The following Risk Factors do not reflect any material changes to the Risk
Factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, other than the revisions to the risk factors set forth below with an asterisk (*) next to the title. The following information sets forth
risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. If any of the following risks
actually occur, our business, operating results, prospects or financial condition could be harmed. Additional risks not presently known to us, or that we currently deem immaterial, may also affect our business operations.
Risks Related to Our Company
*We have never
obtained regulatory approval for a drug and we may be unable to obtain, or may be delayed in obtaining, regulatory approval for valbenazine or any of our other product candidates.
We have never obtained regulatory approval for a drug. Securing FDA approval requires the submission of extensive preclinical and clinical data
and supporting information to the FDA for each indication to establish the product candidates safety and efficacy. It is possible that the FDA or foreign regulatory authorities may refuse to accept our NDA (or corresponding application)
for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval of valbenazine or any of our other product candidates. The process of obtaining these approvals and the subsequent
compliance with federal and state statutes and regulations require spending substantial time and financial resources.
22
If the FDA or foreign regulatory authorities do not accept or approve our applications, we may be
required to conduct additional clinical, nonclinical or manufacturing validation studies and submit those data before reconsideration of our application occurs. Depending on the extent of these or any other required studies, approval of any NDA or
application that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA or
foreign regulatory authorities to approve our NDA.
Any delay in obtaining, or an inability to obtain, regulatory approvals would prevent
us from commercializing valbenazine or any of our other product candidates, generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for valbenazine or any of
our other product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
Breakthrough therapy designation for valbenazine for the treatment of tardive dyskinesia may not lead to a faster development or regulatory review or
approval process.
A breakthrough therapy is defined as a product that is intended, alone or in combination with one or more other
products, to treat a serious condition, and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment
effects observed early in clinical development. Products designated as breakthrough therapies by the FDA may also be eligible for priority review if supported by clinical data at the time the NDA is submitted to FDA.
Designation as a breakthrough therapy is within the discretion of the FDA. The receipt of such designation for a product candidate may not
result in a faster development or regulatory review or approval process compared to products considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, the FDA may later decide that the
product candidate no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing 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 fail to comply with regulatory
requirements or experience unanticipated problems with our products.
Any regulatory approvals that we receive for our product
candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV
clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority 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, registration, as well as continued compliance with current Good Manufacturing Practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product,
including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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product injunctions or the imposition of civil or criminal penalties.
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The FDAs policies
may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new
requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
* Our clinical trials may fail to demonstrate the safety and efficacy of our product candidates, which could prevent or significantly delay their
regulatory approval.
23
Before obtaining regulatory approval for the sale of any of our potential products, we must
subject these product candidates to extensive preclinical and clinical testing to demonstrate their safety and efficacy for humans. Clinical trials are expensive, time-consuming and may take years to complete.
In connection with the clinical trials of our product candidates, we face the risks that:
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the U.S. Food and Drug Administration (FDA) or similar foreign regulatory authority may not approve an Investigational New Drug (IND) Application or foreign equivalent filings required to initiate human clinical studies
for our drug candidates or the FDA may require additional preclinical or clinical studies as a condition of the initiation of Phase I clinical studies, progression from Phase I to Phase II, or Phase II to Phase III, or for New
Drug Application (NDA) approval;
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the product candidate may not prove to be effective or as effective as other competing product candidates;
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we may discover that a product candidate may cause harmful side effects or results of required toxicology studies may not be acceptable to the FDA;
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the results may not replicate the results of earlier, smaller trials;
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the FDA or similar foreign regulatory authorities may require use of new or experimental endpoints that may prove insensitive to treatment effects;
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we or the FDA or similar foreign regulatory authorities may suspend the trials;
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the results may not be statistically significant;
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patient recruitment may be slower than expected;
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patients may drop out of the trials; and
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regulatory requirements may change.
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These risks and uncertainties impact all of our clinical
programs. Specifically, with respect to our gonadotropin-releasing hormone (GnRH) program with AbbVie Inc. (AbbVie), any of the clinical, regulatory or operational events described above could delay timelines for the completion of the Phase III
endometriosis program or the Phase III uterine fibroids program, require suspension of these programs and/or obviate filings for regulatory approvals. Similarly, our VMAT2 inhibitor program will be impacted if any of the events above lead to delayed
timelines for the enrollment in, or completion of, the Phase III tardive dyskinesia or the Tourette syndrome Phase II clinical trials of valbenazine.
In addition, late stage clinical trials are often conducted with patients having the most advanced stages of disease. During the course of
treatment, these patients can die or suffer other adverse medical effects for reasons that may not be related to the pharmaceutical agent being tested but which can nevertheless adversely affect clinical trial results. Any failure or substantial
delay in completing clinical trials for our product candidates may severely harm our business.
Even if the clinical trials are
successfully completed, we cannot guarantee that the FDA or foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates for approval. To the extent that the results of
the trials are not satisfactory to the FDA or foreign regulatory authorities for support of a marketing application, approval of our product candidates may be significantly delayed, or we may be required to expend significant additional resources,
which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.
We depend on our current
collaborators, and may need to enter into future collaborations to develop and commercialize certain of our product candidates.
Our strategy for fully developing and commercializing elagolix is dependent upon maintaining our current collaboration agreement with AbbVie.
This collaboration agreement provides for significant future payments should certain development, regulatory and commercial milestones be achieved, and royalties on future sales of elagolix. Under this agreement, AbbVie is responsible for, among
other things, conducting clinical trials and obtaining required regulatory approvals for elagolix; as well as manufacturing and commercialization of elagolix in the event it receives regulatory approval.
Because of our reliance on AbbVie, the development and commercialization of elagolix could be substantially delayed, and our ability to
receive future funding could be substantially impaired, if AbbVie:
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failed to gain the requisite regulatory approval of elagolix;
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did not successfully launch and commercialize elagolix;
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did not conduct its collaborative activities in a timely manner;
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did not devote sufficient time and resources to our partnered program;
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terminated its agreement with us;
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developed, either alone or with others, products that may compete with elagolix;
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disputed our respective allocations of rights to any products or technology developed during our collaboration; or
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merged with a third party that wants to terminate our agreement.
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In March 2015, we entered
into a collaboration and license agreement with Mitsubishi Tanabe to develop and commercialize valbenazine in Japan and other select Asian markets. We will rely on Mitsubishi Tanabe to achieve certain development, regulatory and commercial
milestones which, if achieved, could generate significant future revenue for us. Our collaboration with Mitsubishi Tanabe is subject to risks and uncertainties similar to those described above. In addition, we may need to enter into other
collaborations to assist in the development and commercialization of other product candidates we are developing now or may develop in the future, and any such future collaborations would be subject to similar risks and uncertainties.
These issues and possible disagreements with AbbVie, Mitsubishi Tanabe or any future corporate collaborators could lead to delays in the
collaborative research, development or commercialization of our product candidates. Furthermore, disagreements with these parties could require or result in litigation or arbitration, which would be time-consuming and expensive. If any of these
issues arise, it may delay the development and commercialization of drug candidates and, ultimately, our generation of product revenues.
Because
the development of our product candidates is subject to a substantial degree of technological uncertainty, we may not succeed in developing any of our product candidates.
All of our product candidates are currently in research or clinical development. Only a small number of research and development programs
ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These reasons include the possibilities that the potential products
may:
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be found ineffective or cause harmful side effects during preclinical studies or clinical trials;
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fail to receive necessary regulatory approvals on a timely basis or at all;
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be precluded from commercialization by proprietary rights of third parties;
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be difficult to manufacture on a large scale; or
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be uneconomical to commercialize or fail to achieve market acceptance.
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If any of our products
encounters any of these potential problems, we may never successfully market that product.
We do not and will not have access to all information
regarding the product candidates we licensed to AbbVie.
We do not and will not have access to all information regarding the
products being developed and potentially commercialized by AbbVie, including potentially material information about clinical trial design and execution, safety reports from clinical trials, spontaneous safety reports if a product candidate is later
approved and marketed, regulatory affairs, process development, manufacturing, marketing and other areas known by AbbVie. In addition, we have confidentiality obligations under our agreement with AbbVie. Thus, our ability to keep our shareholders
informed about the status of product candidates under our collaboration with AbbVie will be limited by the degree to which AbbVie keeps us informed and allows us to disclose such information to the public. If AbbVie fails to keep us informed about
the clinical development and regulatory approval of our collaboration and product candidates licensed to it, we may make operational and investment decisions that we would not have made had we been fully informed, which may materially and adversely
affect our business and operations.
We have a history of losses and expect to incur negative operating cash flows for the foreseeable future, and
we may never achieve sustained profitability.
Since our inception, we have incurred significant net losses and negative cash flow
from operations. As a result of historical operating losses, we had an accumulated deficit of $915.2 million as of December 31, 2015. We do not expect to be profitable, or generate positive cash flows from operations, for the year ending
December 31, 2016.
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We have not yet obtained regulatory approvals of any products and, consequently, have not
generated revenues from the sale of products. Even if we succeed in developing and commercializing one or more of our drugs, we may not be profitable. We also expect to continue to incur significant operating and capital expenditures as we:
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seek regulatory approvals for our product candidates;
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develop, formulate, manufacture and commercialize our product candidates;
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in-license or acquire new product development opportunities;
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implement additional internal systems and infrastructure; and
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hire additional clinical, scientific and marketing personnel.
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We expect to experience
negative cash flow in the coming years as we fund our operations, in-licensing or acquisition opportunities, and capital expenditures. We will need to generate significant revenues to achieve and maintain profitability and positive cash flow on an
annual basis. We may not be able to generate these revenues, and we may never achieve profitability on an annual basis in the future. Our failure to achieve or maintain profitability on an annual basis could negatively impact the market price of our
common stock. Even if we become profitable on an annual basis, we cannot assure you that we would be able to sustain or increase profitability on an annual basis.
*The price of our common stock is volatile.
The market prices for securities of biotechnology and pharmaceutical companies historically have been highly volatile, and the market for these
securities has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Over the course of the last 12 months, the price of our common stock has ranged from
approximately $32.00 per share to approximately $58.00 per share. The market price of our common stock may fluctuate in response to many factors, including:
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the results of our clinical trials;
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developments concerning new and existing collaboration agreements;
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announcements of technological innovations or new therapeutic products by us or others;
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general economic and market conditions, including economic and market conditions affecting the biotechnology industry;
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developments in patent or other proprietary rights;
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developments related to the FDA;
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future sales of our common stock by us or our stockholders;
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comments by securities analysts;
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fluctuations in our operating results;
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developments related to on-going litigation;
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health care reimbursement;
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failure of any of our product candidates, if approved, to achieve commercial success; and
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public concern as to the safety of our drugs.
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Because our operating results may vary significantly in
future periods, our stock price may decline.
Our quarterly revenues, expenses and operating results have fluctuated in the past
and are likely to fluctuate significantly in the future. Our revenues are unpredictable and may fluctuate, among other reasons, due to our achievement of product development objectives and milestones, clinical trial enrollment and expenses, research
and development expenses and the timing and nature of contract manufacturing and contract research payments. A high portion of our costs are predetermined on an annual basis, due in part to our significant research and development costs. Thus, small
declines in revenue could disproportionately affect operating results in a quarter. Because of these factors, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors, which could
cause our stock price to decline.
We license some of our core technologies and drug candidates from third parties. If we default on any of our
obligations under those licenses, or violate the terms of these licenses, we could lose our rights to those technologies and drug candidates or be forced to pay damages.
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We are dependent on licenses from third parties for some of our key technologies. These licenses
typically subject us to various commercialization, reporting and other obligations. If we fail to comply with these obligations, we could lose important rights. For example, we license some of the core technologies used in our research and
development activities and collaborations from third parties, including the GnRH receptor which we license from The Mount Sinai School of Medicine of the City University of New York (Mount Sinai). If we were to default on our obligations under any
of our licenses, we could lose some or all of our rights to develop, market and sell products covered by these licenses. If we were to violate any of the terms of our licenses, we could become subject to damages. For example, on December 1,
2015, Mount Sinai filed a complaint against us, seeking unspecified monetary damages, future sublicensing fees and attorneys fees, alleging that we violated the terms of our license with Mount Sinai by entering into an exclusive worldwide
collaboration with AbbVie. While we believe that we have meritorious defenses to the claims made in the complaint and intend to vigorously defend ourselves against such claims, we are not able to predict the ultimate outcome of this action.
Likewise, if we were to lose our rights under a license to use proprietary research tools, it could adversely affect our existing collaborations or adversely affect our ability to form new collaborations. We also face the risk that our licensors
could, for a number of reasons, lose patent protection or lose their rights to the technologies we have licensed, thereby impairing or extinguishing our rights under our licenses with them.
We have limited marketing experience, no sales force, no third-party reimbursement or distribution capabilities, and if our products are approved, we
may not be able to commercialize them successfully.
Although we do not currently have any marketable products, our ability to
produce revenues ultimately depends on our ability to sell our products and secure adequate third-party reimbursement if and when they are approved by the FDA. We currently have limited experience in marketing and selling pharmaceutical products. If
we fail to establish successful marketing, sales and reimbursement capabilities or fail to enter into successful marketing arrangements with third parties, our product revenues will suffer.
The independent clinical investigators and contract research organizations that we rely upon to conduct our clinical trials may not be diligent, careful
or timely, and may make mistakes, in the conduct of our trials.
We depend on independent clinical investigators and contract
research organizations (CROs) to conduct our clinical trials under their agreements with us. The investigators are not our employees, and we cannot control the amount or timing of resources that they devote to our programs. If independent
investigators fail to devote sufficient time and resources to our drug development programs, or if their performance is substandard, or not in compliance with Good Clinical Practices, it may delay or prevent the approval of our FDA applications and
our introduction of new drugs. The CROs we contract with for execution of our clinical trials play a significant role in the conduct of the trials and the subsequent collection and analysis of data. Failure of the CROs to meet their obligations
could adversely affect clinical development of our products. Moreover, these independent investigators and CROs may also have relationships with other commercial entities, some of which may compete with us. If independent investigators and CROs
assist our competitors at our expense, it could harm our competitive position.
We have no manufacturing capabilities. If third-party manufacturers
of our product candidates fail to devote sufficient time and resources to our concerns, or if their performance is substandard, our clinical trials and product introductions may be delayed and our costs may rise.
We have in the past utilized, and intend to continue to utilize, third-party manufacturers to produce the drug compounds we use in our clinical
trials and for the potential commercialization of our future products. We have no experience in manufacturing products for commercial purposes and do not currently have any manufacturing facilities. Consequently, we depend on, and will continue to
depend on, several contract manufacturers for all production of products for development and commercial purposes. If we are unable to obtain or retain third-party manufacturers, we will not be able to develop or commercialize our products. The
manufacture of our products for clinical trials and commercial purposes is subject to specific FDA regulations, including current Good Manufacturing Practice regulations. Our third-party manufacturers might not comply with FDA regulations relating
to manufacturing our products for clinical trials and commercial purposes or other regulatory requirements now or in the future. Our reliance on contract manufacturers also exposes us to the following risks:
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contract manufacturers may encounter difficulties in achieving volume production, quality control and quality assurance, and also may experience shortages in qualified personnel. As a result, our contract manufacturers
might not be able to meet our clinical schedules or adequately manufacture our products in commercial quantities when required;
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switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult or impossible for us to find a replacement manufacturer quickly on acceptable terms, or at all;
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our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store or distribute our products; and
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drug manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the U.S. Drug Enforcement Administration, and other agencies to ensure strict compliance with current Good Manufacturing Practices
and other government regulations and corresponding foreign standards. We do not have control over third-party manufacturers compliance with these regulations and standards.
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Our current dependence upon third parties for the manufacture of our products may harm our profit
margin, if any, on the sale of our future products and our ability to develop and deliver products on a timely and competitive basis.
If we cannot
raise additional funding, we may be unable to complete development of our product candidates.
We may require additional funding to
continue our research and product development programs, to conduct preclinical studies and clinical trials, for operating expenses and to pursue regulatory approvals for product candidates, for the costs involved in filing and prosecuting patent
applications and enforcing or defending patent claims, if any, product in-licensing and any possible acquisitions, and we may require additional funding to establish manufacturing and marketing capabilities in the future. We believe that our
existing capital resources, together with investment income, and future payments due under our strategic alliances, will be sufficient to satisfy our current and projected funding requirements for at least the next 12 months. However, these
resources might be insufficient to conduct research and development programs to the full extent currently planned. If we cannot obtain adequate funds, we may be required to curtail significantly one or more of our research and development programs
or obtain funds through additional arrangements with corporate collaborators or others that may require us to relinquish rights to some of our technologies or product candidates.
Our future capital requirements will depend on many factors, including:
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continued scientific progress in our research and development programs;
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the magnitude and complexity of our research and development programs;
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progress with preclinical testing and clinical trials;
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the time and costs involved in obtaining regulatory approvals;
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the costs involved in filing and pursuing patent applications, enforcing patent claims, or engaging in interference proceedings or other patent litigation;
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competing technological and market developments;
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the establishment of additional strategic alliances;
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developments related to on-going litigation;
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the cost of commercialization activities and arrangements, including manufacturing of our product candidates; and
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the cost of product in-licensing and any possible acquisitions.
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We intend to seek additional
funding through strategic alliances, and may seek additional funding through public or private sales of our securities, including equity securities. For example, we have an effective shelf registration statement on file with the Securities and
Exchange Commission (SEC) which, for so long as we continue to satisfy the requirements to be deemed a well-known seasoned issuer, allows us to issue an unlimited number of shares of our common stock from time to time. In addition, we have
previously financed capital purchases and may continue to pursue opportunities to obtain additional debt financing in the future. Additional equity or debt financing might not be available on reasonable terms, if at all. Any additional equity
financings will be dilutive to our stockholders and any additional debt financings may involve operating covenants that restrict our business.
If
we are unable to retain and recruit qualified scientists or if any of our key senior executives discontinues his or her employment with us, it may delay our development efforts.
We are highly dependent on the principal members of our management and scientific staff. The loss of any of these people could impede the
achievement of our objectives. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future is critical to our success. We may be unable to attract and retain personnel on acceptable
terms given the competition among biotechnology, pharmaceutical and health care companies, universities and non-profit research institutions for experienced scientists. In addition, we rely on a significant number of consultants to assist us in
formulating our research and development strategy. Our consultants may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability to us.
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We may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade
secrets of their former employers.
As is commonplace in the biotechnology industry, we employ individuals who were previously
employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or
otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
Governmental and third-party payors may impose sales and pharmaceutical pricing controls on
our products or limit coverage and/or reimbursement for our products that could limit our product revenues and delay sustained profitability.
Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and adequate reimbursement for
these products and related treatments will be available. The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may reduce our potential revenues. These payors efforts
could decrease the price that we receive for any products we may develop and sell in the future.
Assuming we obtain coverage for a given
product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their
prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover
all or a significant portion of the cost of our products. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or
subsequently become available regardless of whether they are approved by the FDA for that particular use.
Government authorities and
other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Further, no uniform policy requirement for coverage
and reimbursement for drug products exists among third-party payors in the United States. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often
a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or
obtained in the first instance.
There may also be significant delays in obtaining coverage and reimbursement for newly approved drugs,
and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases
or at a rate that covers our costs, including research, development, manufacture, sale and distribution. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any
product candidate for which we obtain marketing approval. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we 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.
If
physicians and patients do not accept our products, we may not recover our investment.
The commercial success of our products, if
they are approved for marketing, will depend upon the acceptance of our products as safe and effective by the medical community and patients.
The market acceptance of our products could be affected by a number of factors, including:
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the timing of receipt of marketing approvals;
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the safety and efficacy of the products;
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the availability of coverage and adequate reimbursement for the products;
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the success of existing products addressing our target markets or the emergence of equivalent or superior products; and
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the cost-effectiveness of the products.
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In addition, market acceptance depends on the
effectiveness of our marketing strategy, and, to date, we have very limited sales and marketing experience or capabilities. If the medical community and patients do not ultimately accept our products as being safe, effective, superior and/or
cost-effective, we may not recover our investment.
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If we receive regulatory approval from the FDA for any of our product candidates, we could face liability
if a regulatory authority determines that we are promoting any such product for off-label uses.
A company may not
promote off-label uses for its drug products. An off-label use is the use of a product for an indication that is not described in the products FDA-approved label in the United States or for uses in other jurisdictions that differ
from those approved by the applicable regulatory agencies. Physicians, on the other hand, may prescribe products for off-label uses. Although the FDA and other regulatory agencies do not regulate a physicians choice of drug treatment made in
the physicians independent medical judgment, they do restrict promotional communications from companies or their sales force with respect to off-label uses of products for which marketing clearance has not been issued. A company that is found
to have promoted off-label use of its product may be subject to significant liability, including civil and criminal sanctions. If we begin marketing any of our product candidates, we intend to comply with the requirements and restrictions of the FDA
and other regulatory agencies with respect to our promotion of our products, but we cannot be sure that the FDA or other regulatory agencies will agree that we have not violated their restrictions. As a result, we may be subject to criminal and
civil liability. In addition, our managements attention could be diverted to handle any such alleged violations. A significant number of companies have been the target of inquiries and investigations by various U.S. federal and state
regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for unapproved uses and other sales practices, including the Department of Justice and various U.S. Attorneys Offices, the Office
of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. These investigations have alleged violations of various U.S. federal and state laws and
regulations, including claims asserting antitrust violations, violations of the federal False Claims Act, the Prescription Drug Marketing Act, anti-kickback laws, and other alleged violations in connection with the promotion of products for
unapproved uses, pricing and Medicare and/or Medicaid reimbursement. If the FDA or any other governmental agency initiates an enforcement action against us or if we are the subject of a
qui tam
suit and it is determined that we violated
prohibitions relating to the promotion of products for unapproved uses, we could be subject to substantial civil or criminal fines or damage awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our
activities would be subject to ongoing scrutiny and monitoring to ensure compliance with applicable laws and regulations. Any such fines, awards or other sanctions would have an adverse effect on our revenue, business, financial prospects, and
reputation.
Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, the
Dodd-Frank Wall Street Reform and Consumer Protection Act, new SEC regulations and NASDAQ rules, are creating uncertainty for companies such as ours. These laws, regulations and standards are subject to varying interpretations in some cases due to
their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards of corporate governance and public disclosure. As a result, our efforts to comply with evolving laws, regulations and standards
have resulted in, and are likely to continue to result in, increased general and administrative expenses and management time related to compliance activities. If we fail to comply with these laws, regulations and standards, our reputation may be
harmed and we might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect our financial results and the market price of our common stock.
Risks Related to Our Industry
Health care reform
measures and other recent legislative initiatives could adversely affect our business.
The business and financial condition of
pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payors to contain or reduce the costs of health care. In the United States, comprehensive health care reform legislation was enacted by the
Federal government and we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals. In addition, increasing emphasis on reducing the cost of health
care in the United States will continue to put pressure on the rate of adoption and pricing of prescription pharmaceuticals. Moreover, in some foreign jurisdictions, pricing of prescription pharmaceuticals is already subject to government control.
Additionally, other recent federal legislation imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new legislation, manufacturers are required to
provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding distribution of the drug product. Further,
under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, notification and purchaser license verification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated
products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
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Additionally, in March 2010, the ACA was signed into law, which was intended to broaden access to
health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and
impose additional health policy reforms. Among the provisions of the ACA of importance to our potential drug candidates are:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs;
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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
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extension of a manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturers Medicaid rebate liability;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for a manufacturers outpatient drugs to be covered under Medicare Part D;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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We expect that the ACA, as well as other healthcare reform measures that may be adopted in the
future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded
programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our
drugs.
We are currently unable to predict what additional legislation or regulation, if any, relating to the health care industry may be
enacted in the future or what effect recently enacted Federal legislation or any such additional legislation or regulation would have on our business. The pendency or approval of such proposals or reforms could result in a decrease in our stock
price or limit our ability to raise capital or to enter into collaboration agreements for the further development and commercialization of our programs and products.
We face intense competition, and if we are unable to compete effectively, the demand for our products, if any, may be reduced.
The biotechnology and pharmaceutical industries are subject to rapid and intense technological change. We face, and will continue to face,
competition in the development and marketing of our product candidates from academic institutions, government agencies, research institutions and biotechnology and pharmaceutical companies.
Competition may also arise from, among other things:
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other drug development technologies;
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methods of preventing or reducing the incidence of disease, including vaccines; and
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new small molecule or other classes of therapeutic agents.
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Developments by others may render
our product candidates or technologies obsolete or noncompetitive.
We are performing research on or developing products for the treatment
of several disorders including endometriosis, tardive dyskinesia, uterine fibroids, Tourette syndrome, essential tremor, classic congenital adrenal hyperplasia, pain, and other neurological and endocrine-related diseases and disorders, and there are
a number of competitors to products in our research pipeline. If one or more of our competitors products or programs are successful, the market for our products may be reduced or eliminated.
Compared to us, many of our competitors and potential competitors have substantially greater:
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research and development resources, including personnel and technology;
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preclinical study and clinical testing experience;
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manufacturing, marketing and distribution experience; and
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If we are unable to protect our intellectual property, our competitors could
develop and market products based on our discoveries, which may reduce demand for our products.
Our success will depend on our
ability to, among other things:
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obtain patent protection for our products;
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preserve our trade secrets;
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prevent third parties from infringing upon our proprietary rights; and
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operate without infringing upon the proprietary rights of others, both in the United States and internationally.
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Because of the substantial length of time and expense associated with bringing new products through the development and regulatory approval
processes in order to reach the marketplace, the pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Accordingly, we intend to seek patent protection
for our proprietary technology and compounds. However, we face the risk that we may not obtain any of these patents and that the breadth of claims we obtain, if any, may not provide adequate protection of our proprietary technology or compounds.
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We also rely upon unpatented trade secrets and improvements, unpatented know-how and continuing
technological innovation to develop and maintain our competitive position, which we seek to protect, in part, through confidentiality agreements with our commercial collaborators, employees and consultants. We also have invention or patent
assignment agreements with our employees and some, but not all, of our commercial collaborators and consultants. However, if our employees, commercial collaborators or consultants breach these agreements, we may not have adequate remedies for any
such breach, and our trade secrets may otherwise become known or independently discovered by our competitors.
In addition, although we
own a number of patents, the issuance of a patent is not conclusive as to its validity or enforceability, and third parties may challenge the validity or enforceability of our patents. We cannot assure you how much protection, if any, will be given
to our patents if we attempt to enforce them and they are challenged in court or in other proceedings. It is possible that a competitor may successfully challenge our patents or that challenges will result in limitations of their coverage. Moreover,
competitors may infringe our patents or successfully avoid them through design innovation. To prevent infringement or unauthorized use, we may need to file infringement claims, which are expensive and time-consuming. In addition, in an infringement
proceeding a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. Interference proceedings
declared by the United States Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation or interference proceedings may fail and, even if
successful, may result in substantial costs and be a distraction to management. We cannot assure you that we will be able to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as
fully as in the United States.
The technologies we use in our research as well as the drug targets we select may infringe the patents or violate
the proprietary rights of third parties.
We cannot assure you that third parties will not assert patent or other intellectual
property infringement claims against us or our collaborators with respect to technologies used in potential products. If a patent infringement suit were brought against us or our collaborators, we or our collaborators could be forced to stop or
delay developing, manufacturing or selling potential products that are claimed to infringe a third partys intellectual property unless that party grants us or our collaborators rights to use its intellectual property. In such cases, we could
be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on
acceptable terms, or at all. Even if our collaborators or we were able to obtain rights to the third partys intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property.
Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.
Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper
activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or
other misconduct. Misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors, could include failures to comply with FDA regulations, to provide accurate information to the FDA,
to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales,
marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. Employee and independent contractor misconduct could also involve the
improper use of individually identifiable information, including, without limitation, information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation.
Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors in
connection with our current and future business activities are and will continue to be subject, directly or indirectly, to federal and state healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face
penalties, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations.
Our business operations and activities may be directly, or indirectly, subject to various federal and state healthcare laws, including without
limitation, fraud and abuse laws, false claims laws, data privacy and security laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of
business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws may impact, among
other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs.
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Such laws include:
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the federal Anti-Kickback Statute which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward, or in return for, 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 a federal healthcare program such as Medicare and Medicaid;
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the federal false claims and civil monetary penalties laws, including the civil False Claims Act, which impose criminal and civil penalties against individuals or entities for, among other things, 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;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) which imposes criminal and civil liability for, among other things, executing a scheme to defraud any healthcare benefit program or making
false statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, which also imposes obligations, including mandatory contractual terms, on certain types of
individuals and entities, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health
Insurance Program, with specific exceptions, to report annually to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, and applicable manufacturers and applicable group purchasing organizations
to report annually to CMS ownership and investment interests held by the physicians and their immediate family members; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental third party payors, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by
the federal government; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing
the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible
that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our operations or
activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages, monetary fines,
disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any
of which could adversely affect our ability to operate.
In addition, any sales of our product candidates once commercialized outside the
United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
We face
potential product liability exposure far in excess of our limited insurance coverage.
The use of any of our potential products in
clinical trials, and the sale of any approved products, may expose us to liability claims. These claims might be made directly by consumers, health care providers, pharmaceutical companies or others selling our products. We have obtained limited
product liability insurance coverage for our clinical trials in the amount of $10 million per occurrence and $10 million in the aggregate. However, our insurance may not reimburse us or may not be sufficient to reimburse us for any expenses or
losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to
expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products
approved for marketing. On occasion, juries have awarded large judgments in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us would decrease our cash
reserves and could cause our stock price to fall.
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Our activities involve hazardous materials, and we may be liable for any resulting contamination or
injuries.
Our research activities involve the controlled use of hazardous materials. We cannot eliminate the risk of accidental
contamination or injury from these materials. If an accident occurs, a court may hold us liable for any resulting damages, which may harm our results of operations and cause us to use a substantial portion of our cash reserves, which would force us
to seek additional financing.
Security breaches and other disruptions could compromise our information and expose us to liability, which would
cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store confidential and
sensitive information on our networks and in our data centers. This information includes, among other things, our intellectual property and proprietary information, the confidential information of our collaborators and licensees, and the
personally identifiable information of our employees. It is important to our operations and business strategy that this information remains secure and is perceived to be secure. Despite security measures, however, our information technology and
network infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance, or other disruptions. Any such attack or breach could compromise our networks and data centers and the information stored there could be
accessed, publicly disclosed, lost, or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, delays and impediments to
our discovery and development efforts, and damage to our reputation.