ITEM 1A. RISK FACTORS
Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should
carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in or incorporated by reference into this Quarterly
Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risks Related to Our Business
Our financial prospects for the next several years are substantially dependent upon the development and marketing efforts of AbbVie for combination therapies incorporating ABT-450 or ABT-493 for the
treatment of HCV. AbbVie may act in its best interest rather than in our best interest, which could adversely affect our business.
We
rely on AbbVie to fund and conduct the clinical development and commercialization of ABT-450,
ABT-493
(a next-generation
protease inhibitor in clinical development)
and any other protease inhibitors we develop, over which AbbVie has complete control. Our ability to generate significant revenue in the near term will depend primarily on the successful development, regulatory approval, marketing and
commercialization by AbbVie of combination therapies incorporating ABT-450 or ABT-493. Such success is subject to significant uncertainty, and we have limited control over the resources, time and effort that AbbVie may devote to ABT-450 or
ABT-493.
Any of several events or factors could have a material adverse effect on our ability to generate revenue from AbbVies potential commercialization of ABT-450 or ABT-493 in combination therapies. For
example, AbbVie:
|
|
|
may have to comply with additional requests and recommendations from the FDA, including additional clinical trials;
|
|
|
|
may not make all regulatory filings and obtain all necessary approvals from the FDA and similar foreign regulatory agencies and reimbursement
approvals;
|
|
|
|
may be unable to successfully complete the clinical development of an ABT-493-containing regimen;
|
|
|
|
may not commit sufficient resources to the development, regulatory approval, marketing and distribution of an ABT-450 (or ABT-493)-containing regimen,
whether for strategic reasons or otherwise due to a change in business priorities;
|
|
|
|
may cease to perform its obligations under the terms of our collaboration agreement;
|
|
|
|
may unilaterally terminate our collaboration agreement on specified prior notice without any reason and without any further commitment to continue
development of any of our product candidates;
|
|
|
|
may not be able to manufacture our product candidate in compliance with requirements of the FDA and similar foreign regulatory agencies and in
commercial quantities sufficient to meet market demand;
|
|
|
|
may not achieve satisfactory levels of market acceptance and reimbursement of combination therapies incorporating our product candidate by physicians,
patients and third-party payors;
|
|
|
|
may not compete successfully with any such combination therapies against alternative products and therapies for HCV; and
|
|
|
|
may independently develop products that compete with our product candidate in the treatment of HCV.
|
We will not have access to all information regarding the products being developed and potentially commercialized by AbbVie, including information about
clinical trial design and execution, safety reports from clinical trials, spontaneous safety reports if the product is later approved and marketed, regulatory affairs, process development, manufacturing, marketing and other areas known by AbbVie.
Thus, our ability to keep our stockholders informed about the status of product candidates under our collaboration will be limited by the degree to which AbbVie keeps us informed. If AbbVie does not perform in the manner we expect or fulfill its
35
responsibilities in a timely manner, or at all, the clinical development, regulatory approval and commercialization efforts related to ABT-450 or ABT-493 could be delayed or terminated or be
commercially unsuccessful. In addition, AbbVie has the right to make decisions regarding the development and commercialization of product candidates without consulting us, and may make decisions with which we do not agree. Furthermore, we and AbbVie
have not yet completed the contractual process for determining the portion of AbbVies net sales of any protease-inhibitor-containing regimen that would be allocated to our protease inhibitor. Conflicts between us and AbbVie may arise if there
is a dispute about the progress of the clinical development of a product candidate, the achievement and payment of a milestone amount, the relative values allocated to the pharmaceutically active ingredients, or the ownership of intellectual
property developed during the course of our collaboration agreement. If AbbVie acts in a manner that is not in our best interest, then it could adversely affect our business and prospects.
Our prospects for successful development of EDP-239 or any other NS5A inhibitor are dependent upon the development and marketing efforts of Novartis. Novartis may act in its best interest rather
than in our best interest, which could adversely affect our business.
We rely on Novartis to fund and conduct the clinical
development of EDP-239 and any other NS5A inhibitor product candidates under our collaboration, and for the successful regulatory approval, marketing and commercialization of one or more of them. Such success will be subject to significant
uncertainty, and we have limited control over the resources, time and effort that Novartis may devote to our NS5A inhibitors. Moreover, Novartis may terminate the collaboration without any reason on 120 days notice to us. As with our AbbVie
collaboration, any of several events or factors could have a material adverse effect on our ability to generate revenue from Novartis development and commercialization of EDP-239, including ones similar to those described in the preceding risk
factor regarding our AbbVie collaboration.
If Novartis does not perform in the manner we expect or fulfill its responsibilities in a timely
manner, or at all, the clinical development, regulatory approval and commercialization efforts related to EDP-239 could be delayed, terminated or be commercially unsuccessful. Conflicts between us and Novartis may arise if there is a dispute with
Novartis similar to potential disputes with AbbVie about any of the matters mentioned in the preceding risk factor. It may become necessary for us to assume the responsibility at our own expense for the development of EDP-239 or other NS5A
inhibitors. In that event, we would likely be required to limit the size and scope of one or more of our independent programs or increase our expenditures and seek additional funding which may not be available on acceptable terms or at all, and our
business would be materially and adversely affected. If Novartis acts in a manner that is not in our best interest, then it could adversely affect our business and prospects.
We and our collaborators face substantial competition in the market for HCV drugs and for anti-infectives generally, which may result in others discovering, developing or commercializing products
before us or doing so more successfully than we and our collaborators.
The pharmaceutical and biotechnology industries are intensely
competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products
that target HCV, MRSA and other infectious diseases that we may target in the future.
We expect our current and future product candidates to
face intense and increasing competition as new products enter the HCV and antibacterial markets and advanced technologies become available, particularly in the case of HCV in combinations with existing products and other new products. Two drug
products, Incivek (telaprevir) of Vertex and Victrelis (boceprevir) of Merck, were approved in 2011 by the FDA for the treatment of HCV in combination with interferon and ribavirin, which in combination were the previous standard of
care. A third protease inhibitor, simeprevir (Olysio) from Janssen Therapeutics was approved by the FDA in November 2013 for use in genotype 1 HCV patients only when used in combination with pegylated interferon and ribavirin. In December
2013, the FDA approved sofosbuvir (Sovaldi), a nucleotide analogue inhibitor of the HCV NS5B polymerase enzyme from Gilead for patients with genotype 2 or 3 HCV or in patients with genotypes 1 or 4 when combined with pegylated interferon and
ribavirin. Other all-oral treatment regimens, including regimens
36
with Sovaldi, are under development and may obtain regulatory approvals for some forms of HCV before any combination including one of our compounds is approved. These other potential new
treatment regimens may render our HCV product candidates noncompetitive. In particular, regimens containing our HCV product candidates may not be able to compete successfully with other products and regimens in development involving multiple classes
of inhibitors of HCV, including protease inhibitors, polymerase inhibitors (nucleoside and
non-nucleoside),
NS5A inhibitors and cyclophilin inhibitors, under development by companies such as Achillion,
Astra-Zeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Gilead, GlaxoSmithKline, Idenix, Johnson & Johnson, Medivir, Merck, Pfizer, Presidio, Roche and Vertex, as well as by our collaborators.
Our MRSA program faces competition from other therapeutic products that address serious Gram-positive bacterial infections, such as
Cubicin
®
, marketed by Cubist; vancomycin, marketed generically by a number of companies; Zyvox
®
, marketed by Pfizer; Tygacil
®
, marketed by Pfizer (Wyeth);
Teflaro
®
, marketed by Forest Laboratories; and Vibativ
®
, Marketed by Theravance. In addition, we can expect future competition from drug candidates currently in clinical development.
Many of our competitors have substantially greater commercial infrastructure and better financial, technical and personnel resources than we have, as
well as drug candidates in late-stage clinical development.
Our competitors may succeed in developing competing products and obtaining
regulatory approval before we or our collaborators do with our product candidates, or they may gain acceptance for the same markets that we are targeting. If we are not first to market with one of our product candidates in one or more
disease indications, our competitive position could be compromised because it may be more difficult for us to obtain marketing approval for that product candidate and successfully market that product candidate as a second competitor. In addition,
any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful.
Competitive products in the form of other treatment methods or a vaccine for HCV or MRSA may render our product candidates licensed to others, as well as
any future product candidates we may develop ourselves, obsolete or noncompetitive. Even if successfully developed and subsequently approved by the FDA, our product candidates will face competition based on their safety and effectiveness, the timing
and scope of the regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors. If the product candidates developed under our collaboration agreements
with AbbVie and Novartis face competition from generic products, the collaboration agreements provide that the royalty rate applicable to such product candidates is reduced significantly by a specified percentage on a product-by-product,
country-by-country
basis. If we and our collaborators are not able to compete effectively against our current and future competitors, our business will not grow and our
financial condition, operations and stock price will suffer.
We have no approved products and no clinical development experience, which
makes it difficult to assess our ability to develop and commercialize our future product candidates.
To date, AbbVie has been and
will continue to be responsible for all of the clinical development of our
ABT-450,
ABT-493 and other protease inhibitor product candidates, and Novartis is responsible for all future clinical development of
our EDP-239 and other NS5A product candidates. We have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties associated with late stage clinical development, regulatory approval and commercialization of
therapeutic products such as the ones we plan to develop independently. For example, to execute our business plan for development of our independent programs for cyclophilin inhibitors and nucleotide polymerase inhibitors for HCV and antibiotics for
MRSA, we will need to successfully:
|
|
|
execute clinical development of our future product candidates;
|
|
|
|
obtain required regulatory approvals for the development and commercialization of our future product candidates;
|
|
|
|
develop and maintain any future collaborations we may enter into for any of these programs;
|
37
|
|
|
build and maintain robust sales, distribution and marketing capabilities, either independently or in collaboration with future collaborators;
|
|
|
|
gain market acceptance for our future product candidates; and
|
|
|
|
manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and commercialization.
|
If we are unsuccessful in accomplishing these objectives, we may not be able to successfully develop and commercialize our future product candidates and
expand our business or continue our operations.
We may require substantial additional financing to achieve our goals if the development
and commercialization of
ABT-450,
ABT-493
or
EDP-239
is delayed or terminated. A failure to obtain this necessary capital when
needed could force us to delay, limit, reduce or terminate our product development efforts.
Since our inception, most of our
resources have been dedicated to the discovery and preclinical development of our product candidates. In particular, we have expended, and believe that we will continue to expend for the foreseeable future, substantial resources discovering and
developing our proprietary preclinical product candidates. These expenditures will include costs associated with research and development, preclinical manufacturing of product candidates, conducting preclinical experiments and clinical trials and
obtaining regulatory approvals, as well as commercializing any products later approved for sale. In our fiscal year ending September 30, 2014, we expect to incur substantial costs associated with research and development for our internally
developed programs, exclusive of costs incurred by our collaborators in developing our licensed product candidates ABT-450, ABT-493 and EDP-239.
Because the outcome of planned and anticipated clinical trials of our product candidates by our collaborators is highly uncertain, we cannot reasonably estimate the timing or amounts, if any, of future
milestone payments we will receive from these collaborators. If we do not continue to receive substantial milestone payments from the continued development of our product candidates, we may require substantial additional financing.
Our future capital requirements depend on many factors, including:
|
|
|
whether our existing collaborations continue to generate substantial milestone payments, and ultimately royalties, to us;
|
|
|
|
the number and characteristics of the future product candidates we pursue;
|
|
|
|
the scope, progress, results and costs of researching and developing any of our future product candidates on our own, and conducting preclinical
research and clinical trials;
|
|
|
|
the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates we develop independently;
|
|
|
|
the cost of commercialization activities, if any, of any future product candidates we develop independently that are approved for sale, including
marketing, sales and distribution costs;
|
|
|
|
the cost of manufacturing our future product candidates and any products we successfully commercialize independently, including manufacturing for
clinical development;
|
|
|
|
our ability to maintain existing collaborations and to establish new collaborations, licensing or other arrangements and the financial terms of such
agreements;
|
|
|
|
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including litigation costs and the outcome of such
litigation;
|
|
|
|
the portion of net sales of any combination regimen that is allocable to a compound developed by us or in one of our collaborations; and
|
|
|
|
the timing, receipt and amount of sales of, or royalties on, ABT-450, ABT-493, EDP-239 and our future product candidates, if any.
|
38
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. Our
ability to raise funds will depend on financial, economic and market conditions and other factors, many of which are beyond our control. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or
terminate preclinical studies, clinical trials or other research and development activities for one or more of our product candidates.
If we are not successful in discovering further product candidates in addition to ABT-450,
ABT-493
and
EDP-239,
our ability to expand our business and achieve our strategic objectives may be impaired.
Research programs designed to identify product candidates require substantial technical, financial and human resources, whether or not any product
candidates are ultimately identified. Our research programs may initially show promise in identifying additional potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons,
including the following:
|
|
|
the research methodology used may not be successful in identifying additional potential product candidates; competitors may develop alternatives that
render our future product candidates obsolete;
|
|
|
|
a future product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be
effective or otherwise does not meet applicable regulatory criteria; and
|
|
|
|
a future product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all.
|
If we are unable to identify additional compounds suitable for preclinical and clinical development, we may not be able to
obtain sufficient product revenue in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop our product candidates, conduct our clinical trials and commercialize our
product candidates.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management,
clinical and scientific personnel. We are highly dependent upon our senior management, particularly Jay R. Luly, Ph.D., our Chief Executive Officer and President, and Yat Sun Or, Ph.D., our Senior Vice President, Research and Development and Chief
Scientific Officer, as well as other employees and consultants. Although none of these individuals has informed us to date that he intends to retire or resign in the near future, the loss of services of any of these individuals or one or more of our
other members of senior management could delay or prevent the successful development of our future product candidates.
Although we have not
historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceutical field is intense. In
addition, we will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms.
We have incurred a substantial cumulative net loss since our inception and anticipate that we may incur substantial operating losses in one or more
years in the future. To date, our principal sources of revenue have been our collaboration agreements, including our current agreements with AbbVie and Novartis, and future payments under these agreements are uncertain. We have had no products
approved for commercial sale. As a result, our ability to achieve sustained profitability is unproven.
We have incurred
cumulative net losses since our inception, and as of March 31, 2014, we had an accumulated deficit of $118.0 million. Our net income in the fiscal year ended September 30, 2010 resulted primarily from the conclusion of a previous
collaboration which accelerated $16.2 million of deferred revenue into fiscal 2010 that was
39
related to cash received and spent in prior years, and our net income in the fiscal year ended September 30, 2011 resulted primarily from a substantial milestone payment from AbbVie. In the
fiscal year ended September 30, 2012, our net income resulted primarily from a substantial upfront license payment from Novartis. In the fiscal year ended September 30, 2013, our net income resulted primarily from milestone payments we
earned from AbbVie and Novartis of $15.0 million and $11.0 million, respectively. In April 2014, we earned a $20.0 milestone payment as a result of the US regulatory filing by AbbVie for the first protease inhibitor product resulting from
our collaboration with AbbVie. In May 2014, we earned a second $20.0 milestone payment as a result of the European Union regulatory filing by AbbVie for the same protease inhibitor product. There is no assurance, however, that we will report
net income in fiscal 2014 or subsequent years. To date, we have not commercialized any products or generated any revenue from product sales, directly or through any collaborator.
Our principal source of revenue has been our collaboration agreements, including our current agreements with AbbVie and Novartis. Future milestone payments are uncertain because our collaborators may
choose not to continue research or development activities for one or more potential product candidates. For example, under a prior collaboration for the development of an antibiotic product candidate in Japan, our collaborator decided in 2010 not to
pursue further development of the licensed product candidate due to its limited potency against
Haemophilus influenzae
in clinical trials of community-acquired pneumonia, which then resulted in our collaboration being terminated. In addition,
we may not achieve the specified milestones, our product candidates may not be approved by the FDA or other regulatory authorities or, if they are approved, may not be accepted in the market. If we are unable to develop and commercialize one or more
of our product candidates, either alone or with our collaborators, or if any such product candidate does not achieve market acceptance, we may never generate sufficient product royalties or product sales. For example, for any of our product
candidates included in a treatment regimen with more than one active compound, it would be uncertain what portion of net sales of the regimen would be allocated to our product candidate. The existence of multiple active compounds in the regimen or
an unfavorable allocation to our product candidate could adversely affect our royalty revenue. Even if we do generate product royalties or product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our failure to
sustain profitability would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common
stock also could cause you to lose all or a part of your investment.
We may encounter difficulties in managing our growth and expanding
our operations successfully.
As we seek to advance our product candidates through clinical trials, we will need to expand our
development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various
strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete
effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management,
administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
Our government funded contract for our antibiotic program is subject to termination and uncertain future funding and there is no certainty that we
will be able to enter into new agreements to provide these funds.
Under our agreement with the National Institute of Allergy and
Infectious Diseases, or NIAID, a division of the National Institutes of Health, an agency of the United States Department of Health and Human Services, to support our antibiotic program, NIAID has the option to make future payments to fund our early
clinical development of EDP-788. If NIAID exercises each remaining option under the agreement, the aggregate funding commitment will be $42.7 million. On August 29, 2013, NIAID exercised the first two options under the agreement, pursuant to
which it has agreed to provide an additional $9.2 million in funding for preclinical and early clinical development of EDP-788. To date only $23.5 million has been committed for our work under the agreement. NIAID has several remaining options to
decide whether it wants to continue the program in its sole
40
discretion. In addition, the ability of government agencies such as NIAID to perform under these types of agreements is dependent upon adequate continued funding of the agencies and their
programs. We have no control over the resources and funding NIAID may devote to our agreement, which may be subject to periodic renewal and which generally may be terminated by NIAID at any time. For example, in accordance with the spending cuts,
known as sequestration, to implement the Budget Control Act of 2011, NIAID notified us on March 4, 2013 of the possibility that NIAID may not exercise the options on our contract or may negotiate lower prices or other terms via a bilateral
modification. Then in September 2013 NIAID notified of possible reductions in funding due to the budget impasse and government shut-down at the commencement of the U.S. governments fiscal year beginning October 1, 2013. Any significant
reductions in the funding of U.S. government agencies or in the funding areas targeted by our business could materially and adversely affect our antibiotic program and our results of operations and financial condition. If we fail to satisfy our
contractual obligations under the agreement, the applicable Federal Acquisition Regulations allow the government to terminate the agreement in whole or in part, and we may be required to perform corrective actions, including but not limited to
delivering to the government any incomplete work. If NIAID does not exercise future funding options under the agreement, terminates the agreement or fails to perform its responsibilities under the agreement, it could materially impact our antibiotic
program and our financial results.
In addition, our contract related costs and fees, including allocated indirect costs, are subject to
audits and adjustments by negotiation between us and the U.S. government. As part of the audit process, the government audit agency verifies that all charges made by a contractor against a contract are legitimate and appropriate. Audits may result
in recalculation of contract revenues and
non-reimbursement
of some contract costs and fees. Any audits of our contract related costs and fees could result in material adjustments to our revenue. In addition,
U.S. government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal year basis even though contract performance may take several years. Consequently, at the
outset of a major program, the contract is usually incrementally funded and additional funds are normally committed to the contract by the procuring agency as appropriations are made by Congress for future fiscal years. Any failure of NIAID to
continue to fund our contract could have a material adverse effect on our business, results of operations and financial condition.
Risks
Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
Clinical drug development involves a
lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials are prolonged or delayed, we or our collaborators may be unable to commercialize our product candidates on a timely basis.
Clinical testing is expensive and, depending on the stage of development, can take a substantial time period to complete. Its outcome is inherently
uncertain, and failure can occur at any time during clinical development. The
top-line
results of the six Phase 3 registrational trials of
ABT-450
in combination
therapy were reported in recent months, but none of the other product candidates in our pipeline has yet advanced beyond Phase 2 clinical trials. Any future Phase 3 trials may fail to demonstrate sufficient safety and efficacy. Moreover,
regulatory and administrative delays may adversely affect our or our collaborators clinical development plans and jeopardize our or our collaborators ability to attain product approval, commence product sales, compete successfully
against other HCV therapies and generate revenues.
Clinical trials can be delayed for a variety of reasons, including delays related to:
|
|
|
reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be
subject to extensive negotiation and may vary significantly among different CROs and trial sites;
|
|
|
|
failure of third-party contractors, such as CROs, or investigators to comply with regulatory requirements;
|
|
|
|
delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or IRBs, in order to commence a clinical trial at
a prospective trial site, or their suspension or termination of a clinical trial once commenced;
|
41
|
|
|
difficulty in recruiting suitable patients to participate in a trial;
|
|
|
|
difficulty in having patients complete a trial or return for post-treatment follow-up;
|
|
|
|
clinical sites deviating from trial protocol or dropping out of a trial;
|
|
|
|
problems with drug product or drug substance storage and distribution;
|
|
|
|
adding new clinical trial sites;
|
|
|
|
our inability to manufacture, or obtain from third parties, adequate supply of drug product sufficient to complete our preclinical studies and clinical
trials;
|
|
|
|
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; or
|
|
|
|
varying interpretations of data by the FDA and similar foreign regulatory agencies.
|
The results of any Phase 3 clinical trial may not be adequate to support marketing approval. These clinical trials are lengthy and usually involve from
many hundreds to thousands of patients. In addition, if the FDA disagrees with our or our collaborators choice of the key testing criteria, or primary endpoint, or the results for the primary endpoint are not robust or significant relative to
the control group of patients not receiving the experimental therapy or are subject to confounding factors, or are not adequately supported by other study endpoints, the FDA may refuse to approve our or our collaborators product candidate. The
FDA also may require additional clinical trials as a condition for approving any of these product candidates. We estimate that it will likely be our fiscal 2015 before an NDA for one of our collaborators product candidates could be approved by
the FDA.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such
trial is being conducted, by any Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to
conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold,
unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, delays can
occur due to safety concerns arising from trials or other clinical data regarding another companys product candidate in the same compound class as one of ours. For example, Novartis drug candidate that is a cyclophilin inhibitor had been
placed on clinical hold by the FDA based on a small number of cases of pancreatitis in clinical trial patients, one of which resulted in a patients death. While Novartis obtained a revision of the clinical hold and has initiated a Phase 2
drug-drug interaction study, the clinical hold has the potential to result in delays in development of other similar inhibitors, including delays due to additional preclinical or clinical testing protocols for all similar inhibitors. If we or our
collaborators experience delays in the completion of, or termination of, any clinical trial of one of our product candidates, the commercial prospects of the product candidate will be harmed, and our or our collaborators ability to commence
product sales and generate product revenues from the product candidate will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process. Any of
these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of
regulatory approval of our product candidates.
If we or our collaborators are required to suspend or discontinue clinical trials due to
side effects or other safety risks associated with our product candidates, or if we or our collaborators are required to conduct studies on the long-term effects associated with the use of our product candidates, efforts to commercialize our product
candidates could be delayed or halted.
Clinical trials involving our product candidates may be suspended or terminated at any time
for a number of safety-related reasons. For example, we or our collaborators may voluntarily suspend or terminate clinical trials if at any time one of our product candidates, or a combination therapy including any of them, presents an
42
unacceptable safety risk to the clinical trial patients. In addition, IRBs or regulatory agencies may order
the temporary discontinuation or termination of clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, including if they present an unacceptable safety risk
to patients. Administering any product candidate to humans may produce undesirable side effects. The existence of undesirable side effects resulting from any of our product candidates, or a combination therapy including any of them, could cause us,
our collaborators or regulatory authorities, such as the FDA, to interrupt, delay or halt clinical trials of our product candidates and could result in the FDA or other regulatory agencies denying further development or approval of our product
candidates for any or all targeted indications. This, in turn, could prevent us or our collaborators from commercializing our product candidates.
Our Bicyclolide product candidates are in a novel class of antibiotics. Regulatory authorities may require more extensive studies of the long-term effects for regulatory approval, which could delay
development of EDP-788 or our other future antibiotic product candidates. These studies could also be required at any time after regulatory approval of any of our product candidates. Some or all of our product candidates may prove to be unsafe for
human use.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of our product candidates, whether ABT-493,
EDP-239,
EDP-788 or any of our future product candidates, may not be predictive of the results of later-stage clinical trials. In addition, results of Phase 3 clinical trials in one or more ethnic groups are not necessarily indicative of results in other
ethnic groups. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, future clinical trial results may not be successful for
these or other reasons.
This product candidate development risk is heightened by any changes in the planned clinical trials compared to the
completed clinical trials. As product candidates are developed through preclinical early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing
and formulation, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could make the results of planned clinical trials or
other future clinical trials we or our collaborators may initiate less predictable and could cause our product candidates to perform differently, which could delay completion of clinical trials, delay approval of our product candidates and/or
jeopardize our or our collaborators ability to commence product sales and generate revenues.
The regulatory approval processes of
the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable, and if we or our collaborators are ultimately unable to obtain timely regulatory approval for our product candidates, our business will be
substantially harmed.
The regulatory approval process is expensive and, while the time required to gain FDA and foreign regulatory
approval is uncertain, it may take years. Regulatory approval is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount
of preclinical and clinical data necessary to gain approval may change during the course of a product candidates clinical development and may vary among jurisdictions. We or our collaborators may be required to undertake and complete certain
additional preclinical studies to generate toxicity and other data required to support the submission of a New Drug Application, or NDA, to the FDA or other regulatory authority. Neither we nor our collaborators have obtained regulatory approval for
any of our product candidates and it is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval. Furthermore, approval in the United States by the FDA does not ensure
approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA.
43
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
|
|
|
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our or our collaborators clinical trials;
|
|
|
|
we or our collaborators may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product
candidate is safe and effective for its proposed indication;
|
|
|
|
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for
approval;
|
|
|
|
we or our collaborators may be unable to demonstrate that a product candidates clinical and other benefits outweigh its safety risks;
|
|
|
|
the FDA or comparable foreign regulatory authorities may disagree with our or our collaborators interpretation of data from preclinical studies
or clinical trials;
|
|
|
|
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to
obtain regulatory approval in the United States or elsewhere;
|
|
|
|
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with
which we or our collaborators contract for clinical and commercial supplies; and
|
|
|
|
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our or our
collaborators clinical data insufficient for approval.
|
We and our collaborators cannot be assured that after spending
substantial time and resources, we or our collaborators will obtain regulatory approval. Even if we or our collaborators were to obtain approval, regulatory authorities may grant approval contingent on the performance of costly post-marketing
clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Significant clinical trial delays could allow our
competitors to obtain marketing approval before we or our collaborators do or could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. In addition, we or our collaborators may
not be able to ultimately achieve the prices intended for our products. In many foreign countries, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Any of the foregoing scenarios could
materially harm the commercial prospects for our product candidates.
Even if we receive regulatory approval for any of our product
candidates we develop independently, we will be subject to ongoing FDA obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling
and other restrictions and market withdrawal and we may be subject to penalties if we or our collaborators fail to comply with regulatory requirements or experience unanticipated problems with our products.
Any regulatory approvals that we receive for our product candidates we develop independently may be subject to limitations on the approved indicated uses
for which the product may be marketed or subject to certain conditions of approval, or may contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of
the product candidate.
In addition, if the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing
information and reports, as well as continued compliance with current good manufacturing practices, or cGMP, and good clinical practices, or GCP, for any clinical trials that
44
we or our collaborators conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with third-party
manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
|
|
|
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market or voluntary or mandatory product recalls;
|
|
|
|
fines, warning letters or holds on any post-approval clinical trials;
|
|
|
|
refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our collaborators, or suspension or
revocation of product license approvals;
|
|
|
|
product seizure or detention, or refusal to permit the import or export of products; and
|
|
|
|
injunctions or the imposition of civil or criminal penalties.
|
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we or our
collaborators are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or our collaborators are not able to maintain regulatory compliance, our product candidate may lose any marketing
approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.
We or
our collaborators may delay or terminate the development of a product candidate at any time if we or our collaborators believe the perceived market or commercial opportunity does not justify further investment, which could materially harm our
business.
Even though the results of preclinical studies and clinical trials that we or our collaborators have conducted or may
conduct in the future may support further development of one or more of our product candidates, we, or our collaborator in the case of our partnered product candidates, may delay, suspend or terminate the future development of a product candidate at
any time for strategic, business, financial or other reasons, including the determination or belief that the emerging profile of the product candidate is such that it may not receive FDA approval, gain meaningful market acceptance, otherwise provide
any competitive advantages in its intended indication or market or generate a significant return to stockholders. Such a delay, suspension or termination could materially harm our business, results of operations or financial condition. In addition,
our collaborators may have the right to make decisions regarding the development and commercialization of product candidates without consulting us, and may make decisions with which we do not agree.
Our internal computer systems, or those of our collaborators, CROs or other contractors or consultants, may fail or suffer security breaches, which
could result in a material disruption of development programs for our product candidates.
Despite the implementation of security
measures, our internal computer systems and those of our collaborators, CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and
electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our independent
drug development programs or those of our collaborators. For example, the loss of clinical trial data from ongoing or future clinical trials for any of our product candidates could result in delays in regulatory approval efforts and significantly
increase costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to data or applications, or inappropriate disclosure of confidential or proprietary information, we or our
collaborators could incur liability and the further development of our product candidates could be delayed.
45
Risks Related to Commercialization of Our Product Candidates
If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into licensing or collaboration
agreements for these purposes, we may not be successful in commercializing any future product candidates.
We do not have a sales or
marketing infrastructure and have no sales, marketing or distribution experience. We will seek to either build our own commercial infrastructure to commercialize any future products if and when they are approved, or enter into licensing or
collaboration agreements where our collaborator is responsible for commercialization, like in the case of our collaborations with Novartis and AbbVie, or where we have the right to assist in the future development and commercialization of such
products. For example, we have a
co-detail
option with respect to any product that may be developed under our Novartis collaboration, which would allow us to establish a limited sales force in the United
States for a portion of the products sales.
To develop internal sales, distribution and marketing capabilities, we will have to invest
significant amounts of financial and management resources, some of which will be committed prior to any confirmation that any of our proprietary product candidates will be approved. For product candidates for which we decide to perform sales,
marketing and distribution functions ourselves, we could face a number of additional risks, including:
|
|
|
our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
|
|
|
|
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future products;
|
|
|
|
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more
extensive product lines; and
|
|
|
|
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
|
Where and when appropriate, we may elect to utilize contract sales forces or distribution partners to assist in the commercialization of our product
candidates. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to
us. We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.
If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaborati+on with third parties, we will
not be successful in commercializing our product candidates.
Our commercial success depends upon significant market acceptance among
physicians, patients and healthcare payors of our product candidates licensed to AbbVie and Novartis, if approved, as well as of any future product candidates we plan to develop independently or in collaboration with others.
Even if
ABT-450,
ABT-493
or
EDP-239
or any other product candidate that we may develop in the future obtains regulatory approval, whether as part of a combination therapy or as a monotherapy, the product may not gain market acceptance
among physicians, healthcare payors, patients and the medical community. For example, the standard of care in HCV is likely to evolve rapidly as many new product candidates are being developed and tested. The degree of market acceptance of any
products for which we receive approval for commercial sale depends on a number of factors, including:
|
|
|
the efficacy and safety of treatment regimens containing one of our partnered product candidates, as demonstrated in clinical trials, and the degree to
which these regimens represent a clinically meaningful improvement in care as compared with other available therapies;
|
46
|
|
|
the clinical indications for which any treatment regimen containing one of our product candidates become approved;
|
|
|
|
acceptance among physicians, major operators of clinics and patients of any treatment regimen containing one of our product candidates as safe,
effective and preferred treatments;
|
|
|
|
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
|
|
|
|
the potential and perceived advantages of treatment regimens containing one of our product candidates over alternative treatments;
|
|
|
|
the cost of treatment in relation to alternative treatments;
|
|
|
|
the availability of adequate reimbursement and pricing by third parties and government authorities;
|
|
|
|
the continued projected growth of the HCV drug market;
|
|
|
|
the relative convenience and ease of administration of any treatment regimen containing one of our product candidates;
|
|
|
|
the prevalence and severity of adverse side effects, whether involving the use of our products candidates or similar, competitive products; and
|
|
|
|
the effectiveness of our or our collaborators sales and marketing efforts.
|
If treatment regimens containing one of our product candidates are approved and then fail to achieve market acceptance, we would not be able to generate
significant revenue. Further, if new, more favorably received therapies are introduced after any such regimen achieve market acceptance, then we may not be able to maintain that market acceptance over time.
Even if we or our collaborators are able to commercialize any treatment regimen containing one of our product candidates, the resulting products
may become subject to unfavorable pricing regulations,
third-party
reimbursement practices or healthcare reform initiatives in the United States, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the
United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, may significantly change the way healthcare is financed by
both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this law will have in general or specifically on any product or regimen that we or any of our collaborators commercializes, the ACA may
result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of new products. In addition, although the United States Supreme Court has upheld the constitutionality of most of the ACA, some states have
indicated that they intend not to implement certain sections of the ACA, and some members of the U.S. Congress are still working to repeal the ACA. We cannot predict whether these challenges will continue or other proposals will be made or
adopted, or what impact these efforts may have on us or any of our collaborators. Our or any collaborators ability to commercialize any products successfully also will depend in part on the extent to which reimbursement for these products and
related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance
organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry is cost containment. Government authorities and third-party payors have attempted to control costs by
limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for
medical products. We cannot be sure that reimbursement will be available for any product that we or any collaborator commercialize and, if reimbursement is available, the level of reimbursement. In
47
addition, reimbursement may impact the demand for, or the price of, any product candidate for which we or a collaborator obtains marketing approval. If reimbursement is not available or is
available only to limited levels, we or our collaborators may not be able to successfully commercialize any product candidate for which marketing approval is obtained.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA. Moreover, eligibility for
reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also be
insufficient to cover our and any collaborators costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set
for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation
of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement
policies. Our or any collaborators inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we or our collaborators develop could have a material adverse
effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.
In most foreign countries, particularly in the European Union, prescription drug pricing and/or reimbursement is subject to governmental control. In
those countries that impose price controls, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our
collaborators may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some
foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we or our collaborators might obtain marketing approval for a product in a particular
country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues that are generated from the sale of the product in that country. If reimbursement of
our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-border sales, our profitability will be negatively affected.
Risks Related to Our Dependence on Third Parties
We may not be successful in establishing new product collaborations, which could adversely affect our ability to develop and commercialize our future product candidates. If we are unsuccessful in
maintaining or forming alliances on favorable terms, our business may not succeed.
We may seek to enter into additional product
collaborations in the future, including alliances with other biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization of our future product candidates. We face significant competition in seeking
appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish other product collaborations or other alternative arrangements for any future product candidates and
programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties
48
may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish product
collaborations, the terms that we agree upon may not be favorable to us and we may not be able to maintain such product collaborations if, for example, development or approval of a product candidate is delayed or sales of an approved product are
disappointing.
If either of our existing collaboration agreements is terminated, or if we determine that entering into other product
collaborations is in our best interest but we either fail to enter into, delay in entering into or fail to maintain such collaborations:
|
|
|
the development of certain of our current or future product candidates may be terminated or delayed;
|
|
|
|
our cash expenditures related to development of certain of our future product candidates would increase significantly and we may need to seek
additional financing;
|
|
|
|
we may be required to hire additional employees or otherwise develop expertise, such as clinical, regulatory, sales and marketing expertise, which we
do not currently have;
|
|
|
|
we will bear all of the risk related to the development of any such product candidates; and
|
|
|
|
the competitiveness of any product candidate that is commercialized could be reduced.
|
We intend to rely on third-party manufacturers to produce our clinical product candidate supplies and any commercial supplies of any approved
future product candidates. Any failure by a third-party manufacturer to produce acceptable supplies for us may delay or impair our ability to initiate or complete our clinical trials or sell any resulting product.
We do not currently own or operate any manufacturing facilities. We plan to work with third-party contract manufacturers to produce sufficient quantities
of any future product candidates for preclinical testing, clinical trials and commercialization. If we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms, we may not be able to
successfully produce, develop and market our future product candidates, or we may be delayed in doing so.
Reliance on third-party
manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including reliance on the third party for regulatory compliance and quality control and assurance, volume production, the possibility of
breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordance with our product specifications) and the possibility of
termination or nonrenewal of the agreement by the third party at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require that our product candidates be manufactured according to cGMP and similar foreign
standards. Pharmaceutical manufacturers and their subcontractors are required to register their facilities and/or products manufactured at the time of submission of the marketing application and then annually thereafter with the FDA and certain
state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other foreign authorities. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by us or our
collaborators, may result in restrictions on the product or on the manufacturing or laboratory facility, including marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the drug from the market. Any
failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or failure to
obtain, regulatory approval of any of our product candidates.
We plan to rely on third-party manufacturers to purchase from third-party
suppliers the materials necessary to produce our future product candidates for our clinical studies. There are a small number of suppliers for certain capital equipment and materials that we plan to use to manufacture our drugs. Such suppliers may
not sell these materials to our manufacturers at the times we need them or on commercially reasonable terms. Moreover, we currently do not have any agreements for the production of these materials. Although we do not intend to begin a
49
clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate or the material
components thereof for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing and potential regulatory approval of our product candidates. If our
manufacturers or we are unable to purchase these materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would
impair our ability to generate revenue from the sale of our product candidates.
Contract manufacturers may not be able to manufacture our
product candidates at a cost or in quantities or in a timely manner necessary to develop and commercialize them. If we successfully commercialize any of our product candidates, to meet our projected needs we may need to find third parties that will
increase their scale of production, or we may have to establish or access large-scale commercial manufacturing capabilities. We may require additional funds, personnel and other resources to build, lease or operate any manufacturing facility.
Because a portion of our manufacturing of certain key intermediates used in the manufacture of the active pharmaceutical ingredients
for our future product candidates is expected to take place in China through
third-party
manufacturers, a significant disruption in the operation of those manufacturers or political unrest in China could
materially adversely affect our business, financial condition and results of operations.
Although manufacturing for each of our lead
product candidates, namely ABT-450, ABT-493 and EDP-239, is being conducted by our collaborators, we have relied on third parties located in China to manufacture and supply certain key intermediates used in the manufacture of our active
pharmaceutical ingredients, or API, for our research product candidates, and we expect to continue to use such third party manufacturers for such intermediates for any future product candidates we develop independently, including
EDP-788.
Any disruption in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result of a natural disaster or other causes, could impair our ability
to operate our business on a day-to-day basis and to continue our research and development of our future product candidates. Furthermore, since these manufacturers are located in China, we are exposed to the possibility of product supply disruption
and increased costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic conditions in China. Any of these matters could materially and adversely affect our business and results of operations. Any
recall of the manufacturing lots or similar action regarding our API used in clinical trials could delay the trials or detract from the integrity of the trial data and its potential use in future regulatory filings. In addition, manufacturing
interruptions or failure to comply with regulatory requirements by any of these manufacturers could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials.
These interruptions or failures could also impede commercialization of our future product candidates and impair our competitive position. Further, we may be exposed to fluctuations in the value of the local currency in China. Future appreciation of
the local currency could increase our costs. In addition, our labor costs could continue to rise as wage rates increase due to increased demand for skilled laborers and the availability of skilled labor declines in China.
We will rely on third parties to monitor, support, conduct and/or oversee clinical trials of our future product candidates that we develop
independently and, in some cases, to maintain regulatory files for those product candidates. If we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform their services
as required, or if these third parties fail to timely transfer any regulatory information held by them to us, we may not be able to obtain regulatory approval for, or commercialize, our product candidates.
We will rely on academic institutions, CROs, hospitals, clinics and other third-party collaborators who are outside our control to monitor, support,
conduct and/or oversee preclinical and clinical studies of our future product candidates. We will also rely on third parties to perform clinical trials on our future product candidates when they reach that stage. As a result, we have less control
over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials wholly by ourselves. If we are unable to maintain
50
or enter into agreements with these third parties on acceptable terms, or if any such engagement is terminated, we may be unable to enroll patients on a timely basis or otherwise conduct our
trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies or perform as required by a contract or in accordance with regulatory requirements, including
maintenance of clinical trial information regarding our future product candidates. If these third parties fail to meet expected deadlines, fail to timely transfer to us any regulatory information, fail to adhere to protocols or fail to act in
accordance with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities or the data they obtain, then clinical trials of our
future product candidates may be extended, delayed or terminated, or our data may be rejected by the FDA or regulatory agencies.
To the
extent we elect to enter into additional licensing or collaboration agreements to partner our future product candidates, our dependence on such relationships may adversely affect our business.
Our commercialization strategy for some of our future product candidates may depend on our ability to enter into collaboration agreements with other
companies to obtain assistance and funding for the development and potential commercialization of these product candidates, similar to what we have done with AbbVie and Novartis. Supporting diligence activities conducted by potential collaborators
and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more additional collaboration agreements, collaborations can involve
greater uncertainty for us, as we may have limited or no control over certain aspects of our collaborative programs. We may determine that continuing a collaboration under the terms provided is not in our best interest, and we may terminate the
collaboration. Our collaborators could delay or terminate their agreements with us, and our product candidates subject to collaborative arrangements may never be successfully commercialized.
Further, our collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus
of our collaborators may shift such that our programs receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our collaborators may adversely affect our business prospects and ability to earn
revenue. In addition, we could have disputes with our collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of any potential products or could result
in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.
Even with respect to programs that we
intend to commercialize ourselves, we may enter into agreements with collaborators to share in the burden of conducting clinical trials, manufacturing and marketing our product candidates or products. In addition, our ability to apply our
proprietary technologies to develop proprietary compounds will depend on our ability to establish and maintain licensing arrangements or other collaborative arrangements with the holders of proprietary rights to such compounds. We may not be able to
establish such arrangements on favorable terms or at all, and our collaborative arrangements may not be successful.
Risks Related to Our
Intellectual Property Rights
We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our
product candidates.
Our commercial success will depend, in large part, on our ability to obtain and maintain patent and other
intellectual property protection with respect to our product candidates. We cannot be certain that patents will be issued or granted with respect to our patent applications that are currently pending, or that issued or granted patents will not later
be found to be invalid and/or unenforceable, be interpreted in a manner that does not adequately protect our products, or otherwise provide us with any competitive advantage. The patent position of biotechnology and pharmaceutical companies is
generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office and foreign
51
patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims
allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending patent applications. As such, we do not know the degree of future protection that we will have on our proprietary products and technology, if
any, and a failure to obtain adequate intellectual property protection with respect to our product candidates and proprietary technology could have a material adverse impact on our business.
In addition, certain of our activities have been funded, and may in the future be funded, by the United States federal government. For example, the preclinical and early clinical development of EDP-788,
our lead candidate for the treatment of MRSA, is currently funded under a contract with the NIAID, an entity of the United States federal government. When new technologies are developed with United States federal government funding,
the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential
information to third parties and to exercise march-in rights to use or allow third parties to use our patented technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to
achieve practical application of the United States government-funded technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to United States industry. In
addition, United States government-funded inventions must be reported to the government and United States government funding must be disclosed in any resulting patent applications. In addition, our rights in such inventions are subject to certain
requirements to manufacture products in the United States.
Issued patents covering one or more of our product candidates could be found
invalid or unenforceable if challenged in court.
Despite measures we take to obtain patent and other intellectual property protection
with respect to our product candidates and proprietary technology, any of our intellectual property rights could be challenged or invalidated. For example, if we were to initiate legal proceedings against a third party to enforce a patent covering
one of our product candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion
could be an allegation that someone connected with prosecution of the patent withheld relevant information from the United States Patent and Trademark Office, or the applicable foreign counterpart, or made a misleading statement, during prosecution.
Although we believe that we have conducted our patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With
respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity
and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be
construed in a manner that would limit our ability to enforce such claims against the defendant and others. Any loss of patent protection could have a material adverse impact on one or more of our product candidates and our business.
Enforcing our intellectual property rights against third parties may also cause such third parties to file other counterclaims against us, which could be
costly to defend and could require us to pay substantial damages, cease the sale of certain products or enter into a license agreement and pay royalties (which may not be possible on commercially reasonable terms or at all). Any efforts to enforce
our intellectual property rights are also likely to be costly and may divert the efforts of our scientific and management personnel.
52
Claims that our product candidates or the sale or use of our future products infringe the patent or
other intellectual property rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technology without infringing the intellectual property rights of
others. We cannot guarantee that our product candidates or any uses of our product candidates do not and will not in the future infringe third-party patents or other intellectual property rights. Third parties might allege that we or our
collaborators are infringing their patent rights or that we have misappropriated their trade secrets, or that we are otherwise violating their intellectual property rights, whether with respect to the manner in which we have conducted our research
or to the composition, use or manufacture of the compounds we have developed or are developing with our collaborators. Such third parties might resort to litigation against us or other parties we have agreed to indemnify, which litigation could be
based on either existing intellectual property or intellectual property that arises in the future.
It is also possible that we failed to
identify, or may in the future fail to identify, relevant patents or patent applications held by third parties that cover our product candidates. For example, applications filed before November 29, 2000 and certain applications filed after that
date that will not be filed outside the United States remain confidential until patents issue. Other patent applications in the United States and several other jurisdictions are published approximately 18 months after the earliest filing for which
priority is claimed, with such earliest filing date being commonly referred to as the priority date. Furthermore, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain
that we or our collaborators were the first to invent, or the first to file patent applications on, our product candidates or for their uses, or that our product candidates will not infringe patents that are currently issued or that are issued in
the future. In the event that a third party has also filed a patent application covering one of our product candidates or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the U.S.
Patent and Trademark Office or its foreign counterpart to determine priority of invention. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our
products or their use.
In order to avoid or settle potential claims with respect to any patent or other intellectual property rights of third
parties, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all. Even if we or any
future collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be
forced, by court order or otherwise, to cease some or all aspects of our business operations, if, as a result of actual or threatened patent or other intellectual property claims, we are unable to enter into licenses on acceptable terms. Further, we
could be found liable for significant monetary damages as a result of claims of intellectual property infringement. For example, we have received, and may in the future receive, offers to license and demands to license from third parties claiming
that we are infringing their intellectual property or owe license fees and, even if such claims are without merit, there can be no assurance that we will successfully avoid or settle such claims.
In addition, if AbbVie and Novartis license or otherwise acquire rights to intellectual property controlled by a third party in various circumstances,
for example, where a product could not be legally developed or commercialized in a country without the third-party intellectual property right or, in the case of the Novartis agreement, where it is decided that it would be useful to acquire such
third-party right to develop or commercialize the product, they are entitled under our collaboration agreements to decrease payments payable to us on a product-by-product basis and, in certain cases, on a country-by-country basis. Any of the
foregoing events could harm our business significantly.
53
Defending against claims of patent infringement, misappropriation of trade secrets or other violations of
intellectual property rights could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In
addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. Claims that our product candidates or the sale or use of
our future products infringe, misappropriate or otherwise violate third-party intellectual property rights could therefore have a material adverse impact on our business.
Unfavorable outcomes in intellectual property litigation could limit our research and development activities and/or our ability to commercialize certain products.
If third parties successfully assert their intellectual property rights against us, we might be barred from using certain aspects of our technology, or
barred from developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or by a settlement agreement between us and a
plaintiff. In addition, if we are unsuccessful in defending against allegations that we have infringed, misappropriated or otherwise violated patent or other intellectual property rights of others, we may be forced to pay substantial damage awards
to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed.
If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the intellectual property owner in order to continue our research and development programs or to market any resulting product. It is possible that the
necessary license will not be available to us on commercially acceptable terms, or at all. Alternatively, we may be required to modify or redesign our products in order to avoid infringing or otherwise violating third-party intellectual property
rights. This may not be technically or commercially feasible, may render our products less competitive, or may delay or prevent the entry of our products to the market. Any of the foregoing could limit our research and development activities, our
ability to commercialize one or more product candidates, or both.
Most of our competitors are larger than we are and have substantially
greater resources. They are, therefore, likely to be able to sustain the costs of complex intellectual property litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our
ability to raise the funds necessary to conduct our clinical trials, continue our internal research programs, in-license needed technology, or enter into strategic partnerships that would help us bring our product candidates to market.
In addition, any future intellectual property litigation, interference or other administrative proceedings will result in additional expense and
distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or any future strategic partners to loss of our proprietary position, expose us to significant liabilities, or require us to seek licenses that may not
be available on commercially acceptable terms, if at all, each of which could have a material adverse effect on our business.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common stock to
decline.
During the course of any intellectual property litigation, there could be public announcements of the results of hearings,
rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs or intellectual property could be diminished. Accordingly,
the market price of our common stock may decline. Such announcements could also harm our reputation or the market for our future products, which could have a material adverse effect on our business.
54
Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of
trade secrets and other proprietary information.
In addition to patents, we rely on trade secrets, technical know-how and proprietary
information concerning our business strategy and product candidates in order to protect our competitive position in the field of HCV and anti-infectives. In the course of our research and development activities and our business activities, we often
rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors of laboratory or clinical development services or potential strategic partners. In addition,
each of our employees is required to sign a confidentiality agreement and invention assignment agreement upon joining our company. We take steps to protect our proprietary information, and our confidentiality agreements and invention assignment
agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might
happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized
disclosures. In addition, to the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting
know-how
and inventions.
Trade secrets are difficult to protect. Although we use reasonable efforts
to protect our trade secrets, our employees, consultants, contractors, business partners or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors or our trade secrets may otherwise
be misappropriated. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less
willing than United States courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our collaborators may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research relevant to our business.
The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be
insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential
information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized, which could adversely affect our business.
Intellectual property rights do not necessarily protect us from all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us
to maintain our competitive advantage. The following examples are illustrative:
|
|
|
others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we or our
collaborators own or have exclusively licensed;
|
|
|
|
we or our collaborators or any future collaborators might not have been the first to make the inventions covered by the issued patents or pending
patent applications that we own or may in the future exclusively license, which could result in the patent applications not issuing or being invalidated after issuing;
|
55
|
|
|
we or our collaborators or any future collaborators might not have been the first to file patent applications covering certain of our inventions, which
could result in the patent applications not issuing or being invalidated after issuing;
|
|
|
|
the ownership of the intellectual property arising out of our collaborations is subject to complex legal and factual issues, and in certain
circumstances our collaborators may own or jointly own important intellectual property relating to our product candidates. Although we have rights to such intellectual property under our collaboration agreements, such rights could potentially be
lost or diminished if the applicable collaboration agreement is terminated, which could affect our ability to commercialize our product candidates;
|
|
|
|
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property
rights;
|
|
|
|
it is possible that our pending patent applications will not lead to issued patents;
|
|
|
|
issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as
a result of legal challenges by our competitors; we may obtain patents for certain compounds many years before we obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run prior
to the commercial sale of the related product, the commercial value of our patents may be limited;
|
|
|
|
our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned
from such activities to develop competitive products for sale in our major commercial markets;
|
|
|
|
we may fail to develop additional proprietary technologies that are patentable;
|
|
|
|
the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, or we may
fail to apply for or obtain adequate intellectual property protection in all the jurisdictions in which we operate; and
|
|
|
|
the patents of others may have an adverse effect on our business, for example by preventing us from marketing one or more of our product candidates for
one or more indications.
|
Any of the aforementioned threats to our competitive advantage could have a material adverse
effect on our business.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect
our products.
As is the case with many other biopharmaceutical companies, our success is heavily dependent on intellectual property,
particularly patents. Obtaining, maintaining and enforcing patents in the biopharmaceutical industry involves both technological complexity and legal complexity. Therefore, obtaining, maintaining and enforcing biopharmaceutical patents is costly,
time-consuming and inherently uncertain. In addition, recent legislative and judicial developments in the United States and elsewhere have in some cases narrowed the protection afforded to patent owners, made patents more difficult to obtain, or
increased the uncertainty regarding the ability to obtain, maintain and enforce patents. For example, Congress recently passed patent reform legislation, and may pass patent reform legislation in the future. The United States Supreme Court has ruled
on several patent cases in recent years, and in certain circumstances has narrowed the scope of patent protection available or otherwise weakened the rights of patent owners. In addition to increasing uncertainty with regard to our ability to obtain
patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions and actions by the United States Congress, the federal courts, the United States Patent and
Trademark Office, and their respective foreign counterparts, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to maintain and enforce our existing patents and
patents that we might obtain in the future.
56
Risks Related to Industry
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
As has been widely reported, global credit and financial markets have been experiencing extreme disruptions over the past several years, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic
conditions will not occur. Our general business strategy may be adversely affected by the recent economic downturn and volatile business environment and continued unpredictable and unstable market conditions, particularly for securities of
biotechnology companies such as our common stock. There is a possibility that our stock price may decline, due in part to the volatility of the stock market and any general economic downturn. If the current equity and credit markets become more
volatile, deteriorate or do not improve, it may make any necessary debt or equity financing more difficult to secure, more costly and/or more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a
material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon our business and clinical development plans. In addition, there is a risk that one or more of our current service
providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates, and we will face an even greater risk if we
commercialize any product candidates. For example, we may be sued if any of our product candidates, including any that are developed in combination therapies, allegedly causes injury or is found to be otherwise unsuitable during product testing,
manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of
warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our
product candidates. Even successful defense would require significant financial and management resources. There is also risk that third parties we have agreed to indemnify could incur liability.
Regardless of the merits or eventual outcome, liability claims may result in:
|
|
|
decreased demand for our product candidates or any resulting products;
|
|
|
|
injury to our reputation;
|
|
|
|
withdrawal of clinical trial participants;
|
|
|
|
costs to defend the related litigation;
|
|
|
|
a diversion of managements time and our resources;
|
|
|
|
substantial monetary awards to trial participants or patients;
|
|
|
|
product recalls, withdrawals or labeling, marketing or promotional restrictions;
|
|
|
|
the inability to commercialize our product candidates; and
|
|
|
|
a decline in our stock price.
|
57
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect
against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our clinical studies in the amount of $5.0 million in the aggregate.
Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance
coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our
coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
Our relationships with customers and third-party payors in the United States and elsewhere will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations,
which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of any product candidates for which we obtain
marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and
relationships through which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under applicable federal, state and foreign healthcare laws and regulations include the following:
|
|
|
the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state
healthcare programs such as Medicare and Medicaid;
|
|
|
|
the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or
qui tam
actions, against individuals or
entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
|
|
|
|
the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical
Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and
transmission of individually identifiable health information;
|
|
|
|
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially
false statement in connection with the delivery of or payment for healthcare benefits, items or services;
|
|
|
|
the federal transparency requirements under the Patient Protection and Affordable Care Act of 2010 requires manufacturers of drugs, devices, biologics
and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
|
58
|
|
|
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by
non-governmental
third-party
payors, including private insurers, and some state laws require pharmaceutical
companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to
payments to physicians and other healthcare providers or marketing expenditures; and
|
|
|
|
analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries.
|
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial
costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If
our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other providers or entities with whom we
expect to do business, including our collaborators, are found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which
could also materially affect our business.
If we fail to comply with environmental, health and safety laws and regulations, we could
become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are
subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of
hazardous and flammable materials, including chemicals. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or
injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials or our or third parties disposal of hazardous materials, we could be held liable for any resulting damages, and any liability
could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
We may incur
substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these
laws and regulations also may result in substantial fines, penalties or other sanctions.
We maintain workers compensation insurance to
cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials. This insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of hazardous or radioactive materials.
59
Risks Related to Our Common Stock
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or
prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which they might otherwise receive a premium for their shares.
These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the
market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
|
|
|
establish a classified or staggered board of directors such that not all members of the board are elected at one time;
|
|
|
|
allow the authorized number of our directors to be changed only by resolution of our board of directors;
|
|
|
|
limit the manner in which stockholders can remove directors from the board;
|
|
|
|
establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
|
|
|
|
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
|
|
|
|
limit who may call stockholder meetings;
|
|
|
|
provide our board of directors with the authority to designate the terms of and issue a new series of preferred stock without stockholder approval,
which could be used to institute a poison pill that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
|
|
|
|
require the approval of the holders of at least 66 2/3% of the votes that all our stockholders would be entitled to cast to amend or repeal certain
provisions of our charter or bylaws.
|
Moreover, because we are incorporated in Delaware, we are governed by the provisions
of Section 203 of the Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the
person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Any provision in our corporate charter or our bylaws or Delaware law that has the effect of delaying or deterring
a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
60
Our employment agreements with our named executive officers may require us to pay severance benefits
to any of those persons who are terminated in connection with a change of control of us, which could harm our financial condition or results.
Our named executive officers are parties to employment agreements that provide for aggregate cash payments of up to approximately $2.5 million for severance and other benefits and acceleration of
vesting of stock options in the event of a termination of employment in connection with a change of control of our company. Based on the March 31, 2014 closing price of our common stock at $39.99 per share, the aggregate intrinsic value of
unvested stock options subject to accelerated vesting upon these events was $6.6 million as of March 31, 2014. The accelerated vesting of options could result in dilution to our stockholders and harm the market price of our common stock.
The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.
We incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new
compliance initiatives.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a
private company. We are subject to the reporting and other requirements of the Securities Exchange Act of 1934, as amended, known as the Exchange Act, portions of the Sarbanes-Oxley Act of 2002, as well as rules subsequently adopted by the
Securities and Exchange Commission, or SEC, and The NASDAQ Stock Market, or NASDAQ. These rules and regulations require, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition and
establish and maintain effective disclosure and financial controls and corporate governance practices. These rules and regulations substantially increase our legal and financial compliance costs and make some activities more
time-consuming
and costly, and we expect that this our legal and financial compliance costs will further increase after we are no longer an emerging growth company as defined in the recently enacted
Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Our management and other personnel devote a substantial amount of time to these compliance initiatives. We estimate that incremental annual compliance costs associated with these
reporting obligations will be at least $1.0 million.
We are an emerging growth company, and we cannot be certain if
the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various
reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley
Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on
executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company we are required to report periodic financial results and selected financial data related to two
fiscal years compared to three and five years, respectively, for comparable data required to be reported by other public companies in selected SEC reports. We may take advantage of these exemptions until we are no longer an emerging growth
company. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds
$700 million as of any March 31 (the end of our second fiscal quarter) before that time, in which case we would no longer be an emerging growth company as of the following September 30 (our fiscal year end). We cannot
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our
stock price may be more volatile.
61
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting
standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption to delay the adoption of new or revised accounting standards and, therefore, will be subject to adopting
new or revised accounting standards at the same time as other public companies that are not emerging growth companies.
If
we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public
reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties
encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the
Sarbanes-Oxley
Act of 2002, or
any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes
to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the
trading price of our common stock.
We will be required to disclose changes made in our internal controls and procedures on a quarterly
basis and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an emerging growth company under the JOBS Act, our independent registered public accounting firm will not be
required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our
internal controls could detect problems that our managements assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
Our stock price is likely to be volatile, and thus our stockholders could incur substantial losses.
Our stock price is likely to be volatile. The stock market in general and the market for biopharmaceutical companies, and for those developing potential
therapies for HCV in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your common stock at or above your
purchase price, if at all. The market price for our common stock may be influenced by many factors, including:
|
|
|
actions by any of our collaborators regarding our product candidates they are developing, including announcements regarding clinical or regulatory
developments or our collaboration;
|
|
|
|
results from or delays of clinical trials of our product candidates, as well as results of regulatory reviews relating to the approval of our product
candidates;
|
|
|
|
new products, product candidates or new uses for existing products or technologies introduced or announced by our competitors and the timing of these
introductions or announcements;
|
|
|
|
our or our collaborators decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
|
|
|
|
the results of our efforts to discover or develop additional product candidates;
|
|
|
|
our dependence on third parties, including our collaborators, CROs, clinical trial sponsors and clinical investigators;
|
62
|
|
|
regulatory or legal developments in the United States or other countries;
|
|
|
|
developments or disputes concerning patent applications, issued patents or other proprietary rights;
|
|
|
|
the recruitment or departure of key scientific or management personnel;
|
|
|
|
our ability to commercialize our future product candidates we develop independently, if approved;
|
|
|
|
the level of expenses related to any of our product candidates or clinical development programs;
|
|
|
|
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
|
|
|
|
variations in our financial results or those of companies that are perceived to be similar to us;
|
|
|
|
sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock;
|
|
|
|
changes in the structure of healthcare payment systems;
|
|
|
|
market conditions in the pharmaceutical and biotechnology sectors;
|
|
|
|
general economic, industry and market conditions and other factors that may be unrelated to our operating performance or the operating performance of
our competitors, including changes in market valuations of similar companies; and
|
|
|
|
the other factors described in this Risk Factors section.
|
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.
We do not currently intend to pay any cash dividends on our common stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the growth and development
of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
A sale of a substantial number of shares of our common stock in the public market could cause the market price of our common stock to drop
significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market
could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of March 31, 2014, we had outstanding 18,477,633
shares of common stock. In addition, 1,950,165 shares of common stock that are either subject to outstanding options or reserved for future issuance under our equity plans are eligible for sale in the public market to the extent permitted by the
provisions of various vesting schedules, and Rules 144 and 701 under the Securities Act. If these additional shares of common stock are sold, or it is perceived that they will be sold, in the public market, the trading price of our common stock
could decline.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our
business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the
research and reports that securities or industry analysts publish about us or our business. If too few securities or industry analysts cover our company, the trading price for our stock would likely be negatively impacted. In the event that one or
more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports
on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
63