
HAE in adults 18 years of age and older.
In
the fourth quarter of 2009, Dyax received FDA approval for their product candidate for the acute treatment of HAE.
In
Europe, the EMA granted Cinryze MAA centralized approval in 2011 for prevention of HAE attacks, treatment of acute HAE attacks, pre-procedural prevention and self
administration. Cinryze in Europe currently has no regulatory or patent exclusivity. In the EU, CSL Behring's product Berinert has been approved for nearly three decades as an acute treatment therapy
for HAE through a decentralized route with Germany the reference member state. Also available on the EU market is
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Shire's
Firazyr. Recently Pharming has achieved approval for their C1 INH recombinant product Rhucin.
AI
In
October 2011, we acquired the rights to Plenadren
®
(hydrocortisone, modified release tablet), an
EU approved orphan drug for treatment of adrenal insufficiency (AI) in adults.
Plenadren
is a dual release hydrocortisone replacement therapy designed to better mimic the normal physiological cortisol profile in order to improve outcomes for patients suffering from
adrenal insufficiency. Plenadren is given as an oral tablet once daily. It has an outer layer releasing hydrocortisone immediately and an inner core releasing the rest of the drug more slowly during
the day.
AI
is an orphan disorder that is caused by a dysfunction of the adrenal gland resulting in low levels of the corticoid hormone cortisol, which follows a circadian rhythm and regulates
many critical body functions. Primary AI is referred to as Addison's disease and affects up to 15 in every 100,000 people worldwide. The most common symptoms of Addison's disease include fatigue,
lightheadedness, muscle weakness, fever, weight loss, difficulty standing, anxiety, GI involvement and personality changes. Addison's disease also can be deadly. The lack of cortisol carries an
invariably fatal outcome if patients receive no replacement therapy. Mortality is precipitated by "traumatic events" such as infections, accidents, surgery, etc in what is called "adrenal crisis".
Such crisis still occurs in 10% of the patients annually underlining the severity of the condition and the need for optimal cortisol replacement therapy. These crisis are medical emergencies and
demand urgent supplementation of the cortisol replacement therapy, usually through an intramuscular injection of hydrocortisol. To maintain a reasonable quality of life, these patients rely on daily
cortisol replacement therapy. Because it is a chronic condition, these patients require this therapy throughout their entire lives.
Glucocorticoid
hormone replacement therapy for adrenal insufficiency has been available for decades. However, studies have recorded complications and comorbidities including premature
death, impaired quality of life, increased risk of cardiovascular diseases, and decreased bone mineral density in treated patients, most likely because it is difficult to match the natural secretion
pattern of cortisol. We also are aware of at least one other program sponsored by Diurnal Pharma, a company based on the UK, that reported early stage clinical testing of a modified release
hydrocortisone formulation for the treatment of adrenal insufficiency
Buccolam
Buccolam
is oromucosal midazolam provided in an individual dose formulation for buccal delivery. It is provided as a convenient, portable, ready to use,
pre-filled oral syringe containing an age-specific dose. Buccolam is approved throughout the European Union and the EEA for treatment of prolonged, acute, convulsive seizures
in infants, toddlers, children and adolescents, from three months to less than 18 years of age. Buccolam must only be used by parents/carers where the patient has been diagnosed to have
epilepsy.
The
licensing and availability of Buccolam follows its recent central approval in the European Union through the Pediatric Use Marketing Authorization (PUMA) in 2011. Buccolam is the
first product approved using a PUMA, which is a type of centralized marketing authorization procedure requested for medicines already authorized but no longer covered by intellectual property rights
and exclusively developed for use in children.
In
most European markets the key competitors for Buccolam are typically either availably generically, such as intra rectal diazepam, or are used off label.
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There
are a number of potential future competitors in the same or similar medical areas. Namely, the following are in Phase 3 trials in the U.S.: Intranasal midazolam (USL261
(ITI-111)) under development by Upsher-Smith Laboratories; intramuscular diazepam (Vanquix) being developed by Pfizer; and, intramuscular midazolam from the University of Michigan. Also,
DZNS nasal spray midazolam being developed by Acorda is in Phase 2 in the U.S.
Additionally,
there are other potential products in early stage clinical development such as NRL-01 nasal diazepam developed by Neurelis and a unit dosed nasal spray
midazolam developed by Medir
Clostridium Difficile
-Associated Diarrhea (CDAD)
In
December 2008, FDA changed OGD's 2006 bioequivalence recommendation, which we have opposed since its original proposal in March 2006, by issuing draft
guidance for establishing bioequivalence to Vancocin which would require generic products that have the same inactive ingredients in the same quantities as Vancocin ("Q1 and Q2 the same"), and that
meet certain other conditions, to demonstrate bioequivalence through comparative in vitro dissolution testing. Under this latest proposed method, any generic product that is not Q1 and Q2 the same as
Vancocin would need to conduct an in vivo study with clinical endpoints to demonstrate bioequivalence with Vancocin. On August 4, 2009 the FDA's Pharmaceutical Science and Clinical Pharmacology
Advisory Committee voted in favor of the OGD's 2008 draft guidelines on bioequivalence for Vancocin.
On
April 9, 2012, the FDA denied the citizen petition we filed on March 17, 2006 related to the FDA's proposed in vitro method for determining bioequivalence of generic
versions of Vancocin (vancomycin hydrochloride, USP) capsules. The FDA also informed us in the same correspondence that the recent supplemental new drug application (sNDA) for Vancocin which was
approved on December 14, 2011 would not qualify for three additional years of exclusivity, as the agency interpreted Section 505(v) of the FD&C Act to require a showing of a significant
new use (such as a new indication) for an old antibiotic such as Vancocin in order for such old antibiotic to be eligible for a grant of exclusivity. FDA also indicated that it approved three
abbreviated new drug applications (ANDAs) for generic vancomycin capsules and the companies holding these ANDA approvals indicated that they began shipping generic vancomycin hydrochloride, USP. In
June 2012, the FDA approved a fourth ANDA for generic vancomycin capsules.
We
granted a third party a license under our NDA for Vancocin® (vancomycin hydrochloride capsules, USP) to distribute and sell vancomycin hydrochloride capsules as an
authorized generic product. As noted above, there are four other generic drug companies selling vancomycin hydrochloride capsules.
In
May 2011, FDA approved Optimer Pharmaceuticals' product, Dificid® (fidaxomicin), for the treatment of CDAD. Additionally, several other companies, including,
Merck & Co., Sanofi-Aventis and Cubist Pharmaceuticals have clinical development programs with therapeutic agents for the treatment of
C.
difficile
infection that could be found to have competitive advantages over Vancocin.
Metronidazole,
a generic product, is regularly prescribed to treat CDAD and products which are currently marketed for other indications by other companies may also be prescribed to treat
this indication.
Employees
As of December 31, 2012, we had 410 employees, of which, 265 were employed in the United States, 139 were located in Europe and
6 were located in other countries. A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical products companies. None of
our employees are covered by collective bargaining agreements. We believe that we have been successful in attracting skilled and experienced personnel;
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however,
competition for such personnel is intense. We believe that our relations with our employees are good.
Executive Officers
|
|
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|
Name
|
|
Age
|
|
Position
|
Vincent J. Milano
|
|
|
49
|
|
President, Chief Executive Officer and Chairman of the Board of Directors
|
Charles A. Rowland, Jr.
|
|
|
54
|
|
Vice President, Chief Financial Officer
|
Colin Broom, M.D.
|
|
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57
|
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Vice President, Chief Scientific Officer
|
Thomas F. Doyle
|
|
|
52
|
|
Vice President, Strategic Initiatives
|
Daniel B. Soland
|
|
|
54
|
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Vice President, Chief Operating Officer
|
Robert G. Pietrusko
|
|
|
64
|
|
Vice President, Regulatory Affairs and Quality
|
J. Peter Wolf
|
|
|
43
|
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Vice President, General Counsel and Secretary
|
Robert C. Fletcher
|
|
|
50
|
|
Vice President, Business Development and Project Management
|
John J. Kirby
|
|
|
41
|
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Vice President, Chief Accounting Officer
|
Vincent
J. Milano joined the company in 1996, and has served as President and Chief Executive Officer since March 31, 2008. He became Chairman of the Board of Directors in
December 2008. He served as our Chief Operating Officer from January 2006 to March 2008 and as Vice President, Chief Financial Officer of ViroPharma from November 1997 to March 2008. Mr. Milano
has also previously served as our Vice President, Finance & Administration, as Treasurer, and as Executive Director, Finance & Administration. Prior to joining ViroPharma,
Mr. Milano was with KPMG LLP, independent certified public accountants, where he was a Senior Manager. Mr. Milano has served on the board of directors of Vanda
Pharmaceuticals Inc. since April 2010 and served on the board of directors of Verticalnet, Inc. from August 2003 until the company was acquired by BravoSolution S.p.A. in January
2008. Mr. Milano received his Bachelor of Science degree in Accounting from Rider College.
Charles
A. Rowland, Jr. has served as our Vice President, Chief Financial Officer since he joined the company in October 2008. Prior to joining ViroPharma, Mr. Rowland served as
Executive Vice President, Chief Financial Officer of Endo Pharmaceuticals from December 2006 to September 2008. Prior thereto, Mr. Rowland was Senior Vice President and CFO of Biovail
Pharmaceuticals, Inc. from 2004 to 2006. From 2001 to 2004, he was Chief Operating and Financial Officer for Breakaway Technologies, a management consulting company. His pharmaceutical industry
career includes positions of increasing scope and responsibility at Pharmacia Corp., where he had global responsibility for Finance and Information Technology for the Pharmaceutical Business and
financial responsibility for the Global Supply organization as Vice President, Finance Global Supply and VP Finance & IT-Global Pharma Ops; Novartis Pharmaceuticals Corp., where he
was Vice President, Planning and Decision Support, and Bristol-Myers Squibb, where he served as Director of Finance. Mr. Rowland received his Bachelor of Science degree in Accounting from
St. Joseph's University and a MBA from Rutgers University.
Colin
Broom, M.D. has served as Vice President, Chief Scientific Officer of ViroPharma since May 2004. From 2000 until 2003, Dr. Broom served as Vice President of Clinical
Development and Medical Affairs, Europe, for Amgen. From 1998 to 1999, Dr. Broom served as Senior Vice President of Global Clinical Development for Hoechst Marion Roussel, now Sanofi-Aventis.
From 1984 until 1998, Dr. Broom was with Glaxo and then SmithKline Beecham, where he held positions of increasing seniority in clinical pharmacology in Europe before moving to the U.S. to head
global oncology and subsequently becoming Vice President of CNS/GI. Dr. Broom holds a Bachelor of Science degree in Pharmacology from University College London, and a Bachelor of Medicine and
Bachelor of Surgery degree from St. George's Hospital Medical School. Dr. Broom is a Member of the Royal College of
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Physicians
and a Fellow of the Faculty of Pharmaceutical Medicine of the UK Colleges of Physicians. Dr. Broom has been a director of NPS Pharmaceuticals since July 2009.
Thomas
F. Doyle is Vice President, Strategic Initiatives as of January 2008. Mr. Doyle previously served as Vice President, General Counsel of ViroPharma from November 1997 to
January 2008, as Secretary from February 1997 to January 2008 and as Executive Director, Counsel since joining ViroPharma in November 1996 to February 1997. From 1990 until 1996, Mr. Doyle was
a corporate attorney with the law firm of Pepper Hamilton LLP. Mr. Doyle received his J.D. from Temple University School of Law. Prior to attending Temple University, Mr. Doyle
was a Certified Public Accountant. Mr. Doyle received his Bachelor of Science degree in Accounting from Mt. St. Mary's College.
Daniel
B. Soland joined ViroPharma in November 2006 as our Vice President, Chief Commercial Officer and has served as our Chief Operating Officer since March 2008.From February 2005
until June 2006, Mr. Soland served as President of Chiron Vaccines. From March 2003 until February 2005, Mr. Soland was President and Chief Executive Officer at Epigenesis
Pharmaceuticals, a privately held biopharmaceutical company. Prior to that, Mr. Soland spent nine years with GlaxoSmithKline as the Vice President and Director of Worldwide Marketing
Operations, and five years as GSK's Vice President and Director of the U.S. Vaccines Business Unit. Mr. Soland holds a Bachelor of Science degree in Pharmacy from the University of Iowa, in
Iowa City, IA.
Robert
G. Pietrusko, Phrm.D., has served as Vice President, Global Regulatory Affairs and Quality since joining ViroPharma in 2007. Prior to joining ViroPharma, Dr. Pietrusko
served as Senior Vice President of Worldwide Regulatory Affairs for Millennium Pharmaceuticals, Inc. from 2001 through May 2007. Dr. Pietrusko spent 19 years at GlaxoSmithKline,
culminating in his tenure as Vice President and Director, Anti-infective and Antiviral Therapeutic Areas, U.S. Regulatory Affairs Dr. Pietrusko holds a Bachelor of Science degree in
Biology and a Bachelors of Pharmacy degree from Rutgers University, and a Doctor of Pharmacy degree from the Philadelphia College of Pharmacy and Science.
J.
Peter Wolf has served as Vice President, General Counsel, and Secretary since January 2008. Mr. Wolf previously served as Associate General Counsel of ViroPharma since 2004.
From 1995 to 2004 Mr. Wolf was a corporate attorney at private law firms. Mr. Wolf received his J.D. from the George Washington University National Law Center and his Bachelor of Arts
from the University of Delaware.
Robert
C. Fletcher has served as Vice President, Business Development and Project Management since January 2005. Mr. Fletcher joined ViroPharma in 2001 as a project leader, and
has since held roles of increasing responsibility during his tenure in the areas of business development and project management. Prior to joining ViroPharma, Mr. Fletcher held multiple roles of
escalating responsibility at SmithKline Beecham Pharmaceuticals/GlaxoSmithKline, Becton-Dickinson and Company, Zynaxis Inc./Intracell Corporation, and Centocor Corporation. He holds both a
master of science degree and a bachelor of arts degree in biology from Wake Forest University.
John
J. Kirby, CPA has served as Vice President and Chief Accounting Officer since joining the company in August 2012. From 2010 to 2012 Mr. Kirby held positions of increasing
responsibility with AstraZeneca Pharmaceuticals, most recently as the Regional Audit DirectorAmericas. Prior to that, Mr. Kirby worked for KPMG LLP for fourteen years where
he held positions of increasing
responsibility, most recently as Senior Manager. Mr. Kirby received his bachelor of science degree in accounting from Villanova University and is a certified public accountant.
Available Information
Our Internet website is www.viropharma.com and you may find our SEC filings on the "Investors" tab of that website. We provide access
to all of our filings with the SEC, free of charge, as soon as reasonably practicable after filing with the SEC on such site. Our Internet website and the information contained on that website, or
accessible from our website, is not intended to be incorporated into this Annual Report on Form 10-K or any other filings we make with the SEC.
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PART IIOTHER INFORMATION
ITEM 1A. Risk Factors
If we are unable to continue to successfully commercialize Cinryze in the United States, or are delayed in our efforts to commercialize Cinryze in Europe and additional
territories, our business will be materially harmed.
The FDA approved Cinryze for routine prophylaxis against angioedema attacks in adolescent and adult patients with hereditary angioedema
on October 10, 2008. In June 2011, the European Commission granted us Centralized Marketing Authorization for Cinryze in adults and adolescents with HAE for routine prevention,
pre-procedure prevention and acute treatment of angioedema attacks. The commercial success of Cinryze will depend on several factors, including the
following:
-
-
the number of patients with HAE that may be treated with Cinryze;
-
-
manufacturing or supply interruptions which could impair our ability to acquire an adequate supply of Cinryze to meet
demand for the product;
-
-
continued acceptance by physicians and patients of Cinryze as a safe and effective treatment;
-
-
our ability to effectively market and distribute Cinryze in the United States, Europe and additional territories;
-
-
cost effectiveness of HAE treatment using Cinryze;
-
-
relative convenience and ease of administration of Cinryze;
-
-
potential advantages of Cinryze over alternative treatments;
-
-
acceptance and utilization of competitive products;
-
-
patients' ability to obtain sufficient coverage or reimbursement by third-party payors in the United States and our
ability to receive sufficient reimbursement and price approvals that are separately required in each country in Europe;
-
-
sufficient supply and reasonable pricing of raw materials necessary to manufacture Cinryze; and,
-
-
our ability to receive regulatory approvals to market Cinryze in territories outside the United States and Europe in the
timeframes we anticipate.
Sales
of Cinryze represented approximately 46 and 77 percent of our revenue in 2011 and 2012 respectively, and we expect Cinryze will continue to account for an increasing
percentage of our future revenues as Vancocin sales continue to decrease. If we are not able to continue to successfully commercialize Cinryze in the United States and Europe, or are significantly
delayed or limited in doing so, we could fail to achieve our estimates for peak year sales for Cinryze, and our business, financial condition, results of operations and liquidity could be materially
impacted.
If our efforts to commercialize Buccolam or Plenadren in Europe are delayed or are not as successful as we anticipate, our business will be materially harmed.
In September of 2011, the European Commission granted a centralized Pediatric Use Marketing Authorization (PUMA) for Buccolam, for
treatment of prolonged, acute, convulsive seizures in infants, toddlers, children and adolescents, from 3 months to less than 18 years of age. Additionally, in November 2011, we acquired
rights to Plenadren, which had recently received European Marketing Authorization and was commercially launched in several European countries in late 2012. The
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commercial
success of Buccolam and Plenadren in the EU will depend on several factors, including the following:
-
-
the number of patients that may be treated with Buccolam and Plenadren;
-
-
acceptance by physicians and patients of Buccolam and Plenadren as a safe and effective treatment;
-
-
our ability to effectively market and distribute Buccolam and Plenadren in Europe;
-
-
cost effectiveness of treatment of epilepsy or other prolonged, acute, convulsive seizures using Buccolam and adrenal
insufficiency with Plenadren;
-
-
relative convenience and ease of administration of Buccolam and Plenadren;
-
-
potential advantages of Buccolam and Plenadren over alternative treatments;
-
-
the timing of the approval of competitive products;
-
-
the timing and levels of pricing approvals that are separately required in each country in Europe; and
-
-
manufacturing or supply interruptions, including delays in the scale-up of the manufacturing process, which
could impair our ability to acquire an adequate supply of Buccolam or Plenadren to meet demand for the products including, without limitation, sufficient supply and reasonable pricing of raw materials
necessary to manufacture Buccolam or Plenadren.
If
we are not able to continue to successfully commercialize Buccolam and Plenadren in Europe, or are significantly delayed or limited in doing so, we could fail to achieve our estimates
for peak year sales for Buccolam and Plenadren and our financial condition, results of operations and liquidity could be materially adversely impacted.
Because the target patient population for Cinryze is small and has not been definitively determined, we must be able to successfully identify HAE patients and maintain a
significant market share in order to increase revenue and maintain profitability.
The prevalence of HAE patients has not been definitively determined but has been estimated, through market research we have conducted,
at up to 11,000 total patients in the United States while the Hereditary Angioedema Association estimates there are 6,500 patients in the United States. Additionally, we believe that HAE affects
between 1 in 10,000 and 1 in 50,000 individuals in Europe and other territories worldwide. There can be no guarantee that any of our programs will be effective at identifying HAE patients and the
number of HAE patients in the United States, Europe or other countries may turn out to be lower than expected or such patients may not be amenable to treatment with Cinryze as not all HAE patients are
appropriately treated through routine prophylaxis. Accordingly, our product sales of Cinryze and overall business could be adversely affected if we are unable to identify additional HAE patients to
increase revenue and maintain profitability.
We do not have patent protection for the composition of Cinryze, Buccolam or Plenadren and we rely on regulatory exclusivity in Europe.
The Orphan Drug Act was created to encourage companies to develop therapies for rare diseases by providing incentives for drug
development and commercialization. One of the incentives provided by the act is seven years of market exclusivity in the United States for the first product in a class licensed for the treatment of a
rare disease. HAE is considered to be a rare disease
under the Orphan Drug Act, and companies may obtain orphan drug status for therapies that are developed for this indication. The FDA granted Cinryze seven years of marketing exclusivity to Cinryze C1
inhibitor (human) for routine prophylaxis of HAE pursuant to the Orphan Drug Act. The FDA has granted marketing
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approval
of CSL Behring's product, Berinert® C1-Esterase Inhibitor, Human, for the treatment of acute abdominal or facial attacks of hereditary angioedema and Berinert has
received exclusivity pursuant to the Orphan Drug Act. In addition, in the first quarter of 2011, we withdrew our orphan designation in Europe and no longer maintain regulatory exclusivity for Cinryze
in Europe. We currently do not have any issued patents for Plenadren in Europe or the United States but have received an orphan drug designation for Plenadren in the EU, Switzerland and the U.S. and
have received orphan exclusivity in the EU. In order to receive orphan exclusivity in the United States the FDA has requested that we demonstrate that Plenadren provides a significant measure of
safety over existing therapies.
While
the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same drug compound for the same indication unless the subsequent sponsors
could demonstrate clinical superiority or a market shortage occurs, it would not prevent other sponsors from obtaining approval of the same compound for other indications or the use of other types of
drugs for the same use as the orphan drug. In the event we are unable to fill demand for Cinryze, it is possible that the FDA may view such unmet demand as a market shortage which could impact the
market exclusivity provided by the Orphan Drug Act. Additionally, the United States Congress has considered, and may consider in the future, legislation that would restrict the duration or scope of
the market exclusivity of an orphan drug and, thus, we cannot be sure that the benefits to us of the existing statute will remain in effect. We cannot predict when generic competition for Cinryze may
arise, if at all, in Europe.
We
have received a pediatric-use marketing authorization (PUMA) for Buccolam in Europe. The PUMA is a new type of marketing authorization which may be requested for a
medicine which is already authorized, but no longer covered by intellectual property rights, and which will be exclusively developed for use in children. A PUMA provides 10 years of market
protection as a reward for the development in children. As the PUMA for Buccolam was the first such approval to be granted, the EMA and EC may interpret the legislation in ways which restrict the
duration or scope of the market exclusivity of a PUMA and, thus, we cannot be sure that the benefits to us of the existing statute will remain in effect.
We do not know whether Cinryze will continue to be competitive in the markets which it serves.
The FDA approved Cinryze for routine prophylaxis against angioedema attacks in adolescent and adult patients with hereditary angioedema
on October 10, 2008 and Cinryze became commercially available for prophylaxis against HAE in December 2009. While we are not aware of other companies which are developing a product for the
prophylaxis of HAE in the United States, CSL Behring, Shire and Dyax had products approved for the treatment of acute attacks of HAE, and steroid based products are currently used for prophylaxis of
HAE. In addition, Pharming NV is currently developing products for the acute treatment of HAE. Approval of new products, or the expanded use of currently available products, to prophylax or
treat HAE, could materially and adversely affect our sales of Cinryze in the United States. In addition, there are currently several products approved for the acute treatment of HAE in Europe,
including CSL Behring's product Berinert which has been approved for nearly three decades as an acute treatment therapy for HAE. There can be no assurance that physicians in Europe will change their
historic practice of treating patients having attacks of HAE to adopt prophylaxis against HAE. In the United States, competition from other C1-Esterase Inhibitors for prophylaxis may arise following
the expiry of orphan drug market exclusivity in October 2015.
We depend on single manufacturers for certain components used in Cinryze, Buccolam, Plenadren and Vancocin and the loss of any of these suppliers or any supplier in general
would have a negative impact on our operations.
We rely on a single manufacturer of Cinryze. Pursuant to our distribution agreement, Sanquin Blood Supply Foundation will supply us
with certain annual minimum and maximum amounts of
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Cinryze.
In the event that certain events occur which result in Sanquin permanently ceasing to manufacture Cinryze, Sanquin will grant us a perpetual license under its intellectual property related to
Cinryze and assign to us each of the agreements with such third party manufacturers. In consideration thereof, we will pay a one-time fee to Sanquin as well as a royalty on future sales of
products. In the event demand for Cinryze is greater than the amount supplied by Sanquin, we will not be able to meet such demand as there are no other sources of supply of Cinryze available to us. In
the event Sanquin permanently ceases to manufacture Cinryze, we will need to find an alternate manufacturer of Cinryze. Currently, to our knowledge, there is only one other commercial supplier of C1
esterase inhibitor and that supplier markets their product in the United States. Accordingly, in the event Sanquin permanently ceases to manufacture Cinryze, we cannot be certain that we would be able
to locate another willing supplier for our product on the terms we require.
We
also rely on a single supplier of the active pharmaceutical ingredient (API) of Vancocin, Buccolam and Plenadren and also rely on a single manufacturer of finished Vancocin capsules,
Buccolam pre-filled syringes and Plenadren capsules. Our third party API suppliers and finished product suppliers are the only manufacturers qualified by the FDA to manufacture API and
finished products for distribution and sale in the United States and Europe for each of these products. We are therefore dependent upon these suppliers and attempt to maintain inventory levels to meet
our current projections, plus a reasonable stock in excess of those projections. In addition, we have loaned the manufacturer of finished Buccolam pre-filled syringes approximately
$10 million for the purchase of equipment and to support the scale up of their operations. In the event our commercial launch of Buccolam is not as successful as we expect, we may not recover
the full amount of the loaned funds and we may also incur an impairment of our intangible assets.
There
are numerous factors that could cause interruptions in the supply of our products, including regulatory reviews; changes in our sources for manufacturing; disputes with a
manufacturer; or financial instability of manufacturers. Our failure to timely locate and obtain replacement manufacturers as needed and conditions affecting the cost and availability of raw materials
are magnified when the suppliers are limited in number. Any interruption in the supply of finished products could hinder our ability to timely distribute our products and satisfy customer demand. If
we are unable to obtain adequate product supplies to satisfy our customers' orders, we may lose those orders, our customers may cancel other orders, and they may choose instead to stock and purchase
competing products. Supply interruptions may occur, and our inventory may not always be adequate. This in turn could cause a loss of our market share and negatively affect our revenues. Additionally,
in the event one of our sole source suppliers of API were to cease operations the resulting reductions in forecasted revenue or operating results could result in an impairment charge of intangible
assets related to the product involved. We maintain limited property insurance which would only protect us from physical damage to our assets caused by certain types of occurrences to the extent of
the value of the property damaged and would not cover lost revenue.
We currently depend, and will in the future continue to depend, on third parties to manufacture raw, intermediate and finished goods for Cinryze, Buccolam, Plenadren,
Vancocin and our product candidates. If these manufacturers fail to meet our requirements and the requirements of regulatory authorities, our future revenues may be materially adversely affected.
We do not have the internal capability to manufacture quantities of pharmaceutical products to supply our clinical or commercial needs
under the current Good Manufacturing Practice regulations, or cGMPs, required by the FDA and other regulatory agencies. In order to continue to develop products, apply for regulatory approvals and
commercialize our products, we will need to contract with third parties that have, or otherwise develop, the necessary manufacturing capabilities.
There
are a limited number of manufacturers that operate under cGMPs that are capable of manufacturing our products and product candidates. As such, if we are unable to enter into supply
and
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processing
contracts with any of these manufacturers or processors for our development stage product candidates, there may be additional costs and delays in the development and commercialization of
these product candidates. For example, Cinryze is a biologic which requires processing steps that are more difficult than those required for most chemical pharmaceuticals and therefore the third party
contractors must have additional technical skills and take multiple steps to attempt to control the manufacturing processes.
Problems
with these manufacturing processes such as equipment malfunctions, maintenance requirements, facility contamination, labor shortages or other labor problems, raw material
shortages, variability in batch yields, contamination, natural disasters, power outages, terrorist activities, or disruptions in the operations of our suppliers and even minor deviations from the
normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims and insufficient inventory which could result in our
inability to supply product to patients, create opportunities for our competitors and reduce our revenues. In addition, the financial instability of any of our suppliers could result in their
inability to meet their contractual obligations to us.
If
we are required to find an additional or alternative source of supply, there may be additional costs and delays in the development or commercialization of our product candidates.
Additionally, the FDA, the EMA and other regulatory agencies routinely inspect manufacturing facilities before approving a new drug application, or NDA, or biologic application, or BLA, for a drug or
biologic manufactured at those sites. If any of our manufacturers, suppliers or processors fails to satisfy regulatory requirements, the approval and eventual commercialization of our products and
product candidates may be delayed. For example, in addition to FDA, Sanquin is also subject to the requirements of the European health authorities which may impose on Sanquin obligations relating to
facility maintenance and/or equipment modifications that could cause delays in Cinryze production.
In
addition, regulatory agencies subject a marketed therapy, its manufacturer and the manufacturer's facilities to continual review and periodic inspections. The discovery of previously
unknown problems with a therapy or the facility or process used to produce the therapy could prompt a regulatory authority to impose restrictions on us or delay approvals for new products or could
cause us to voluntarily adopt restrictions, including withdrawal of one or more of our products or services from the market.
In
connection with several inspections of two facilities maintained by Sanquin, our contract manufacturer for Cinryze, FDA issued notices of observations on FDA Form 483 for each
site. Responses to the observations on 483 have been provided to the FDA, however, several of the responses remain the subject of continuing corrective and preventive action procedures. Biologics such
as Cinryze require processing steps that are more complex than those required for most chemical
pharmaceuticals and FDA may determine that we have not satisfied their requirements for these continuing corrective and preventive action procedures. If any of our manufacturers or processors fails to
satisfy regulatory requirements, operations at such facility may be halted which could result in our inability to supply product to patients, create opportunities for our competitors and reduce our
revenues.
The
number of patients enrolling into our treatment support service for patients with HAE and their healthcare providers,
Cinryze
Solutions, has periodically exceeded our expectations. For example, in 2010
we temporarily limited the rate at which additional patients were
started on drug to ensure that those already receiving commercial product continue with a supply of Cinryze until capacity increases. During the fourth quarter of 2011 and first quarter of 2012, we
reduced the amount of Cinryze inventory held by our distributors and by patients. If our manufacturing capacity expansion projects at Sanquin do not result in the capacity we anticipate, or if we
experience batch failures, or variability in batch yields, or encounter facility shut downs as a results of maintenance or other causes, we may not
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be
able to satisfy patient demand. Our inability to obtain adequate product supplies to satisfy our patient demand may create opportunities for our competitors and we will suffer a loss of potential
future revenues.
All
of our contract manufacturers must comply with the applicable cGMPs, which include quality control and quality assurance requirements as well as the corresponding maintenance of
records and documentation. If our contract manufacturers do not comply with the applicable cGMPs and other FDA, EMA or other applicable regulatory requirements, we may be subject to product liability
claims, the availability of marketed products for sale could be reduced, our product commercialization could be delayed or subject to restrictions, we may be unable to meet demand for our products and
may lose potential revenue and we could suffer delays in the progress of clinical trials for products under development. We do not have control over our third-party manufacturers' compliance with
these regulations and standards. Moreover, while we may choose to manufacture products in the future, we have no experience in the manufacture of pharmaceutical products for clinical trials or
commercial purposes. If we decide to manufacture products, we would be subject to the regulatory requirements described above. In addition, we would require substantial additional capital and would be
subject to delays or difficulties encountered in manufacturing pharmaceutical products. No matter who manufactures the product, we will be subject to continuing obligations regarding the submission of
safety reports and other post-market information.
Our subcutaneous Cinryze development program is dependent upon Halozyme's proprietary rHuPH20 enzyme which is an important component of our current development program, and
any failure to supply rHuPH20 or regulatory concerns about rHuPH20 could delay the development and commercialization efforts for our subcutaneous Cinryze development program.
Halozyme is responsible for providing its proprietary rHuPH20 enzyme which is an important component of our current development program
for subcutaneous administration of Cinryze. If Halozyme, or any applicable third party service provider of Halozyme, encounters difficulties in the manufacture, storage, delivery, fill, finish or
packaging of either components of rHuPH20, such difficulties could: (i) cause the delay of clinical trials or otherwise delay or prevent the regulatory approval of subcutaneous Cinryze; and/or
(ii) delay or prevent the effective commercialization of subcutaneous Cinryze. Such delays could have a material adverse effect on our business and financial condition. Additionally, Halozyme
has partnered rHuPH20 with other companies that are developing combination products for other indications. In the event the FDA or other foreign regulatory agencies refuse or delay approval of product
candidates which include rHuPH20 for reasons related to the safety or efficacy of rHuPH20, we may be required to collect additional clinical or animal safety data or to conduct additional clinical or
animal safety studies which may cause lengthy delays to, and increase costs for our subcutaneous Cinryze development program. For example, in August 2012 Baxter International Inc. announced
that the Center for Biologics Evaluation and Research (CBER) of the FDA had issued a complete response letter for Baxter's HyQ Biologics License Application which includes rHuPH20 for subcutaneous
administration in patients with primary immunodeficiency disease. The letter requested additional preclinical data to support the BLA as a result of potential safety concerns. Pending the provision of
additional preclinical data sufficient to address the regulatory questions, CBER notified us that studies of the combination of Cinryze and rHuPH20 were being placed on temporary clinical hold. On
September 21, 2012, we announced that the FDA provided guidance enabling us to resume clinical studies of the subcutaneous administration of Cinryze in combination with rHuPH20. The FDA has
advised us to amend the study protocol, allowing for increased laboratory sampling to monitor rHuPH20 antibody levels, and keep the FDA informed of elevated antibody levels during the treatment phase
of the study. There can be no assurance that the issues identified by CBER related to the use of rHuPH20 will not arise at a future time.
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The distribution of our commercial products in the U.S. is dependent upon a limited number of third party service providers and disruptions in these relationships could
result in our failure to achieve the sales of our products that we expected.
We rely on a single third party to provide all necessary distribution and logistics services with respect to our sales of Vancocin and
Cinryze, including warehousing of finished product, accounts receivable management, billing, collection and recordkeeping. The third party
logistics service provider stores and distributes Vancocin and Cinryze from two warehouses located in the central United States and western United States. A disaster occurring at or near these
facilities could materially and adversely impact our ability to supply Vancocin and Cinryze to our distribution partners, which would result in a reduction in revenues from sales.
Additionally,
we do not require collateral from our distribution partners but rather maintain credit limits and as a result we have an exposure to credit risk in our accounts receivable.
The highest account receivable during 2012 we experienced from any one distribution partner was approximately $39.7 million and we anticipate that this amount could increase if our net product
sales increase. While we have experienced prompt payment by wholesalers and have not had any defaults on payments owed, a default by a large wholesaler could have a material adverse effect on our
results of operations.
We
have entered into agreements with two specialty distributors / specialty pharmacies that distribute Cinryze to physicians, hospitals, pharmacies, home health providers and patients.
If
our third party service providers cease to be able to provide us with these services, or do not provide these services in a timely or professional manner, it could significantly
disrupt our commercial operations, and may result in our not achieving the sales of Vancocin and Cinryze that we expected. Additionally, any interruption to these services could cause a delay in
delivering product to our customers, which could have a material adverse effect on our business.
If we are unable to obtain reimbursement for Cinryze in the United States from government health administration authorities, private health insurers and other organizations,
Cinryze may be too costly for regular use and our ability to generate revenues would be harmed.
Our future revenues and profitability will be adversely affected if governmental, private third-party payors and other third-party
payors, including Medicare and Medicaid, do not sufficiently defray the cost of Cinryze to the consumer. If these entities do not provide coverage and reimbursement for Cinryze or determine to provide
an insufficient level of coverage and reimbursement, Cinryze may be too costly for general use, and physicians may not prescribe it. Cinryze is significantly more expensive than traditional drug
treatments. Many third-party payors cover only selected drugs, making drugs that are not preferred by such payor more expensive for patients, and often require prior authorization or failure on
another type of treatment before covering a particular drug. Third-party payors may be especially likely to impose these obstacles to coverage for higher-priced drugs such as Cinryze.
In
addition to potential restrictions on coverage, the amount of reimbursement for our products may also reduce our profitability and worsen our financial condition. In the United States
and elsewhere, there have been, and we expect there will continue to be, actions and proposals to control and reduce healthcare costs. Government and other third-party payors are challenging the
prices charged for
healthcare products and increasingly limiting and attempting to limit both coverage and level of reimbursement for prescription drugs.
Because
Cinryze is too expensive for most patients to afford without sufficient health insurance coverage, if adequate coverage and reimbursement by third-party payors is not available,
our ability to successfully commercialize Cinryze may be adversely impacted. Any limitation on the use of Cinryze or any decrease in the price of Cinryze will have a material adverse effect on our
business.
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Even
where patients have access to insurance, their insurance co-payment amounts may be too expensive for them to afford. We financially support the HAE financial assistance
programs established by Patient Services Incorporated (PSI), which, among other things, assists patients in acquiring drugs such as Cinryze. Organizations such as PSI assist patients who have no
insurance coverage for drugs, locate insurance, and also provide financial assistance to patients whose insurance coverage leaves them with prohibitive co-payment amounts or other
expensive financial obligations. In addition to assistance from organizations such as PSI, we provide Cinryze without charge for related charitable purposes. We are not able to predict the financial
impact of the support we may provide for these and other charitable purposes; however, substantial support could have a material adverse effect on our ability to maintain profitability.
In
furtherance of our efforts to facilitate access to Cinryze, we have established the Cinryze
Solutions
program, a treatment
support service for patients with HAE and their healthcare providers. Cinryze
Solutions
personnel provide education about HAE and Cinryze and help
facilitate solutions for reimbursement, coverage and access. Although case managers assist patients and healthcare providers in locating and accessing Cinryze, we cannot guarantee a sufficient level
of coverage, reimbursement or financial assistance.
If we are unable to obtain reimbursement for our products from European government health administration authorities our products may be too costly for regular use and our
ability to generate revenues would be harmed.
In European countries where we sell or are seeking or may seek to commercialize Cinryze, Buccolam and Plenadren, pricing, coverage and
level of reimbursement of prescription drugs are subject to governmental control. We may be unable to negotiate coverage, pricing, and reimbursement on terms that are favorable to us, or such
coverage, pricing, and reimbursement may differ in separate regions in the same country. In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements
governing drug pricing vary widely from country to country, and we cannot guarantee that we will have the capabilities or resources to successfully conclude the necessary processes and commercialize
Cinryze, Buccolam and Plenadren in every or even most countries in which we seek to sell these products. Reimbursement sources are different in each country and in each country may include a
combination of distinct potential payers, including private insurance and governmental payers. For example, countries in the European Union may restrict the range of medicinal products for which their
national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may from time to time approve a specific price for the medicinal
product or it may instead adopt a system of direct or indirect controls on the volume of product sold in that country or the profitability of the company placing the medicinal product on the market.
Some countries have or may seek to impose limits on the aggregate reimbursement for Cinryze, Buccolam or Plenadren or for the use of Cinryze, Buccolam or Plenadren for certain indications. In such
cases, our commercial operations in such countries and our results of operations and our business are and may be adversely affected. Our results of operations may suffer if we are unable to
successfully and timely conclude reimbursement, price approval or funding processes and market Cinryze, Buccolam or Plenadren in such foreign countries or if coverage and reimbursement for Cinryze,
Buccolam or Plenadren is limited or reduced. If we are not able to obtain coverage, pricing or reimbursement on terms acceptable to us or at all, or if such terms should change in any foreign
countries, we may not be able to or we may determine not to sell Cinryze, Buccolam or Plenadren for one or more indications in such countries, or we could decide to sell Cinryze, Buccolam or Plenadren
at a lower than anticipated price in such countries, and our revenues may be adversely affected as a result
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If supplies of human plasma are interrupted or if we are unable to acquire adequate supplies of human plasma to meet demand for Cinryze, our ability to maintain inventory
levels could suffer and future revenues may be delayed or reduced.
We have relied exclusively and are dependent on certain third party sources to supply human plasma for Cinryze. In connection with our
commercial sales of Cinryze and our ongoing and future clinical trials, we will need increased supplies of plasma.
We
are responsible for obtaining an adequate supply of United States source plasma to meet demand for Cinryze in the United States. Pursuant to our manufacturing and distribution
agreement, Sanquin is responsible for providing European plasma for Cinryze sold in the European market. We have a contract for the purchase and sale of plasma with DCI Management Group, LLC,
pursuant to which we purchase specified quantities of United States source plasma. Under this agreement, DCI agreed to sell us specified annual quantities of United States source plasma in accordance
with applicable good manufacturing practices. In addition to DCI, we entered into a Strategic Supply Agreement with Biotest Pharmaceuticals Corporation (BPC) pursuant to which we will purchase certain
quantities of United States source plasma. Our contractual purchase commitments are subject to annual percentage
increases based on change in the consumer price index and are subject to other market conditions. BPC has also built three additional plasma centers, and has committed to build another four additional
plasma centers, to support our plasma requirements during the term of the agreement. We have an option to purchase these seven plasma centers. We have also made periodic spot purchases of United
States source plasma.
Plasma
markets have historically been subject to price fluctuations as a result of changes in the production capacity available in the industry, the availability and pricing of plasma,
development of competing products and the availability of alternative therapies. In addition, some plasma derived products are currently in clinical development for indications, including Alzheimer's
disease, that, if approved, could cause a substantial increase in the demand for, and price of, plasma. In recent years, there has been consolidation in the industry as several plasma derivatives
manufacturers have acquired plasma collectors and reduced capacity. As a result, it could be difficult to resolve any significant disruption in the supply of plasma. In addition, concern over the
safety of blood products (which has led to increased domestic and foreign regulatory control over the collection and testing of plasma and the disqualification of certain segments of the population
from the donor pool), have reduced the potential donor pool. In addition, the EMA requires that all United States human plasma imported into Europe is sourced from plasma collection centers that are
approved by a competent European authority, which limits the number of plasma collection centers available for sourcing of United States human plasma and potentially increases the costs.
If
we are unable to obtain or maintain the level of plasma supply we require, we will need to obtain our supply from other parties in order to satisfy our expected needs. Establishing
additional or replacement suppliers for plasma may take a substantial amount of time. In addition, we may have difficulty obtaining similar supplies from other suppliers that are acceptable to the FDA
or EMA. If we have to switch to a replacement supplier, we may face additional regulatory delays and the manufacture and delivery of Cinryze could be interrupted for an extended period of time, which
may decrease sales of Cinryze or result in increased costs.
Cinryze is derived from human plasma, and is therefore subject to the risk of biological contamination inherent in plasma-derived products. This risk could adversely affect
our ability to obtain raw materials and market our products.
Cinryze is derived from donated human plasma. Many disease-causing viruses, bacteria, prions and other pathogens are present in the
plasma of infected individuals. If infected individuals donate plasma, the plasma would likely contain those agents. As a result, the sourcing of plasma, and the production of
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products
derived from plasma, is regulated extensively by the FDA and other medical product and health care regulatory agencies. We rely on our suppliers to maintain compliance with the regulations
promulgated by such agencies. The failure to comply with these regulations or the accidental contamination of plasma could adversely affect our ability to source plasma at commercially reasonable
prices. Moreover, public perception about the safety of plasma-derived products could adversely affect the market for our products. Concern over the safety of plasma-derived products, driven in part
by past screening failures in the industry and the appearance of infectious agents like HIV, has resulted in the adoption of rigorous screening procedures by regulatory authorities, and screening
procedures are likely to become stricter and more complex over time. As screening procedures have become more rigorous, potential donors have been disqualified and other potential donors have been
discouraged from donating due to their reluctance to undergo the required screening procedures. Increasingly stringent measures could adversely affect plasma supplies, with a corresponding adverse
effect on our ability to obtain raw materials at a commercially acceptable price, or at all. The safety concerns associated with plasma-derived products also affect our ability to market our products.
Medical events or studies that raise or substantiate concerns about the safety of our or other similar products would negatively impact public perception of all plasma-derived products and of the
plasma donation process. Further, any failure in screening, whether by us or by other manufacturers of these products, could adversely affect our reputation, the support we receive from the medical
community and overall demand for our products.
If patients using our commercial products suffer injuries, even if unrelated to our products, our regulatory approvals could be revoked or otherwise negatively impacted and
we may be subject to product liability claims, which can be expensive, difficult to defend and may result in large judgments or settlements against us.
The administration of drugs or biologics to humans, whether in clinical trials or after marketing clearance is obtained, can result in
product liability claims. Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against us. In addition, third party collaborators and
licensees may not protect us from product liability claims.
We
market two commercial products in the United States and will market four products in the EU during 2013. As HAE and treatment of adrenal insufficiency are rare diseases, we tested
Cinryze and Plenadren in only a small number of patients. As more patients use Cinryze and Plenadren, new risks and side effects may be discovered, the rate of known risks or side effects may
increase, and risks previously viewed as less significant could be determined to be significant. Previously unknown risks and adverse effects of our products may also be discovered in connection with
unapproved, or off-label, uses of our products. We conducted or are conducting required post approval studies in the United States and EU with Cinryze and Plenadren. Clinical evaluations
of outcomes of these studies as well as in the post-marketing setting are required to be reported to appropriate regulatory agencies in accordance with relevant regulations.
In
addition, we are studying and expect to continue to study Cinryze in diseases other than HAE in controlled clinical settings, and independent investigators are doing so as well. In
the event of any new risks or adverse effects discovered as new patients are treated for approved indications and as Cinryze is studied in or used by patients for off-label indications,
regulatory authorities may delay or revoke their approvals, we may be required to conduct additional clinical trials, make changes in labeling of Cinryze, reformulate Cinryze or make changes and
obtain new approvals for our and our suppliers' manufacturing facilities.
The
discovery of previously unknown risks and side effects of our products could result in a significant drop in the potential sales of our products, harm our reputation and the
reputation of our products in the marketplace or become subject to lawsuits, including class actions. Any of these results
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could
decrease or prevent any sales of our products or substantially increase the costs and expenses of commercializing and marketing our products.
We
may be sued by people who use our products, whether as a prescribed therapy, during a clinical trial, during an investigator initiated study, or otherwise. Any informed consents or
waivers obtained from people who enroll in our trials or use our products and product candidates may not protect us from liability or litigation. In addition, negative publicity relating to the use of
our products or a product candidate, or to a product liability claim, may make it more difficult, or impossible, for us to market and sell our products. We currently maintain product liability
insurance in connection with our clinical development programs and marketed products. We may not be able to obtain or maintain adequate protection against potential liabilities arising from clinical
development or product sales. If we are unable to obtain sufficient levels of insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to
product liability claims. A successful product liability claim in excess of our insurance coverage could harm our financial condition, results of operations, liquidity and prevent or interfere with
our product commercialization efforts. In addition, any successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable terms. As a result
of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our business, financial condition or results of operations.
In order to continue to expand our business and sustain our revenue growth, we will need to acquire additional marketed products or product candidates in clinical
development through in-licensing or the acquisitions of businesses that we believe are a strategic fit with us. We may not be able to in-license or acquire suitable products at
an acceptable price or at all. In addition, engaging in any in-licensing or acquisitions will incur a variety of costs, and we may never realize the anticipated benefits of any such
in-license or acquisition.
As part of our long-term strategy and in order to sustain our revenue growth, we intend to seek to acquire or
in-license additional marketed products or product candidates in clinical development that treat serious or life threatening illnesses, which treat high unmet medical needs, which require
limited commercial infrastructure, and that have the potential to provide both top and bottom line growth. Even if we are able to locate products, product candidates in clinical development or
businesses that fit within our strategic focus, we cannot assure you that we will be able to negotiate agreements to acquire or in-license such additional products or product candidates in
clinical development on acceptable terms or at all. Further, if we acquire a product, product candidates in clinical development or business, the process of integrating the acquired product, product
candidates in clinical development or business may result in unforeseen operating difficulties and expenditures and may divert significant management attention from our ongoing business operations.
Moreover, we may fail to realize the anticipated benefits for a variety of reasons, such as an acquired product candidate proving to not be safe or effective in later clinical trials. We may fund any
future acquisition by issuing equity or debt securities, which could dilute the ownership percentages of our existing stockholders. Acquisition efforts can consume significant management attention and
require substantial expenditures, which could detract from our other programs. In addition, we may devote resources to potential acquisitions that are never completed. We cannot assure you that an
acquired product, product candidates in clinical development or business will have the intended effect of helping us to sustain our revenue growth. If we are unable to do so, our business could be
materially adversely affected.
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Our long-term success depends upon our ability to develop, receive regulatory approval for and commercialize drug product candidates and, if we are not
successful, our ability to generate revenues from the commercialization and sale of products resulting from our product candidates will be limited.
All of our drug candidates will require governmental approvals prior to commercialization. Our failure to develop, receive regulatory
approvals for and commercialize our development stage product candidates successfully will prevent us from generating revenues from the sale of products resulting from our product candidates. Our
product candidates are in the development stage and may not be shown to be safe or effective.
Cinryze
We are currently evaluating the feasibility of additional indications and/or other formulations for Cinryze. We plan to initially focus
on C-1 mediated diseases affecting transplant patients, including AMR and DGF. We are also currently undertaking studies on the viability of subcutaneous administration of Cinryze. In the
first quarter of 2012, we completed a Phase 2 study to evaluate the safety, and pharmacokinetics and pharmacodynamics of subcutaneous administration of Cinryze in combination with rHuPH20 and
announced the presentation of positive data. In December 2012, we initiated a Phase 2b double blind, multicenter, dose ranging study to evaluate the safety and efficacy of subcutaneous
administration of Cinryze® (C1 esterase inhibitor [human]) in combination with PH20 in adolescents and adults with hereditary angioedema (HAE) for prevention of HAE
attacks.
Maribavir
During the second quarter of 2012, we announced the initiation of a Phase 2 program to evaluate maribavir for the treatment of
CMV infections in transplant recipients. The program consists of two independent Phase 2 clinical studies that include subjects who have asymptomatic CMV, and those who have failed therapy with
other anti-CMV agents. During the third quarter of 2012 and first quarter of 2013, we presented interim data from the Phase 2 open label clinical study being conducted in Europe
evaluating maribavir as a treatment for patients with asymptomatic cases of CMV. Results from this study as well as data from a second Phase 2 open label study of maribavir as a treatment for
patients with refractory cases of CMV will periodically be evaluated. Our prior evaluation of maribavir for prophylaxis in allogeneic stem cell, or bone marrow, transplant patients did not achieve its
primary or key secondary endpoints and we also discontinued a study evaluating maribavir in liver transplant patients. While the current studies are in different patient populations and utilize
different dosing levels, there can be no assurance that our clinical program with maribavir for the treatment of subjects with asymptomatic CMV as well as resistant/refractory CMV disease will yield
positive results or support further development of maribavir for either indication. The preliminary results from a small number of NPP and emergency-use IND patients may not be predictive
of the results of the studies being conducted.
Non-toxigenic difficile
In February 2006, we entered into a licensing agreement for the rights to develop non-toxigenic strains of
C. difficile
, or VP20621, for
the treatment and
prevention of CDAD. We plan to initially focus our efforts on the opportunity to prevent recurrence of CDAD following treatment with antibiotics such as Vancocin. On May 19, 2011 we announced
that dosing had begun in the initiation of a Phase 2 dose-ranging clinical study to evaluate the safety, tolerability, and efficacy of VP20621 for prevention of recurrence of
Clostridium difficile
infection in adults previously treated for CDAD and closed enrollment in this study in December 2012. The Phase 2 clinical
data from this study may not be conclusive requiring additional Phase 2 studies, or may not support continued clinical development of this product candidate.
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VP20629, or indole-3-propionic acid
In September 2011, we entered in to a licensing agreement for the worldwide rights to develop VP20629, or
indole-3-propionic acid for the treatment of Friedreich's Ataxia (FA), a rare, hereditary, progressive neurodegenerative disease. We expect to initiate a single and repeat dose
phase 1 study in patients in 2013 and expect to initiate a subsequent phase 2 study after completion of the phase1 study. We may not be successful in completing the phase 1 or 2
studies in the time frame we anticipate. Following completion of the Phase 2 study, a Phase 3 study is planned although the results of the clinical trials may not support further
clinical development.
Plenadren
We are evaluating the potential to file for regulatory approval of Plenadren in the United States. Our decision whether to pursue
approval for Plenadren in the United
States is dependent upon feedback from the FDA regarding whether the data filed in the European Union and approved by EMA is sufficient for US regulatory approval or whether additional clinical data
would be required. There can be no assurance that FDA will approve Plenadren on the basis of the data that were submitted to and approved by the EMA. FDA may, instead, require additional clinical
studies. In addition, there can be no assurance that we will receive orphan exclusivity. In order to receive orphan exclusivity in the United States the FDA has requested that we demonstrate that
Plenadren provides a significant measure of safety over existing therapies.
We
cannot be certain that our efforts and the efforts of our partners regarding our product candidates will lead to commercially viable products. Negative, inconclusive or inconsistent
clinical trial results could prevent regulatory approval, increase the cost and timing of regulatory approval, cause us to perform additional studies or to file for a narrower indication than planned.
We do not know what the final cost to manufacture product candidates in commercial quantities will be, or the dose required to treat patients and, consequently, what the total cost of goods for a
treatment regimen will be.
If
we are unable to successfully develop our product candidates, we will not have a source of revenue other than Cinryze, Buccolam, Plenadren and Vancocin. Moreover, the failure of one
or more of our product candidates in clinical development could harm our ability to raise additional capital. Furthermore, results from our clinical trials may not meet the level of statistical
significance required by the FDA or other regulatory authorities for approval of a drug candidate.
The
development of any of our product candidates is subject to many risks, including that:
-
-
the product candidate is found to be ineffective or unsafe;
-
-
the clinical test results for the product candidate delay or prevent regulatory approval;
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-
the FDA, EMA, or other regulatory authorities forbid us to initiate or continue testing of the product candidates in human
clinical trials;
-
-
the product candidate cannot be developed into a commercially viable product;
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-
the product candidate is difficult and/or costly to manufacture;
-
-
the product candidate later is discovered to cause adverse effects that prevent widespread use, require withdrawal from
the market, or serve as the basis for product liability claims;
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-
third party competitors hold proprietary rights that preclude us from marketing the product candidate; and
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third party competitors market a more clinically effective, safer, or more cost-effective product.
Even
if we believe that the clinical data sufficiently demonstrates the safety and efficacy of a product candidate, regulators may disagree with us, which could delay, limit or prevent
the approval of such product candidate. In addition, regulatory approval may take longer than we expect as a result of
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a
number of factors, including failure to qualify for priority review of our application. All statutes and regulations governing the approval of our product candidates are subject to change in the
future. These changes may increase the time or cost of regulatory approval, limit approval, or prevent it completely.
The
foreign regulatory approval process includes all of the risks associated with FDA approval set forth above, as well as additional country-specific regulations. Whether or not we
obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product
in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary greatly from country to country.
Even
if we receive regulatory approval for our product candidates, or acquire the rights to additional products which have received regulatory approvals, the later discovery of
previously unknown problems with a product, manufacturer or facility may result in adverse consequences, including withdrawal of the product from the market. Approval of a product candidate may be
subject to a risk evaluation mitigation strategy, or may be conditioned upon certain limitations and restrictions as to the drug's use, or upon the conduct of further studies, and may be subject to
continuous review.
The regulatory process is expensive, time consuming and uncertain and may prevent us from obtaining required approvals for the commercialization of our product candidates.
We have a product candidate, VP20621, for the treatment and prevention of CDAD in clinical development. In addition, we are currently
evaluating the feasibility of additional therapeutic uses and potential indications as well as other modes of administration for Cinryze. We expect to conduct clinical studies during 2013 to assess at
least one additional therapeutic use of Cinryze as well as continue to study the sub-cutaneous administration of Cinryze. We may also initiate clinical studies for other product
candidates, including VP20629, or indole-3-propionic acid for the treatment of Friedreich's Ataxia. We must complete significant laboratory, animal and clinical testing on
these product candidates before submitting marketing applications in the United States and abroad.
The
rate of completion of clinical trials depends upon many factors, including the rates of initiation of clinical sites and enrollment of patients. If we are unable to initiate a
sufficient number of clinical sites and accrue sufficient clinical patients who are eligible to participate in the trials during the appropriate period, we may need to delay our clinical trials and
incur significant additional costs. In addition, the FDA, Independent Safety Monitoring Boards or Institutional Review Boards may require us to delay, restrict, or discontinue our clinical trials on
various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, we may be unable to submit a NDA to the FDA or marketing petitions to
other regulatory authorities such as the EMEA for our product candidates within the time frame we currently expect, or at all. Once an NDA or other form of petition for marketing authority is
submitted, it must be approved by the FDA or other regulatory authority before we can commercialize the product described in the application. The cost of human clinical trials varies dramatically
based on a number of factors, including:
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the number, order and timing of clinical indications pursued;
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-
the number of patients required for enrollment;
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-
the length of time required to enroll these patients;
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-
the costs and difficulty of obtaining clinical supplies of the product candidate; and
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the difficulty in obtaining sufficient patient populations and clinicians.
Even
if we obtain positive preclinical or clinical trial results in initial studies, future clinical trial results may not be similarly positive. As a result, ongoing and contemplated
clinical testing, if permitted
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by
governmental authorities, may not demonstrate that a product candidate is safe and effective in the patient population and for the disease indications for which we believe it will be commercially
advantageous to market the product. The failure of our clinical trials to demonstrate the safety and efficacy of our product candidate for the desired indications could delay the commercialization of
the product.
In
2003, Congress enacted the Pediatric Research Equity Act requiring the development and submission of pediatric use data for new drug products. In Europe, a Pediatric Investigational
Plan must be agreed before a Marketing Authorization Application (MAA) can be submitted. Our failure to obtain these data, or to obtain a deferral of, or exemption from, these requirements could
adversely affect our chances of receiving regulatory approval, or could result in regulatory or legal enforcement actions.
Healthcare reform could adversely affect our revenue and financial results.
Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. The Patient
Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or PPACA, is a sweeping measure intended to expand healthcare coverage within the
United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. Several provisions of the new law, which have varying
effective dates, may affect us and will likely increase certain of our costs. For example, an increase in the Medicaid rebate rate from 15.1% to 23.1% became effective as of January 1, 2010,
and the volume of rebated drugs was expanded to include beneficiaries in Medicaid managed care organizations, effective as of March 23, 2010. The PPACA also includes a 50% discount on brand
name drugs for Medicare Part D participants in the coverage gap, or "doughnut hole" and imposes an annual fee on pharmaceutical manufactures based on the manufacture's sale of branded
pharmaceuticals and biologics (excluding orphan drugs). Substantial new provisions affecting compliance also have been added, which may require us to modify our business practices with health care
practitioners. In addition, the new law establishes an abbreviated licensure pathway for products that are biosimilar to FDA-approved biological products, such as Cinryze, with provisions
covering exclusivity periods and a specific reimbursement methodology for biosimilars.
The
reforms imposed by the new law will significantly impact the pharmaceutical industry; however, the full effects of the PPACA cannot be known until these provisions are implemented
and the Centers for Medicare & Medicaid Services and other federal and state agencies issue applicable regulations or guidance. Moreover, in the coming years, additional changes could be made
to governmental healthcare programs that could significantly impact the success of our products. We will continue to evaluate the PPACA, as amended, the implementation of regulations or guidance
related to various provisions of the PPACA by federal agencies, as well as trends and changes that may be encouraged by the legislation and that may potentially impact our business over time.
In
addition, Federal, state, and foreign governmental authorities are likely to continue efforts to control the price of drugs and reduce overall healthcare costs. These efforts could
impact our ability to market products and generate revenues in the United States and foreign countries.
Our strategic plan may not achieve the intended results.
We made the strategic decision to focus on the development of later stage opportunities by expanding our product portfolio through the
acquisition of complementary clinical development stage or commercial product opportunities as a means to accelerate our path toward becoming a profitable pharmaceutical company. As a result of this
strategic decision, we substantially discontinued our early stage activities, and do not maintain discovery research or significant internal preclinical development capabilities.
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We
may not be successful in executing our strategy. We may not be able to in-license or acquire suitable products at an acceptable price, or at all. In addition, engaging in
any in-licensing or acquisition will incur a variety of costs, and we may never realize the anticipated benefits of any such in-license or acquisition. We may need additional
financing in order to acquire additional new products or product candidates. Acquisition efforts can consume significant management attention and require substantial expenditures, which could detract
from our other programs. In addition, we may devote resources to potential acquisitions that are never completed.
We
cannot assure you that an acquired product, product candidates in clinical development or a business will have the intended effect of helping us sustain our revenue growth in the near
term or longer term. If we are unable to do so, our business could be materially adversely affected.
We depend on collaborations with third parties, which may reduce our product revenues or restrict our ability to commercialize products, and also ties our success to the
success of our collaborators.
We have entered into, and may in the future enter into additional, sales and marketing, distribution, manufacturing, development,
licensing and other strategic arrangements with third parties.
Sales
of Cinryze are dependent on distribution rights that we have received from Sanquin pursuant to a distribution agreement relating to the treatment of HAE in the United States and a
separate agreement related to Europe and other territories. During the term of the agreement, Sanquin will supply us with our commercial requirements for C1 INH for the treatment of HAE in each
country where we have received regulatory approval, subject to minimum annual purchase requirements in Euros equal to approximately €25 (approximately $33 million) million per
year, net of the agreed upon discount.
In
December 2011, we entered into a development and option agreement with Meritage Pharma, Inc. (Meritage) under which we agreed to make certain payments to Meritage to facilitate
Meritage's development of the oral budesonide suspension for the treatment of eosinophilic esophagitis in exchange for an irrevocable option to acquire Meritage.
In
September 2011, we entered into a license agreement with INS under which we acquired an exclusive worldwide license to develop, manufacture, distribute, market and sell products
containing indole-3-propionic acid, or VP20629. We intend to develop a licensed product containing VP20629 for the treatment of Friedreich's Ataxia.
In
August 2003, we entered into a license agreement with GSK under which we acquired exclusive worldwide rights, excluding Japan, from GSK to develop and commercialize an antiviral
compound, maribavir, for the prevention and treatment of CMV infections related to transplant, including solid organ and hematopoietic stem cell bone marrow transplantation, congenital transmission,
and in patients with HIV infection. GSK retained the exclusive right to market and sell products covered by these patents and patent applications in Japan.
In
May 2011, Halozyme Therapeutics Inc.(Halozyme) granted us an exclusive worldwide license to use Halozyme's proprietary Enhanze technology, a proprietary drug
delivery platform using Halozyme's recombinant human hyaluronidase enzyme (rHuPH20) technology, in combination with a C1 esterase inhibitor which we intend to apply initially to develop a subcutaneous
formulation of Cinryze for routine prophylaxis against attacks of HAE. We are currently engaged in additional discussions relating to other arrangements. We cannot be sure that we will be able to
enter into any such arrangements with third parties on terms acceptable to us or at all. Third party arrangements may require us to grant certain rights to third parties, including exclusive marketing
rights to one or more products, or may have other terms that are burdensome to us.
Our
ultimate success may depend upon the success of our collaborators. We have obtained from Sanquin, INS, GSK and Halozyme, and will attempt to obtain in the future, licensed rights to
certain
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proprietary
technologies and compounds from other entities, individuals and research institutions, for which we may be obligated to pay license fees, make milestone payments and pay royalties. Our
agreement with Meritage requires us to rely upon their efforts to advance the clinical development of OBS. In addition, we may in the future enter into collaborative arrangements for the marketing,
sales and distribution of our product candidates, which may require us to share profits or revenues. We may be unable to enter into additional collaborative licensing or other arrangements that it
needs to develop and commercialize its drug candidates. Moreover, we may not realize the contemplated benefits from such collaborative licensing or other arrangements. These arrangements may place
responsibility on our collaborative partners for preclinical testing, human clinical trials, the preparation and submission of applications for regulatory approval, or for marketing, sales and
distribution support for product commercialization. We cannot be certain that any of these parties will fulfill their obligations in a manner consistent with our best interest. These arrangements may
also require us to transfer certain material rights or issue our equity securities to corporate partners, licensees or others. Any license or sublicense of our commercial rights may reduce our product
revenue. Moreover, we may not derive any
revenues or profits from these arrangements. In addition, our current strategic arrangements may not continue and we may be unable to enter into future collaborations. Collaborators may also pursue
alternative technologies or drug candidates, either on their own or in collaboration with others, that are in direct competition with us.
If we fail to comply with our obligations in the agreements under which we license development or commercialization rights to products or technology from third parties, we
could lose license rights that are important to our business.
Our rights to Cinryze are based upon intellectual property that we have licensed from Sanquin and two of our current product candidates
are based on intellectual property that we have licensed from INS and GSK. We depend, and will continue to depend, on these license agreements. All of our license agreements may be terminated if,
among other events, we fail to satisfy our obligations as they relate to the development of the particular product candidate. All of our license agreements, other than the agreements with Lilly
regarding Vancocin, may also be terminated if we breach that license agreement and do not cure the breach within specified time periods or in the event of our bankruptcy or liquidation. Our agreement
with Lilly permits us to suspend the licenses granted to us by Lilly in the event of uncured defaults by us until such time as the default is cured or otherwise resolved.
Our
agreement with Sanquin includes minimum purchase requirements and our license agreements with INS, Halozyme and GSK impose various obligations on us, including diligence obligations,
milestone payment requirements and royalties. If we fail to comply with these obligations, Sanquin, INS, Halozyme and GSK may have the right to terminate the license, in which event we would not be
able to market products covered by the license.
Disputes
may arise with respect to our licensing agreements regarding manufacturing, development and commercialization of any of the particular product candidates. These disputes could
lead to delays in or the termination of the development, manufacture and commercialization of our product candidates or to litigation.
Many other entities seek to establish collaborative arrangements for product research and development, or otherwise acquire products, in competition with us.
We face competition from large and small companies within the pharmaceutical and biotechnology industry, as well as public and private
research organizations, academic institutions and governmental agencies in acquiring products and establishing collaborative arrangements for product development. Many of the companies and
institutions that compete against us have substantially greater capital resources, research and development staffs and facilities than we
have. These entities represent significant competition to us as we seek to expand further our pipeline through the in-license or
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acquisition
of additional products in clinical development, or that are currently on the market. Moreover, while it is not feasible to predict the actual cost of acquiring additional product
candidates, that cost could be substantial. We may need additional financing in order to acquire additional new products.
There are many potential competitors with respect to our product candidates under development, who may develop products and technologies that make our products and/or
technologies non-competitive or obsolete.
There are many entities, both public and private, including well-known, large pharmaceutical companies, chemical companies,
biotechnology companies and research institutions, engaged in developing pharmaceuticals for applications similar to those targeted by our products under development.
Developments
by these or other entities may render our product candidates non-competitive or obsolete. Furthermore, many of our competitors have greater resources available
to them to assist with development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. Accordingly, our competitors may succeed in obtaining regulatory
approval for products more rapidly and more effectively than we do for product candidates. Competitors may succeed in developing products that are more effective and less costly than any that we
develop and also may prove to be more successful in the manufacturing and marketing of products.
Any
product that we successfully develop and for which we gain regulatory approval must then compete for market acceptance and market share. Accordingly, important competitive factors,
in addition to completion of clinical testing and the receipt of regulatory approval, will include product efficacy, safety, timing and scope of regulatory approvals, availability of supply, marketing
and sales capacity, reimbursement coverage, pricing and patent protection. Our products could also be rendered obsolete or uneconomical by regulatory or competitive changes.
Any of our future products may not be accepted by the market, which would harm our business and results of operations.
Even if our product candidates are approved by the FDA and other regulatory authorities, they may not achieve market acceptance by
patients, prescribers and third-party payors. As a result, we may not receive revenues from these products as anticipated. The degree of market acceptance will depend upon a number of factors,
including:
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-
the receipt and timing of regulatory approvals, and the scope of marketing and promotion activities permitted by such
approvals (e.g., the "label" for the product approved by the FDA);
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-
the availability of third-party reimbursement from payors such as government health programs and private health insurers;
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the establishment and demonstration in the medical community, such as doctors and hospital administrators, of the clinical
safety, efficacy and cost-effectiveness of drug candidates, as well as their advantages over existing treatment alternatives, if any;
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the effectiveness of the sales and marketing force that may be promoting our products; and
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the effectiveness of our contract manufacturers.
If
our product candidates do not achieve market acceptance by a sufficient number of patients, prescribers and third-party payors, our business will be materially adversely affected.
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Funding, especially on terms acceptable to us, may not be available to meet our future capital needs.
Global market and economic conditions have been, and continue to be, disruptive and volatile. The debt and equity capital markets have
been impacted by significant write-offs in the financial services sector and the re-pricing of credit risk in the broadly syndicated market, among other things.
If
funding is not available when needed, or is available only on unfavorable terms, meeting our capital needs or otherwise taking advantage of business opportunities, such as
acquisitions, may become challenging, which could have a material adverse effect on our business plans, revenues and results of operations.
We rely on our employees, consultants, contractors, suppliers, manufacturers and collaborators to keep our trade secrets confidential.
We rely on trade secrets, trademarks, and unpatented proprietary know-how and continuing technological innovation in
developing and manufacturing our products in order to protect our significant investment in these products from the risk of discovery by generic drug manufacturers and other potential competition. We
require each of our employees, consultants, advisors, contractors, suppliers, manufacturers and collaborators to enter into confidentiality agreements prohibiting them from taking our proprietary
information and technology or from using or disclosing proprietary information to third parties except in specified circumstances. The agreements also provide that all inventions conceived by an
employee, consultant or advisor, to the extent appropriate for the services provided during the course of the relationship, are our exclusive property, other than inventions unrelated to us and
developed entirely on the individual's own time. Nevertheless, these agreements may not provide meaningful protection of our trade secrets and proprietary know-how if they are used or
disclosed. Despite all of the precautions we may take, people who are not parties to confidentiality agreements may obtain access to our trade secrets or know-how. In addition, others may
independently develop similar or equivalent trade secrets or know-how.
We depend on patents and proprietary rights for our products which are in clinical development, which may offer only limited protection against potential infringement, and
if we are unable to protect our patents and proprietary rights, we may lose the right to develop, manufacture, market or sell products and lose sources of revenue.
The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies,
products and processes. Our success depends, in part, on our ability to develop and maintain a strong patent position for our products and technologies in clinical development, both in the United
States and in other countries. Litigation or other legal proceedings may be necessary to defend against claims of infringement, to enforce our patents, or to protect our trade secrets, and could
result in substantial cost to us and diversion of our efforts. We intend to file applications as appropriate for patents describing the composition of matter of our drug candidates, the proprietary
processes for producing such compositions, and the uses of our drug candidates. We own three issued United States patents, one non- United States patents and have a number of pending
United States patent applications, some of which we co-own with collaborators. We also have filed international, regional and non- United States national patent applications in
order to pursue patent protection in major foreign countries.
Many
of our scientific and management personnel were previously employed by competing companies. As a result, such companies may allege trade secret violations and similar claims against
us.
To
facilitate development of our proprietary technology base, we may need to obtain licenses to patents or other proprietary rights from other parties. If we are unable to obtain such
licenses, our product development efforts may be delayed. We may collaborate with universities and governmental research organizations which, as a result, may acquire certain rights to any inventions
or technical information derived from such collaboration.
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We may incur substantial costs in asserting any patent rights and in defending suits against us related to intellectual property rights, even if we are ultimately
successful. If we are unsuccessful in defending a claim that we have infringed or misappropriated the intellectual property of a third party, we could be required to pay substantial damages, stop
using the disputed technology, develop new non-infringing technologies, or obtain one or more licenses from third parties. If we or our licensors seek to enforce our patents, a court may
determine that our patents or our licensors' patents are invalid or unenforceable, or that the defendant's activity is not covered by the scope of our patents or our licensors' patents. The United
States Patent and Trademark Office or a private party could institute an interference proceeding relating to our patents or patent applications. An opposition or revocation proceeding could be
instituted in the patent offices of foreign jurisdictions. An adverse decision in any such proceeding could result in the loss of our rights to a patent or invention.
If our licensors do not protect our rights under our license agreements with them or do not reasonably consent to our sublicense of rights or if these license agreements are
terminated, we may lose revenue and expend significant resources defending our rights.
We have licensed from GSK, Halozyme and INS rights to patents and patent applications in a variety of countries throughout the world
related to development candidates in our clinical development pipeline. We depend on GSK, Halozyme and INS to prosecute and maintain many of these patents and patent applications and protect such
patent rights. Failure by GSK
Halozyme or INS to prosecute or maintain such patents or patent applications and protect such patent rights could lead to our loss of future revenue. Under certain circumstances, our ability to
sublicense our rights under these license agreements is subject to the licensor's consent. If our license agreement with GSK, Halozyme or INS is terminated, our ability to manufacture, develop, market
and sell products under those agreements would terminate.
We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which would harm our ability to compete.
We are highly dependent upon qualified scientific, technical and managerial personnel, including our President and CEO, Vincent J.
Milano, our Vice President, Chief Operating Officer, Daniel B. Soland, our Vice President, Chief Financial Officer, Charles Rowland, our Vice President, Chief Scientific Officer, Colin Broom, our Vice
President, Global Regulatory Affairs and Quality, Robert Pietrusko and our Vice President, Strategic Initiatives, Thomas Doyle. Our ability to grow and expand into new areas and activities will
require additional expertise and the addition of new qualified personnel in the United States, Europe and other markets. There is intense competition for qualified personnel in the pharmaceutical
field. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. Furthermore, we have not entered into non-competition
agreements or employment agreements with our key employees. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical and managerial
personnel in a timely manner, would harm our development programs, and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other
employees and generate revenues. We do not maintain key man life insurance on any of our employees.
Even after regulatory approval is received, as with Vancocin and Cinryze, if we fail to comply with regulatory requirements, or if we experience unanticipated problems with
our approved products, they could be subject to restrictions or withdrawal from the market.
Cinryze and Vancocin are, and any other product for which we obtain marketing approval from the FDA or other regulatory authority will
be, subject to continual review and periodic inspection by the FDA and other regulatory bodies. After approval of a product, we will have, and with Cinryze and Vancocin, we currently have, significant
ongoing regulatory compliance obligations related to
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manufacturing
processes, quality control, labeling, post-approval clinical data collection and promotional activities for each such product. Later discovery of previously unknown problems
with our products or manufacturing processes, or failure to comply with regulatory requirements, may result in penalties or other actions, including:
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-
warning letters;
-
-
class restrictions or "black-box" warnings;
-
-
fines;
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-
product recalls;
-
-
withdrawal of regulatory approval;
-
-
operating restrictions, including restrictions on such products or manufacturing processes;
-
-
disgorgement of profits;
-
-
injunctions; and
-
-
criminal prosecution.
As
part of the approval for Cinryze in the EU, we are required to conduct an observational (non-interventional) study conducted to characterize the safety and use of Cinryze
in routine clinical practice in patients with HAE who receive Cinryze for prevention and/or treatment of angioedema attacks. We are also required to conduct a registry study for Plenadren in the EU.
Collection and periodic reporting of CMC data also have been requested as a post-approval commitment for Cinryze in the United States. In the event we are unable to comply with these
requirements and commitments, we may be subject to penalties or other actions. In addition, in June 2009, we received an untitled letter from the Office of Compliance and Biologics Quality in the FDA
Center for Biologics Evaluation and Research alleging promotional materials were false or misleading because they presented efficacy claims for Cinryze but failed to reveal, and they minimized,
material facts; they made unsubstantiated comparative claims; and they overstated the efficacy of Cinryze. We have revised our marketing materials and the FDA has closed the review of these materials.
Over
the past few years, a significant number of pharmaceutical and biotechnology companies have been the target of inquiries and investigations by various federal and state regulatory,
investigative, prosecutorial and administrative entities, including the DOJ and various United States Attorney's Offices, the Office of Inspector General of the Department of Health and Human
Services, the FDA, the FTC and various state Attorneys General offices. These investigations have alleged violations of various federal and state laws and regulations, including claims asserting
antitrust violations, violations of the Food, Drug and Cosmetic Act, the False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in
connection with off-label promotion of products, pricing and Medicare and/or Medicaid reimbursement. It is both costly and time-consuming for us to comply with these extensive
regulations to which it is subject. Additionally, incidents of adverse drug reactions, unintended side effects or misuse relating to our products could result in additional regulatory controls or
restrictions, or even lead to withdrawal of a product from the market.
Companies
may not promote drugs for "off-label" usesthat is, uses that are not described in the product's labeling and that differ from those approved by the
FDA. Physicians may prescribe drug products for off-label uses, and such off-label uses are common across some medical specialties. Although the FDA and other regulatory
agencies do not regulate a physician's choice of treatments, the Federal Food, Drug and Cosmetics Act and FDA regulations restrict communications on the subject of off-label uses of drug
products by pharmaceutical companies. The Office of Inspector General of the Department of Health and Human Services (OIG) and FDA both actively enforce laws and regulations prohibiting promotion of
off-label uses and the promotion of products for which
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marketing
clearance has not been obtained. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative
remedies as well as criminal sanctions.
Notwithstanding
the regulatory restrictions on off-label promotion, the OIG and the FDA allow companies to engage in truthful, non-misleading, and
non-promotional speech concerning their products. Although we believe that all of our communications regarding all of our products are in compliance with the relevant legal requirements,
the OIG or the FDA may disagree, and we may be subject to significant liability, including civil and administrative remedies, as well as criminal sanctions. In addition, management's attention could
be diverted from our business operations and our reputation could be damaged.
The
FDA provides guidelines with respect to appropriate promotion and continuing medical and health education activities. Although we endeavor to follow these guidelines, the FDA or the
OIG may disagree, and we may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. Should the government choose to initiate action against us,
we could face substantial penalties, which could have a material adverse effect on our business, financial condition and results of operations. In addition, management's attention could be diverted
and our reputation could be damaged.
In
addition, anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, or pay any remuneration in exchange for purchasing, leasing or
ordering any service or items including the purchase or prescription of a particular drug for which payment may be made under a federal health care program. Because of the sweeping language of the
federal anti-kickback statute, many potentially beneficial business arrangements would be prohibited if the statute were strictly applied. To avoid this outcome, the United States
Department of Health and Human Services has published regulationsknown as "safe harbors"that identify exceptions or exemptions to the statute's prohibitions. Arrangements
that do not fit within the safe harbors are not automatically deemed to be illegal, but must be evaluated on a case-by-case basis for compliance with the statute. We seek to
comply with anti-kickback statutes and to fit within one of the defined "safe harbors". However, due to the breadth of the statutory provisions and the absence of uniform guidance in the
form of regulations or court decisions, there can be no assurance that our practices will not be challenged under anti-kickback or similar laws. Violations of such restrictions may be
punishable by civil and/or criminal sanctions, including fines and civil monetary penalties, as well as the possibility of exclusion from United States federal healthcare programs (including Medicaid
and Medicare). Any such violations could have a material adverse effect on our business, financial condition and results of operations.
In
recent years, several states and localities, including California, Connecticut, the District of Columbia, Maine, Massachusetts, Minnesota, Nevada, New Hampshire, New Mexico, Vermont,
Texas, and West
Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state or make periodic public disclosures on sales,
sampling, marketing, pricing, clinical trials, and other activities. Similar legislation was approved by the federal government in 2010 and will take effect upon the release of final regulations. Many
of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. If we are found not to be in full compliance with these laws, we could face
enforcement action and fines and other penalties, and could receive adverse publicity.
Any
of these events could result in a material adverse effect on our revenues and financial condition.
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Our future product revenues from sales of Cinryze could be reduced by imports from countries where similar products are available at lower prices.
There are products similar to Cinryze which are approved in the E.U. and other countries. There have been cases in which pharmaceutical
products were sold at steeply discounted prices in markets outside the United States and then imported to the United States where they could be resold at prices higher than the original discounted
price, but lower than the prices commercially available in the United States. If this happens with Cinryze our revenues would be adversely affected.
In
recent years, various legislative proposals have been offered in the United States Congress and in some state legislatures that would authorize re-importation of
pharmaceutical products into the United States from other countries including Canada. We cannot predict the outcome of such initiatives, which if adopted, could result in increased competition for our
products and lower prices.
Risks associated with our international business relationships could materially adversely affect our business.
We have employees located in Europe and are engaged in marketing and distributing several products, conducting clinical trials and have
established manufacturing relationships in Europe. We have also established our own commercial sales and marketing personnel in Europe and plan to increase the number of personnel in certain European
countries. We plan to expand our operations or enter into distribution arrangements with third parties to market our products and
product candidates in countries outside of the United States and Europe. For example, we have employees located in Canada and Australia to help with the launch of our products in those markets.
Consequently, we are, and will continue to be, subject to risks related to operating in foreign countries. Risks associated with conducting operations in foreign countries
include:
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differing regulatory requirements for drug approvals in foreign countries;
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changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
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foreign taxes, including withholding of payroll taxes;
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foreign currency fluctuations, which could result in increased operating expenses or reduced revenues, and other
obligations incident to doing business or operating a subsidiary in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions, including war and terrorism.
In
Europe, we market two products that contain active ingredients that are controlled substances, and are therefore subject to additional regulation by European regulatory authorities
relating to the procurement, manufacture, labeling, packaging, security controls, shipment, sale and use of these products. We continue to monitor economic conditions, including volatility associated
with international economies, associated impacts on the financial markets and our business, and the sovereign debt crisis in Europe. The credit and economic conditions in Greece, Italy, Spain, France,
Ireland and Portugal,
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among
other members of the European Union have fluctuated throughout 2011 and 2012. These conditions have resulted in, and may continue to result in, an increase in the average length of time it takes
to collect our outstanding accounts receivable in these countries. We currently do not have a material amount of receivables in Greece, Italy, Spain France or Portugal but anticipate that sales in one
or more of these countries may increase during 2013. In addition, incidents of product misuse, product diversion or theft may occur with products containing controlled substances. These and other
risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.
Charges to earnings resulting from the application of accounting methods may adversely affect the market value of our common stock as a result of the acquisition of DuoCort.
In accordance with Statement of Financial Accounting Standard No. 141R, Business Combinations, the initial purchase price was
allocated to DuoCort's net tangible assets or identifiable intangible assets based on their fair values as of the date of completion of the merger. We will incur additional amortization expense based
on the identifiable amortizable intangible assets acquired pursuant to the merger agreement and their relative useful lives. We also recorded liabilities for potential future payments to the former
shareholders of DuoCort. The fair value of these contingent consideration amounts must be re-measured through earnings each reporting period. These charges will have a material impact on
our results of operations, and therefore could have an adverse impact on the market value of our common stock.
We may be required to take a significant non-cash impairment charge related to Vancocin related intangible assets. If we are required to take an impairment
charge related to these intangible assets, our financial position and results of operations would be adversely affected.
The approval of generic copies of Vancocin has and will continue to adversely impact our revenues, operating results and cash flows in
future periods. Following the approval of generic versions of oral vancomycin, we tested the Vancocin intangible assets for impairment as of March 31, 2012. There was no impairment of these
intangible assets as of March 31, 2012. During the third quarter of 2012, we experienced larger than anticipated erosions in the sales volume, market share and pricing of both our branded and
authorized generic vancomycin. This coupled with the entrance of a fourth generic competitor prompted us to perform step one of the impairment test as of September 30, 2012. We performed step
one of the impairment test and there was no impairment of these intangible assets as of September 30, 2012. There were no events during the fourth quarter of 2012 that would have indicated the
need to perform another step one of the impairment test for Vancocin. However, should future events occur that cause further reductions in revenue or operating results we would incur an impairment
charge, which would be significant relative to the carrying value of the intangible assets of $133.3 million as of December 31, 2012.
Our indebtedness and other financial obligations may harm our financial condition and results of operations.
Our total consolidated long-term debt as of December 31, 2012 is $205.0 million. Additionally, we have unused
availability under the three-year senior secured revolving credit facility of up to $200.0 million. Our level of indebtedness could have important consequences to you,
because:
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a portion of our cash flows from operations will have to be dedicated to interest and may not be available for operations,
working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;
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it may impair our ability to obtain additional financing in the future;
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it may limit our flexibility in planning for, or reacting to, changes in our business and industry; and
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it may make us more vulnerable to downturns in our business, our industry or the economy in general.
Our
operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the senior convertible notes, we could be in default on the senior
convertible notes, and this default could cause us to be in default on our other outstanding indebtedness. Conversely, a default on our other outstanding indebtedness may cause a default under the
senior convertible notes.
In
addition, we have a future liability in the form of contingent milestone payments to the former stockholders of DuoCort. Payments of up to 860 million SEK or approximately
$124 million would become payable upon the achievement of certain milestones related to Plenadren manufacturing, sales and territory expansion. We cannot predict if or when these payments may
be payable or if they could materially adversely affect our business at the time of payment.
Covenants in our Credit Facility will limit our ability to borrow which may restrict our business.
The Credit Facility contains financial convents that can limit our ability to borrow under the credit agreement. As of the date of this
filing, we have not drawn any amounts under the Credit Facility and are in compliance with our covenants. As a result of the negative impact of the approval of generic vancomycin on our operating
results, our ability to borrow the full $200 million provided under Credit Facility during portions of 2013 and 2014 may be limited or prohibited. Limitations on our ability to borrow under the
Credit Facility could impact our liquidity and limit our ability to fund general corporate requirements, such as research and development expenses, or to make acquisitions.
The
Credit Facility also subjects us to various covenants that limit our ability and/or our restricted subsidiaries' ability to, among other
things:
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incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;
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pay dividends or distributions or redeem or repurchase capital stock;
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prepay, redeem or repurchase debt;
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make loans, investments and capital expenditures;
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enter into agreements that restrict distributions from our subsidiaries;
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sell assets and capital stock of our subsidiaries;
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enter into certain transactions with affiliates; and
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consolidate or merge with or into, or sell substantially all of our assets to, another person.
A
breach of any of these covenants could result in a default under our Credit Facility.
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in a default under our
outstanding indebtedness that could materially and adversely affect our results of operations and our financial condition.
If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted
debt could cause all amounts outstanding with respect to that debt to be due and payable immediately and our lenders could terminate all commitments to extend further credit. The instruments governing
our debt contain cross-default or cross-acceleration
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provisions
that may cause all of the debt issued under such instruments to become immediately due and payable as a result of a default under an unrelated debt instrument. An event of default or an
acceleration under one debt agreement could cause a cross-default or cross-acceleration of other debt agreements. We cannot assure you that our assets or cash flow would be sufficient to fully repay
borrowings under our outstanding debt instruments if the obligations thereunder are accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our secured debt,
the holders of such debt could proceed against the collateral securing that indebtedness. We have pledged substantially all of our assets as collateral under our Credit Facility. If the lenders under
our Credit Facility accelerate the repayment of borrowings, we may not have sufficient assets to repay the obligations outstanding under our Credit Facility and our other indebtedness, including the
Senior Notes.
Our stock price could continue to be volatile.
Our stock price, like the market price of the stock of other pharmaceutical companies, has been volatile. For example, during the
twelve months ended December 31, 2012, the market price for our common stock fluctuated between $19.02 and $33.17 per share. The following factors, among others, could have a significant impact
on the market for our common stock:
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period to period fluctuations in sales of our commercial products;
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our ability to successfully manufacture sufficient amounts of Cinryze to meet demand;
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results of clinical trials with respect to our product candidates in development or those of our competitors;
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developments with our collaborators;
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announcements of technological innovations or new products by our competitors;
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litigation or public concern relating to our products or our competitors' products;
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developments in patent or other proprietary rights of our or its competitors (including related litigation);
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any announcement regarding our acquisition of product candidates or entities;
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future announcements concerning our industry;
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governmental regulation;
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changes in federal, state and foreign tax laws and related regulations;
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actions or decisions by the SEC, the FDA, the EMA or other regulatory agencies;
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changes or announcements of changes in reimbursement policies;
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period to period fluctuations in our operating results, including changes in accounting estimates;
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our cash and cash equivalents balances;
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changes in our capital structure;
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changes in estimates of our performance by securities analysts;
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market conditions applicable to our business sector; and
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general market conditions.
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The rights that have been and may in the future be granted to holders of our common or preferred stock may adversely affect the rights of other stockholders and may
discourage a takeover.
Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, privileges and
other terms of such shares. Our board of directors may exercise this authority without the approval of, or notice to, our stockholders. Accordingly, the rights of the holders of our common stock may
be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. In addition, the issuance of preferred stock may make it more difficult for a third party to
acquire a majority of our outstanding voting stock in order to effect a change in control or replace our current management. We are also subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. The application of Section 203 could also delay or prevent a third party or a significant stockholder of ours from acquiring control
of us or replacing its current management. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a
period of three years following the date the person became an interested stockholder, unless the business combination or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Under
Delaware law, an interested stockholder is a person who, together with affiliates and associates, owns 15% or more of a corporation's voting stock.
In
addition, our charter and bylaws contain certain provisions that could discourage a hostile takeover, such as a staggered board of directors and significant notice provisions for
nominations of directors and proposals. Our charter and bylaws may make it more difficult for a third party to acquire a majority of our outstanding voting stock in order to effect a change in control
or replace our current management.
Conversion of the senior convertible senior notes will dilute the ownership interest of existing stockholders.
To the extent we issue any shares of our common stock upon conversion of the senior convertible senior notes, the conversion of some or
all of the senior convertible senior notes will dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could
adversely affect prevailing market prices of our common stock. In addition, the existence of the senior convertible senior notes may encourage short
selling by market participants because the conversion of the senior convertible senior notes could depress the price of our common stock.
The convertible note hedge and warrant transactions may affect the value of our common stock and other securities, and expose us to counterparty risk.
In connection with the issuance of the senior convertible senior notes, we have entered into privately-negotiated convertible note
hedge transactions with two counterparties, which are expected to generally reduce the potential equity dilution of our common stock upon conversion of the senior convertible notes. To reduce the cost
to us of the convertible note hedge transactions, we also entered into warrant transactions with these counterparties. To the extent that the price of our common stock exceeds the exercise price of
the warrant transactions, the warrant transactions will be dilutive to us.
In
connection with establishing their initial hedge of these transactions, the counterparties (and/or their affiliates) may have entered into various derivative transactions with respect
to our common stock. The counterparties (and/or their affiliates) may modify their hedge positions from time to time by entering into or unwinding various derivative transactions with respect to our
common stock or by purchasing or selling our common stock or other securities in secondary market transactions, which could adversely affect the value of our common stock or such securities, or could
have the effect of
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increasing
or preventing a decline in the value of our common stock or such securities. We are exposed to counterparty credit risk to the extent that the counterparties do not satisfy their
obligations under the convertible note hedge transactions. We will be required to perform in full our obligations under the warrant transactions, regardless of whether the counterparties perform, in
whole or in part, their obligations under the convertible note hedge transactions.
The
potential effect, if any, of any of these transactions and activities on the market price of our common stock and other securities will depend in part on market conditions, and
cannot be ascertained at this time.
The fundamental change purchase feature of the senior convertible notes may delay or prevent an otherwise beneficial attempt to take over our company.
The terms of the senior convertible notes require us to purchase the senior convertible notes for cash in the event of a fundamental
change. A takeover of our company would trigger the requirement that we purchase the senior convertible notes. Alternatively, if certain transactions that constitute a fundamental change occur, under
certain circumstances, we will increase the conversion rate by a number of additional shares of our common stock to compensate holders for the lost option time value of the senior convertible notes as
a result of such transaction. This increased conversion rate will apply only to holders who convert their senior convertible notes in connection with any such transaction. The number of the additional
shares of our common stock will be determined based on the date on which the transaction becomes effective and the price paid per share of our common stock. This may have the effect of delaying or
preventing a takeover of our company that would otherwise be beneficial to investors.