Item 1A. Risk Factors.
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks
described below, as well as the other information in this Quarterly Report on
Form 10-Q,
including our financial statements and the related notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations, particularly before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business,
financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business operations.
Risks Related to Our Business
We are a late-stage immuno-oncology company with a limited operating history. We have incurred significant losses since inception and we expect to incur
losses for the foreseeable future and may never achieve or maintain profitability.
We are a late-stage immuno-oncology company with a limited
operating history. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As
a result, we are not profitable and have incurred losses in each period since our inception. Our net loss was $21.7 million and $9.4 million for the quarters ended March 31, 2018 and 2017, respectively. As of
21
March 31, 2018, we had an accumulated deficit of $157.1 million. We expect that it will be several years, if ever, before we have a product candidate ready for commercialization. We
expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. The size of our future net losses may fluctuate significantly from quarter to quarter and will depend, in part, on the rate at which we
incur expenses and our ability to generate revenue. We anticipate that our expenses will increase substantially if and as we:
|
|
|
continue to advance our research and clinical and preclinical development of our product candidates;
|
|
|
|
initiate clinical trials for our product candidates;
|
|
|
|
seek to identify additional product candidates;
|
|
|
|
seek marketing approvals for our product candidates that successfully complete clinical trials;
|
|
|
|
establish a sales, marketing and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval;
|
|
|
|
maintain, expand and protect our intellectual property portfolio;
|
|
|
|
hire additional clinical, quality control and scientific personnel;
|
|
|
|
add operational, financial and management information systems and personnel, including personnel to support our product development; and
|
|
|
|
acquire or
in-license
other product candidates and technologies.
|
To
become and remain profitable, we must develop and eventually commercialize a product with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical
trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those product candidates for which we may obtain marketing approval and satisfying any post-marketing requirements. We
may never succeed in these activities and, even if we succeed in commercializing one or more of our product candidates, we may never generate revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we
may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Our failure to become
and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could
also cause you to lose all or part of your investment.
We need to obtain substantial additional funding to complete the development and any
commercialization of our product candidates, if approved. If we are unable to raise this necessary capital when needed, we would be forced to delay, reduce or eliminate our product development programs, commercialization efforts or other operations.
Since our inception, we have used substantial amounts of cash to fund our operations and expect our expenses to increase substantially in the
foreseeable future. Developing our product candidates and conducting clinical trials for the treatment of cancer and any other indications which we may pursue in the future will require substantial amounts of capital. We will also require a
significant additional amount of capital to commercialize any approved products. Accordingly, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate
clinical trials of, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales,
marketing, manufacturing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing
operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
Based on current business plans and assuming no financing, we believe that our existing cash and cash equivalents will be sufficient to fund our cash
requirements through at least the next twelve months. We have based this estimate on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than
we currently expect. Our future capital requirements will depend on many factors, including:
|
|
|
the scope, rate of progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
|
|
|
|
the scope and costs of manufacturing development and commercial manufacturing activities;
|
22
|
|
|
the cost associated with commercializing our product candidates, if they receive regulatory approval;
|
|
|
|
the cost and timing of developing our ability to establish sales and marketing capabilities, if any;
|
|
|
|
the costs, timing and outcome of regulatory review of our product candidates;
|
|
|
|
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
|
|
|
|
our ability to establish and maintain collaborations on favorable terms, if at all;
|
|
|
|
our ability to attract, hire and retain qualified personnel;
|
|
|
|
the costs associated with being a public company; and
|
|
|
|
the extent to which we acquire or
in-license
other product candidates and technologies.
|
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that
takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial
revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate
additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders
restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, as we can generate
substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if
available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required
to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
We are heavily dependent on the success of our lead product candidate, AM0010, since all of our other product candidates are still in the preclinical
development stage and will require significant clinical trials. If we are unable to successfully complete clinical development, obtain regulatory approval for, or commercialize AM0010, or experience delays in doing so, our business will be
materially harmed.
To date, we have invested a substantial majority of our efforts and financial resources for the preclinical and clinical
development of AM0010. Our future success is dependent on our ability to successfully develop, obtain regulatory approval for, and commercialize AM0010. Before we can generate any revenue from sales of AM0010, we will be required to conduct
additional clinical development, seek and obtain regulatory approval, secure adequate manufacturing supply to support commercial sales and build a commercial organization. Further, the commercial success of AM0010 will also depend on patent
protection, acceptance of AM0010 by patients, the medical community and third-party payors, its ability to compete with other therapies, secure adequate healthcare coverage and reimbursement, and maintenance of an acceptable safety profile following
approval, among other factors. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize AM0010, which would materially harm our business.
AM0010 is currently our only product candidate to have advanced into clinical trials. All of our other programs are in a
pre-clinical
or research and development stage, and we cannot be certain any of these product candidates will be eligible for the filing of an IND application or for clinical evaluation. We cannot be certain
that AM0010 will be successful in our clinical trials or receive regulatory approval. If we do not receive regulatory approval for, or otherwise fail to successfully commercialize, AM0010, we may need to
23
spend significant additional time and resources to identify other product candidates, advance them through preclinical and clinical development and apply for regulatory approvals, which would
adversely affect our business, prospects, financial condition and results of operations. In addition, because AM0010 is our most advanced product candidate, and because our other product candidates may be used in combination with AM0010, if our
clinical trials or any future clinical trials of AM0010 which we may conduct encounter safety or efficacy problems, developmental delays or regulatory issues or other problems, our development plans and business would be significantly harmed.
Our preclinical studies and clinical trials of our product candidates may not be successful. If we are unable to commercialize our product candidates,
if approved, or if we experience significant delays in doing so, our business will be materially harmed.
Our ability to generate product revenues,
which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates, if approved. Even if we successfully develop and commercialize AM0010, we may not
be successful in developing and commercializing our other product candidates, and our commercial opportunities may be limited. The success of our product candidates will depend on many factors, including the following:
|
|
|
successful enrollment in, and completion of, clinical trials;
|
|
|
|
receipt of marketing approvals from applicable regulatory authorities;
|
|
|
|
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
|
|
|
|
obtaining and maintaining patent and trade secret protection and
non-patent
exclusivity for our product candidates;
|
|
|
|
launching commercial sales of our products, if and when approved, whether alone or in collaboration with others;
|
|
|
|
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
|
|
|
|
effectively competing with other therapies;
|
|
|
|
a continued acceptable safety profile of the medicines following approval; and
|
|
|
|
enforcing and defending intellectual property rights and claims.
|
If we do not achieve one or more of these
factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.
We are developing our lead product candidate, AM0010, to be used in combination with standard of care cancer therapies, which exposes us to several
risks beyond our control.
We are developing our lead product candidate, AM0010, to be used in combination with standard of care cancer therapies.
This exposes us to supply risk to the extent there is not an adequate supply of the standard of care therapies that AM0010 is designed or, if approved, approved to be used in combination with, as well as pricing risk if the standard of care
therapies is expensive and the addition of AM0010 would be too costly. In addition, if the standard of care were to evolve or change, the clinical utility of our lead product candidate, AM0010, could be diminished or eliminated. We may experience
these risks with respect to our other product candidates. If any of these were to occur, our business could be materially harmed.
We cannot predict
if we will receive regulatory approval to commercialize our product candidates.
We currently have no products approved for sale or marketing in
any country and may never be able to obtain regulatory approval for any of our product candidates. As a result, we are not currently permitted to market any of our product candidates in the United States or in any other country until we obtain
regulatory approval from the FDA or regulatory authorities outside the United States. Our product candidates are in early stages of development, only one of our product candidates has been tested on humans and we have not submitted an application,
or received marketing approval, for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. All of our product candidates will
require extensive preclinical testing and clinical trials. We cannot predict with any certainty if or when we might submit a BLA for regulatory approval for any of our product candidates or whether any such BLA will be accepted for review by FDA, or
whether any BLA will be approved upon review.
24
The development and commercialization of our lead product candidate, AM0010, is dependent on intellectual
property we license from Merck. If we breach our agreement with Merck or the agreement is terminated, we could lose license rights that are important to our business.
Pursuant to our license agreement with Merck, we acquired exclusive rights to patents, patent applications and
know-how
owned or controlled by Merck relating to PEGylated human
IL-10
for all therapeutic purposes in humans.
Our lead
product candidate, AM0010, is a long acting form of
IL-10
that we have developed. Our existing license agreement with Merck imposes various development, regulatory, commercial diligence, financial and other
obligations. If we fail to comply with our obligations under the agreement with Merck, or otherwise materially breach the agreement with Merck, and fail to remedy such failure or cure such breach within 90 days, Merck will have the right to
terminate the agreement. If the Merck Agreement is terminated by Merck for our uncured material breach, we would lose our license and all rights to the product candidate would revert to Merck, including a fully
paid-up,
worldwide, exclusive license to our patents and
know-how
to develop, manufacture and exploit AM0010 and an assignment of all regulatory filings and approvals
for AM0010 to Merck. The loss of the license from Merck would prevent us from developing and commercializing AM0010 and could subject us to claims of breach of contract and patent infringement by Merck if any continued research, development,
manufacture or commercialization of AM0010 is covered by the affected patents. Accordingly, the loss of our license with Merck would materially harm our business.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities
outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct extensive clinical trials to demonstrate the safety
and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and the outcome is uncertain. Despite promising preclinical and early clinical trial data, any
product candidate can unexpectedly fail at any stage of preclinical or clinical development. The historical failure rate for product candidates is high. The outcome of preclinical studies and early clinical trials may not be predictive of the
success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Even if our clinical trials are completed as planned, we cannot be certain that their results will support our proposed indications.
Success in preclinical studies and early clinical trials does not ensure that later clinical trials will be successful, and we cannot be sure that the results of later clinical trials will replicate the results of prior clinical trials and
preclinical studies. In particular, while we have conducted certain preclinical studies of our product candidates, only AM0010 has been evaluated in clinical trials and we do not know whether our other product candidates will perform in clinical
trials as they have performed in preclinical studies using animal models. For example, in clinical trials, it is possible that our product candidates may cause unacceptable levels of toxicity or other adverse side effects resulting in the FDA or
comparable foreign regulatory authorities ordering us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. In addition, if our clinical results are not successful, we may terminate the clinical
trials for a product candidate and abandon any further research or studies of the product candidate. Any delay in, or termination of, our clinical trials will delay and possibly preclude the filing of any BLAs with the FDA and, ultimately, our
ability to commercialize our product candidates and generate product revenues.
Our clinical trials of our product candidates may fail to adequately
demonstrate safety and efficacy to the satisfaction of regulatory authorities or otherwise fail to produce positive results, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development
and commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities for the sale of our product
candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take
many years to complete and the outcome is inherently uncertain. A failure of one or more clinical trials can occur at any time during the clinical trial process. The outcome of preclinical testing and early clinical trials may not be predictive of
the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. There is a high failure rate for drugs proceeding through clinical trials, and product candidates in later stages of clinical
trials may fail to show the required safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical
trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier clinical trials, and we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not
be sufficient to support obtaining regulatory approval for our product candidates.
25
Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many
companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval
or commercialize our product candidates, including:
|
|
|
regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
|
|
|
|
we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
|
|
|
|
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
|
|
|
|
the number of patients required for clinical trials of our product candidates may be larger than we anticipate; enrollment in these clinical trials may be slower than we anticipate; or participants may drop out of these
clinical trials at a higher rate than we anticipate;
|
|
|
|
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
|
|
|
|
we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
|
|
|
|
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the
participants are being exposed to unacceptable health risks;
|
|
|
|
the cost of clinical trials of our product candidates may be greater than we anticipate;
|
|
|
|
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
|
|
|
|
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators or institutional review boards to suspend or terminate the trials.
|
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently
contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
|
|
|
be delayed in obtaining marketing approval for our product candidates;
|
|
|
|
not obtain marketing approval at all;
|
|
|
|
obtain approval for indications or patient populations that are not as broad as intended or desired;
|
|
|
|
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
|
|
|
|
be subject to additional post-marketing testing requirements; or
|
|
|
|
have the medicine removed from the market after obtaining marketing approval.
|
Product development costs will
also increase if we experience delays in testing or marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays
also could shorten any periods during which we may have the exclusive right to commercialize our product candidates, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize our
product candidates, if approved, any of which may harm our business and results of operations.
26
We may expend our limited resources to pursue a particular product candidate or indication and fail to
capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have
limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other
indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial therapies or profitable market opportunities. Our spending on current and future research
and development programs and product candidates for specific indications may not yield any commercially viable medicines. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product
candidate.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or
otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely
completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment
in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:
|
|
|
the patient eligibility criteria defined in the protocol;
|
|
|
|
the size of the patient population required for analysis of the trials primary endpoints;
|
|
|
|
the proximity of patients to study sites;
|
|
|
|
the design of the trial;
|
|
|
|
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
|
|
|
|
clinicians and patients perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the
indications we are investigating;
|
|
|
|
our ability to obtain and maintain patient consents; and
|
|
|
|
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
|
In
addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because
some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical
trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site. Moreover, because our product candidates represent a departure
from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies rather than enroll patients in any future clinical trial.
Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion
of these trials and adversely affect our ability to advance the development of our product candidates.
The design or our execution of clinical
trials may not support regulatory approval.
The design or execution of a clinical trial can determine whether its results will support regulatory
approval and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials of
the same product candidate due to numerous factors, including changes in trial protocols, differences in size and type of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial
participants. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates.
Further, the FDA and comparable foreign regulatory authorities have substantial discretion in the approval process an in determining when or whether
regulatory approval will be obtained for any of our product candidates. Our product candidates may not be approved even if they achieve their primary endpoints in future Phase 3 clinical trials or registration trials. The FDA or other
non-U.S.
regulatory authorities may disagree with our trial design and our interpretation of data from preclinical studies and clinical trials. In
27
addition, any of these regulatory authorities may change requirements for the approval of a product candidate even after reviewing and providing comments or advice on a protocol for a pivotal
Phase 3 clinical trial that has the potential to result in FDA or another agencies approval. In addition, any of these regulatory authorities may also approve a product candidate for fewer or more limited indications than we request or may
grant approval contingent on the performance of costly post-marketing clinical trials. The FDA or other
non-U.S.
regulatory authorities may not approve the labeling claims that we believe would be necessary or
desirable for the successful commercialization of our product candidates, if approved.
We may not be successful in our efforts to identify or
discover additional product candidates in the future.
A significant portion of the research that we are conducting involves new compounds and drug
discovery methods, including our proprietary technology. The drug discovery that we are conducting using our proprietary technology may not be successful in identifying compounds that are useful in treating cancer. Our research programs may
initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:
|
|
|
the research methodology used may not be successful in identifying appropriate biomarkers or potential product candidates; or
|
|
|
|
potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be medicines that will receive marketing approval and achieve
market acceptance.
|
Research programs to identify new product candidates require substantial technical, financial and human resources. If we
are unable to identify suitable compounds for preclinical and clinical development, we will not be able to obtain product revenues in future periods, which likely would result in significant harm to our financial position and adversely impact our
stock price.
Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by
physicians, patients, hospitals, cancer treatment centers, healthcare payors and others in the medical community necessary for commercial success.
If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare
payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments. Our product candidates
are novel, proprietary medicines that activate a cancer patients own immune system to recognize and eradicate tumors. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues
and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
|
|
|
efficacy and potential advantages compared to alternative treatments;
|
|
|
|
the ability to offer our medicines for sale at competitive prices;
|
|
|
|
convenience and ease of administration compared to alternative treatments;
|
|
|
|
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
|
|
|
|
the strength of marketing and distribution support;
|
|
|
|
sufficient third-party coverage or reimbursement; and
|
|
|
|
the prevalence and severity of any side effects.
|
If any of our product candidates are approved for
marketing and commercialization and we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates, we will be unable to successfully commercialize our product
candidates if and when they are approved.
We have no sales, marketing or distribution capabilities or experience. To achieve commercial success
for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization, which would be expensive and time consuming, or outsource these functions to other third parties. In the
future, we may choose to build a focused sales and marketing infrastructure to sell, or participate in sales activities with our collaborators for, some of our product candidates if and when they are approved.
28
There are risks involved with both establishing our own sales and marketing capabilities and entering into
arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a
sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot
retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our medicines on our own include:
|
|
|
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 medicines;
|
|
|
|
the lack of complementary medicines 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.
|
If we
enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any medicines that
we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. In entering into third-party
marketing or distribution arrangements, any revenue we receive will depend upon the efforts of the third parties and we cannot assure you that such third parties will establish adequate sales and distribution capabilities or devote the necessary
resources and attention to sell and market our medicines effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our
product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more
successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our
current product candidates and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical, specialty pharmaceutical and biotechnology companies among others. We
compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immunotherapies for the treatment of cancer. There are other companies working to develop immunotherapies for the treatment of cancer, including
divisions of large pharmaceutical and biotechnology companies of various sizes. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely
different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for
research, development, manufacturing and commercialization.
We are developing our initial product candidates for the treatment of cancer. There are a
variety of available drug therapies marketed for cancer. For example, Bristol-Myers Squibb, Merck and Roche have recently received approval for immune checkpoint inhibitors for
non-small
cell lung cancer.
Bristol-Myers Squibb has also received approval for an immune checkpoint inhibitor for renal cell carcinoma. Several checkpoint inhibitors are also under investigation in pancreatic cancer. In many cases, these drugs are administered in combination
to enhance efficacy, and cancer drugs are frequently prescribed
off-label
by healthcare professionals. Some of the currently approved drug therapies are branded and subject to patent protection, and others are
available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products.
We expect that if our product candidates are approved, they will be priced at a significant premium over competitive generic products. This may make it difficult for us to achieve our business strategy of using our product candidates in combination
with existing therapies or replacing existing therapies with our product candidates.
There are also a number of product candidates in preclinical
development by third parties to treat cancer. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render
29
our product candidates obsolete or
non-competitive.
Our competitors may also obtain marketing approval from the FDA or other regulatory authorities for
their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies,
conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller
number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting
and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
Our product candidates, for which we intend to seek approval, may face competition sooner than anticipated.
Our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of biosimilar products. Biosimilar
products are expected to become available over the coming years. Even if our product candidates achieve marketing approval, they may be priced at a significant premium over competitive biosimilar products, if any have been approved by then. The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the ACA) created a new regulatory scheme authorizing the FDA to approve biosimilars. Under the ACA, a manufacturer may
submit an application for licensure of a biologic product that is biosimilar to or interchangeable with a previously approved biological product or reference product. Under this new statutory scheme, an
application for a biosimilar product may not be submitted to the FDA until four years following approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved.
Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full Biologics License Application (BLA) for such product containing the
sponsors own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. Furthermore, recent legislation has proposed that the
12-year
exclusivity period for each a reference product may be reduced to seven years.
We may not be able
to maintain orphan drug marketing exclusivity for AM0010 in the United States or the European Union, and orphan drug marketing exclusivity may not be available for any of our other product candidates.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition (with a population of
less than 200,000), which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of
developing the drug or biologic will be recovered from sales in the United States. In the European Union, following the opinion of the EMAs Committee for Orphan Medicinal Products, the European Commission grants orphan drug designation to a
product if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when the
application is made, or (b) the product, without the incentives derived from orphan medicinal product status, would not generate sufficient return in the European Union to justify investment; and (3) there exists no satisfactory method of
diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition.
Generally, if a drug with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation,
the drug is entitled to a period of marketing exclusivity, which precludes the FDA or the European Commission and the competent authorities in the EU Member States from approving another marketing application for the same drug (or similar medicinal
product in the EU) for that time period, except in limited circumstances. The applicable period is seven years in the United States and 10 years in the EU. The EU exclusivity period can be reduced to six years if a drug no longer meets the criteria
for orphan drug designation or if the drug is sufficiently profitable that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the
manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
We have been granted
orphan drug designation for AM0010 in the United States and the European Union for the treatment of pancreatic cancer. Although we may apply for orphan drug designation for other product candidates we may develop in both the United States and
European Union, applicable regulatory authorities may not grant us this designation. In addition, even if such status
30
is obtained for any other product candidate that we may develop, that exclusivity may not effectively protect the candidate from competition because other drugs, such as those with different
active ingredients or molecular structures, can be approved for the same condition. Furthermore, even after an orphan drug is approved, the FDA can subsequently approve another drug for the same condition if the FDA concludes that the later drug is
clinically superior, in that it is shown to be safer, more effective or makes a major contribution to patient care. In the European Union, a marketing authorization may be granted to a similar product during the
10-year
period of market exclusivity for the same therapeutic indication at any time if:
|
|
|
The second applicant can establish in its application that its product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;
|
|
|
|
The holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or
|
|
|
|
The holder of the marketing authorization for the original orphan medicinal product cannot supply enough orphan medicinal product.
|
Any inability to secure orphan drug designation or to maintain the exclusivity benefits of this designation could have an adverse impact on our ability to
develop and commercialize our product candidates, depending on the extent to which we would be protected by other patents and regulatory exclusivities, and may adversely affect our business, prospects, financial condition and results of operations.
A Fast Track product designation or other designation to facilitate product candidate development may not lead to faster development or regulatory
review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We have received
a Fast Track product designation for AM0010 in combination with FOLFOX as a second-line therapy in patients with pancreatic cancer and we may seek Fast Track designation for other of our current or future product candidates. Receipt of a designation
to facilitate product candidate development is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for a designation, the FDA may disagree. In any event, the receipt of such a
designation for a product candidate may not result in a faster development process, review, or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In
addition, the FDA may later decide that the products no longer meet the designation conditions.
Even if we are able to commercialize any product
candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new medicines vary widely from country to country. In the United States, enacted
legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a medicine 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 might obtain marketing approval for a medicine in a particular country, but then be subject to price regulations that delay our commercial launch of the medicine, possibly for lengthy time periods, and negatively impact the
revenues we are able to generate from the sale of the medicine in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
Our ability to commercialize any medicines successfully also will depend in part on the extent to which reimbursement for these medicines 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 and elsewhere 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 medicine that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product
candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
31
There may be significant delays in obtaining reimbursement for newly approved medicines, and coverage may be more
limited than the purposes for which the medicine is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any medicine 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 medicines, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement
rates may vary according to the use of the medicine and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost medicines and may be incorporated into existing payments for other services. Net prices
for medicines 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 medicines 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 inability to promptly obtain coverage and profitable payment rates from both
government-funded and private payors for any approved medicines that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize medicines and our overall financial condition.
In addition, in order to be eligible to have its products paid for with federal funds under the Medicaid and Medicare programs and purchased by certain
federal agencies and grantees, a manufacturer also must participate in the Department of Veterans Affairs Federal Supply Schedule, or FSS, pricing program, established by Section 603 of the Veterans Health Care Act of 1992. Under this program,
the manufacturer is obligated to make its covered drugs (biologics or innovator drugs) available for procurement on an FSS contract and charge a price to four federal agencies, Department of Veterans Affairs, Department of Defense,
Public Health Service, and Coast Guard, that is no higher than the statutory federal ceiling price. Failure to timely submit the pricing required under the VA FSS program or submission of false information under the program could result in civil
monetary penalties. In addition, if we determine that the price points submitted to the VA under this program were incorrect, we have an obligation to restate the pricing and we are liable for any overpayments the government made as a result of our
incorrect prices. Pursuant to regulations issued by the DoD TRICARE Management Activity, now the Defense Health Agency, to implement Section 703 of the National Defense Authorization Act for Fiscal Year 2008, each of our covered drugs will be
subject to quarterly rebates for prescriptions dispensed to TRICARE beneficiaries by TRICARE network retail pharmacies. The formula for determining the rebate is based on the price points that are required to be calculated by us under the Veterans
Health Care Act. The requirements under the FSS and DoD TRICARE programs could reduce the revenue we may generate from any products that are commercialized in the future and could adversely affect our business and operating results.
If the market opportunities for any product that we or our strategic partners develop are smaller than we believe they are, our revenue may be adversely
affected and our business may suffer.
We are focused on the development of treatments for cancer. Our projections of addressable patient
populations that have the potential to benefit from treatment with our product candidates are based on estimates. If any of the foregoing estimates are inaccurate, the market opportunities for any of our product candidates could be significantly
diminished and have an adverse material impact on our business.
Product liability lawsuits against us could cause us to incur substantial
liabilities and could limit commercialization of any medicines that we may develop.
We face an inherent risk of product liability exposure related
to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any medicines that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or
medicines caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
|
|
|
decreased demand for any product candidates or medicines that we may develop;
|
|
|
|
injury to our reputation and significant negative media attention;
|
|
|
|
withdrawal of clinical trial participants;
|
|
|
|
significant costs to defend the related litigation;
|
|
|
|
substantial monetary awards to trial participants or patients;
|
|
|
|
the inability to commercialize any medicines that we may develop.
|
32
Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that
we may incur. We anticipate that we will need to increase our insurance coverage as we advance our clinical trials and if we successfully commercialize any medicine. Insurance coverage is increasingly expensive. We may not be able to maintain
insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
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 and biological materials. 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, 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.
Although 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 biological or hazardous materials.
In addition, 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.
Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways
that we cannot currently predict, and may have a material adverse effect on our business and results of operations.
In the United States and some
foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of drug candidates, restrict or regulate
post-approval activities, and affect our ability to profitably sell any drug candidates for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in
healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by
major legislative initiatives.
In March 2010, the ACA was passed, which substantially changed the way healthcare is financed by both the government and
private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things: (i) introduced a new average manufacturer price definition for drugs that are inhaled, infused, instilled, implanted or injected and not
generally dispensed through retail community pharmacies; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and expanded rebate liability from
fee-for-service
Medicaid utilization to include the utilization of Medicaid managed care organizations as well; (iii) established an annual fee that pharmaceutical manufacturers of branded prescription
drugs must pay to the federal government; (iv) expanded the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program; and (v) established 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 the manufacturers outpatient drugs to be covered under Medicare Part D.
Some of the provisions of the
ACA have yet to be implemented, and there have been legal and political challenges to certain aspects of the ACA. Since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen
certain requirements mandated by the ACA. Moreover, the Tax Cuts and Jobs Act of 2017 was enacted on December 22, 2017, and includes a provision repealing, effective January 1, 2019, the
tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the individual mandate. Congress may consider other
legislation to repeal or replace additional elements of the ACA. We continue to evaluate the effect that the ACA, the repeal of the individual mandate, and any additional possible repeal and replacement efforts may have on our business but expect
that the ACA, as currently enacted or as it may be amended in the future, and other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry generally and on our ability to maintain or
increase sales of our existing products that we successfully commercialize or to successfully commercialize our product
33
candidates, if approved. In addition to the ACA, there will continue to be proposals by legislators at both the federal and state levels, regulators and third party payors to keep healthcare
costs down while expanding individual healthcare benefits.
Other legislative changes have been proposed and adopted since the ACA was enacted. These
changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and will remain in effect through 2025 unless additional
Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period
for the government to recover overpayments to providers from three to five years.
Additional changes that may affect our business include the expansion
of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA, which will first affect physician payment in 2019. At this time, it is unclear how the
introduction of the Medicare quality payment program will impact overall physician reimbursement. Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products,
which has resulted in several Congressional inquiries and federal and state bills, including some that have been enacted into law, designed to, among other things, bring more transparency to product pricing, review the relationship between pricing
and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
We expect that these and 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, once regulatory approval is obtained.
We will be subject to federal, state and foreign healthcare and
abuse laws and false claims laws, as well as information privacy and security laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we obtain FDA, European Commission or other comparable foreign regulatory authorities approval for any of our product candidates and begin
commercializing those products in the United States or outside the United States, our operations will be subject to various federal, state and foreign fraud and abuse laws and regulations, including, without limitation, the federal Anti-Kickback
Statute, the federal civil False Claims Act, and the Physician Payments Sunshine Act. In addition, we may be subject to privacy and data security laws and regulation by United States federal and state governments and by foreign data protection laws
in jurisdictions in which we conduct our business.
These laws and regulations may impact, among other things, our arrangements with third-party payors,
healthcare professionals who participate in our clinical research programs, healthcare professionals and others who purchase, recommend, prescribe or arrange for the purchase or order of our approved products, and our proposed sales, marketing,
distribution and education programs. The U.S. federal and state laws and regulations that may affect our ability to operate include, without limitation, the following:
|
|
|
the federal Anti-Kickback Statute, which prohibits persons from, among other things, knowingly and willfully soliciting, receiving, offering or paying 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 arrangement for recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. The term
remuneration has been broadly interpreted to include anything of value. The government can establish a violation of the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the statute of specific intent
to violate it;
|
|
|
|
the federal civil False Claims Act, which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from, among other things, knowingly
presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making or causing to be made a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an
obligation to pay money to the federal government. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.
Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government;
|
34
|
|
|
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, among other things, imposes criminal and civil liability for executing or attempting to execute a scheme to defraud any
healthcare benefit program, or knowingly and willfully falsifying, concealing or covering
|
up a material fact or making any
materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of
or payment for healthcare benefits, items or services;
|
|
|
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which impose obligations upon entities subject to the law, such as health
plans, healthcare clearinghouses and healthcare providers and their respective business associates, including mandatory contractual terms with respect to safeguarding the privacy, security and transmission of individually identifiable health
information and notification obligations in the event of a breach of the privacy or security of individually identifiable health information;
|
|
|
|
federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;
|
|
|
|
the federal transparency requirements under the Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or CHIP to report to
the U.S. Department of Health and Human Services information related to payments and other transfers of value provided to physicians and teaching hospitals and ownership and investment interests held by physicians and physician family members;
|
|
|
|
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that impose similar restrictions and may apply to items or services reimbursed by any
non-governmental
third-party payors, including private insurers; and
|
|
|
|
state and foreign laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance
promulgated by the federal government, or to track and report gifts, compensation and other remuneration provided to physicians and other health care providers. Some of these states also prohibit certain marketing-related activities, including the
provision of gifts, meals, or other items to certain health care providers, and restrict the ability of manufacturers to offer
co-pay
support to patients for certain prescription drugs. In addition, there are
other federal, state and foreign laws that govern the privacy and security of health information or personally identifiable information in certain circumstances, including state health information privacy and data breach notification laws which
govern the collection, use, disclosure, and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not
pre-empted
by HIPAA, thus
requiring additional compliance efforts.
|
Once we have an approved and marketed product in the United States, we will be required to spend
substantial time and money to ensure that our business arrangements with third parties comply with applicable healthcare laws and regulations. Even then, governmental authorities may conclude that our business practices do not comply with current or
future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. Healthcare reform legislation has strengthened these federal and state healthcare laws. Violations of these laws can subject us
to criminal, civil and administrative sanctions including imprisonment, monetary penalties, damages, fines, disgorgement, and exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, reputation harm,
additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
non-compliance
with these laws, and we may be required to
curtail or restructure our operations. Moreover, we expect that there will continue to be federal and state laws and regulations, proposed and implemented, that could impact our future operations and business. The extent to which future legislation
or regulations, if any, relating to healthcare fraud and abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of
medicinal products is generally prohibited in the European Union.
The provision of benefits or advantages to physicians is also governed by the national
anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.
35
Payments made to physicians in certain EU Member States must be publicly disclosed. Moreover, agreements with
physicians often must be the subject of prior notification and approval by the physicians employer, his or her competent professional organization and/or the regulatory authorities of the individual EU Member States. These requirements are
provided in the national laws, industry codes or professional codes of conduct, applicable in the EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, civil
penalties, fines or imprisonment.
Failure to comply with data protection laws and regulations could lead to government enforcement actions (which
could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We and our partners may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and
data security). In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the
FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, we may obtain health information from third parties
(including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by HITECH. Depending on the facts and circumstances, we could be subject to criminal penalties
if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
International data protection laws, including the European Union Directive 95/46/EC (the EU Data Protection Directive) and member state implementing
legislation, may also apply to health-related and other personal information obtained outside of the United States The EU Data Protection Directive and the national implementing legislation of the individual European Union Member States impose
strict obligations on the ability to process health-related and other personal information of EU data subjects, including in relation to collection, analysis and transfer. These include several requirements relating to the consent of the individuals
to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The EU Data
Protection Directive prohibits the transfer of personal data to countries outside of the European Economic Area, or EEA, such as the United States, which are not considered by the European Commission to provide an adequate level of data protection.
Switzerland has adopted similar restrictions.
Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland
to the United States, uncertainty about compliance with EU data protection laws remains and data protection authorities from the different EU Member States may interpret the EU Data Protection Directive and national laws differently, and guidance on
implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the EU.
In
December 2015, a proposal for an EU General Data Protection Regulation, intended to replace the current EU Data Protection Directive, was agreed between the European Parliament, the Council of the European Union and the European Commission. The EU
General Data Protection Regulation, which was officially adopted in April 2016 and will be applicable in May 2018, will introduce new data protection requirements in the EU, as well as substantial fines for breaches of the data protection rules. The
EU General Data Protection Regulation will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection
rules.
Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could
include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, patients about whom we or our partners obtain information, as well as the providers who
share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals privacy rights, failed to comply with data protection laws, or breached our contractual
obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
We are highly dependent on the management, research and development, clinical, financial and business development expertise of our executive
officers, as well as the other members of our scientific and clinical teams. Although we have employment offer letters with each of our executive officers, each of them may terminate their employment with us at any time. We do not maintain key
person insurance for any of our executives or employees.
36
Recruiting and retaining qualified scientific and clinical personnel and, if we are successful in obtaining
marketing approval for AM0010 or other product candidates, sales and marketing personnel, is critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development
and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the
limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval for and commercialize our product candidates. Competition to hire qualified personnel in our industry
is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Furthermore, to the extent we hire
personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. We also
experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our
research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to
us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited, and our business, prospects, financial condition and results of operations may be adversely affected.
We expect to expand our product development capabilities and implement sales, marketing and distribution capabilities, and as a result, we may encounter
difficulties in managing our growth, which could disrupt our operations.
As our development progresses, we expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of research, drug development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To
manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial
resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business
development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations, which may adversely affect our business, prospects, financial condition or results of operations.
Our anticipated international operations may expose us to business, regulatory, political, operational, financial, pricing and reimbursement risks
associated with doing business outside of the United States.
Our business strategy incorporates potential international expansion as we seek to
obtain regulatory approval for, and commercialize, AM0010 in patient populations outside the United States. If AM0010 is approved, we may hire sales representatives and conduct physician and patient association outreach activities outside of the
United States. Doing business internationally involves a number of risks, including but not limited to:
|
|
|
multiple, conflicting, and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and
licenses;
|
|
|
|
failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;
|
|
|
|
rejection or qualification of foreign clinical trial data by the competent authorities of other countries;
|
|
|
|
additional potentially relevant third-party patent rights;
|
|
|
|
complexities and difficulties in obtaining protection and enforcing our intellectual property;
|
|
|
|
difficulties in staffing and managing foreign operations;
|
|
|
|
complexities associated with managing multiple payor reimbursement regimes, government payors or patient
self-pay
systems;
|
|
|
|
limits in our ability to penetrate international markets;
|
|
|
|
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency
exchange rate fluctuations;
|
|
|
|
natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions;
|
37
|
|
|
certain expenses including, among others, expenses for travel, translation and insurance; and
|
|
|
|
regulatory and compliance risks that relate to anti-corruption compliance and record-keeping that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its accounting provisions or its anti-bribery
provisions or provisions of anti-corruption or anti-bribery laws in other countries.
|
For example, in June 2016, the United Kingdom held a
referendum and voted in favor of leaving the European Union. This has created political and economic uncertainty, particularly in the United Kingdom and the European Union, and could cause disruptions to, and create uncertainty surrounding, our
business in the United Kingdom and European Union, and could have a material impact on the regulatory regime applicable to our operations in the United Kingdom.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our results of operations.
Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United
States, which would limit our ability to realize their full market potential.
In order to market any products outside of the United States, we
must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory
approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary
widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition,
our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including
international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our target
market will be reduced and our ability to realize the full market potential of our products will be harmed.
Unfavorable global economic conditions
could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by
general conditions in the global economy and in the global financial markets. The recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, such as the recent
global financial crisis, could result in a variety of risks to our business, including reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly
resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To
the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a
corporation undergoes an ownership change, generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporations ability to use its
pre-change
net operating loss carryforwards, or NOLs, and other
pre-change
tax attributes (such as research tax credits) to offset its post-change income or taxes may be
limited. As a result, if we earn net taxable income, our ability to use our
pre-change
NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to
limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result,
even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.
38
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA) that significantly reforms the Internal Revenue Code of
1986, as amended. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, and puts into effect the
migration from a worldwide system of taxation to a territorial system. We do not expect tax reform to have a material impact to our projection of minimal cash taxes or to our net operating losses. Our net deferred tax assets and
liabilities will be revalued at the newly enacted U.S. corporate rate, and the impact will be recognized in our tax expense in the year of enactment. We continue to examine the impact this tax reform legislation may have on our business. The impact
of this tax reform on holders of our common stock is uncertain and could be adverse. This Quarterly Report on Form
10-Q
does not discuss any such tax legislation or the manner in which it might affect our
stockholders or prospective stockholders. We urge our stockholders and prospective stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences of investing in our common stock.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster
recovery plans may not adequately protect us from a serious disaster.
Earthquakes or other natural disasters could severely disrupt our
operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our
business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial
expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.
Our internal information technology systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches,
loss or leakage of data, and other disruptions, which could result in a material disruption of our product candidates development programs, compromise sensitive information related to our
business or prevent us from accessing
critical information, potentially exposing us to liability or otherwise adversely affecting our business
.
We are increasingly
dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit confidential information (including but not limited to intellectual property,
proprietary business information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also have outsourced elements of our operations to third
parties, and as a result we manage a number of third party contractors who have access to our confidential information.
Despite the implementation of
security measures, given their size and complexity and the large amounts of confidential information that they maintain, our internal information technology systems and those of our third-party CROs and other contractors and consultants are
potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or
intentional actions by our employees, contractors, consultants, business partners, and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware,
denial-of-service
attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information),
which may compromise our system infrastructure or lead to data leakage.
While we have not experienced any such system failure, accident or security
breach to date, there can be no assurances that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material
adverse effect upon the reputation, business, operations or financial condition of the company. For example, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs and the
further development of our product candidates could be delayed. In addition, the loss of clinical trial data for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data. Furthermore, significant disruptions of our internal information technology systems or security breaches could adversely affect our business and/or result in the loss, misappropriation, and/or unauthorized access, use, or
disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and
reputational harm to us. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our
39
patients or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective
action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially
have an adverse effect on our business.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control,
sanctions, and other trade laws and regulations (collectively, Trade Laws). We can face serious consequences for violations.
Among other matters,
Trade Laws prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly
or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Trade Laws also restrict the export or transfer of certain controlled equipment, materials, software and technology as well
as transactions with certain restricted parties or sanctioned countries. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of
contract and fraud litigation, reputational harm, and other adverse consequences. In particular, we have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other
organizations. We also expect our
non-U.S.
activities to increase in time. We expect to rely on third parties for research, preclinical studies, and clinical trials and/or to obtain necessary permits,
licenses, patent registrations, and other regulatory approvals. Such interactions would inherently increase the risk of violating applicable Trade Laws. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or
partners, even if we do not explicitly authorize or have prior knowledge of such activities.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials and some aspects of our research and preclinical studies, and those third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials, research or testing.
We rely on third parties, such as
contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials. We currently rely and expect to continue to rely on third parties to conduct some aspects of
our research and preclinical studies. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.
Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our
responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with
standards, commonly referred to as Good Clinical Practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality
of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can
result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities,
some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will
not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our medicines.
We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors
could delay clinical development or marketing approval of our product candidates or commercialization of our medicines, producing additional losses and depriving us of potential product revenue.
We contract with third parties for the manufacture of our product candidates for preclinical studies, clinical trials and for commercialization. This
reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or medicines or that such supply will not be available to us at an acceptable cost, which could delay, prevent or impair our
development or commercialization efforts.
We do not have any manufacturing facilities. We currently rely, and expect to continue to rely, on
third-party manufacturers for the manufacture of our product candidates for preclinical and clinical testing and for commercial supply of any of these product candidates for which we or our collaborators obtain marketing approval. We do not have a
long term supply agreement with our third-party manufacturer, and we purchase our required drug supply on a purchase order basis.
40
We may be unable to establish or maintain supply agreements with third-party manufacturers or to do so on
acceptable terms. Even if we are able to establish these agreements, reliance on third-party manufacturers entails additional risks, including:
|
|
|
reliance on the third party for regulatory compliance and quality assurance;
|
|
|
|
the possible breach of the manufacturing agreement by the third party;
|
|
|
|
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us; and
|
|
|
|
reliance on the third party for regulatory compliance, quality assurance, and safety and pharmacovigilance reporting.
|
Third-party manufacturers may not be able to comply with current good manufacturing practices, or cGMP, regulations or similar regulatory requirements outside
the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of
approvals, license revocation, seizures or recalls of product candidates or medicines, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our medicines and harm our business and
results of operations.
Any drugs that we may develop may compete with other product candidates and products for access to manufacturing facilities. There
are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.
Any performance failure on
the part of our existing or future manufacturers could delay clinical development or marketing approval. We do not currently have arrangements in place for redundant supply for bulk drug substances. If any one of our current contract manufacturer
cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur added costs and delays in
identifying and qualifying any such replacement.
Our current and anticipated future dependence upon others for the manufacture of our product candidates
or medicines may adversely affect our future profit margins and our ability to commercialize any medicines that receive marketing approval on a timely and competitive basis.
Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects
of the development program, such as manufacturing methods 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 cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the
conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidates and jeopardize our ability, or our strategic partners ability, to commence product
sales and generate revenue.
We may form or seek strategic alliances or enter into additional licensing arrangements in the future, and we may not
realize the benefits of such alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations
or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop.
Any of these relationships may require us to incur
non-recurring
and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our
management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic
partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite
potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We
cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product
candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.
41
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent or trade secret protection for our product candidates and preclinical programs, or if the scope of the
patent protection obtained is not of sufficient scope, our competitors could develop and commercialize medicines and technology similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to
our product candidates and preclinical programs. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies that are important to our business. Our pending and future
patent applications may not result in patents being issued which protect our product candidates and/or preclinical programs or which effectively prevent others from commercializing competitive technologies, products or product candidates.
Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications,
or maintain, enforce and/or license patents that may issue based on our patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development results
before it is too late to obtain patent protection. Although we enter into
non-disclosure
and confidentiality agreements with parties who have access to patentable aspects of our research and development
output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and
disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection.
The patent position of
biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, that
have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa.
Further, we may not be aware of all third-party intellectual property rights potentially relating to our product candidates and preclinical programs, and as a
result the impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain.
Patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions
claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly
uncertain.
We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that
patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.
There are multiple pending U.S. and
foreign patent applications in our portfolio. However, we cannot predict:
|
|
|
if and when patents may issue based on our patent applications;
|
|
|
|
the scope of protection of any patent issuing based on our patent applications;
|
|
|
|
whether the claims of any patent issuing based on our patent applications will provide protection against competitors,
|
|
|
|
whether or not third parties will find ways to invalidate or circumvent our patent rights;
|
|
|
|
whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications;
|
|
|
|
whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or
|
|
|
|
whether the patent applications that we own or
in-license
will result in issued patents with claims that cover our product candidates or uses thereof in the United States or in
other foreign countries.
|
We cannot be certain that the claims in our pending patent applications directed to our product candidates and/or
technologies will be
considered patentable by the United States Patent and Trademark Office (USPTO) or by patent offices in foreign countries. One aspect
of the determination of patentability of our inventions depends on the scope and content of the prior art, that information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the
claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of
42
a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or
scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are
unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others
from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it
could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued
patents will be considered valid by courts in the United States or foreign countries. Certain of our patent applications are directed to methods of use of our product candidates. Patents containing claims only to such methods of use do not prevent a
competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications,
physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or
prosecute.
Patent rights are of limited duration. Given the amount of time required for the development, testing and regulatory review of new product
candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to
competition from biosimilar or generic products. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each regulatory approval, and any patent can be extended only
once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent
term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to
apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the length of the extension could be less than we request. Given the amount of time required for the development, testing and regulatory
review of new drug candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from
commercializing drugs similar or identical to ours.
Since patent applications in the United States and most other countries are confidential for a period
of time after filing, we cannot be certain that patent applications in our portfolio were the first filed patent applications related to our product candidates.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from
competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative product candidates in a
non-infringing
manner. Furthermore, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. Furthermore, the laws of foreign
countries may not protect our rights to the same extent as the laws of the United States.
The United States has recently enacted, and is currently
continuing to implement, wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the
rights of patent owners in certain situations. Additionally, the Leahy-Smith Act, enacted on September 16, 2011 implemented wide-ranging modifications to the United States patent law, the judicial interpretations and implementations of which
remain highly uncertain. 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 future
actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would diminish the value of our patents and patent applications or narrow the scope of our patent
protection or weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
We may be
subject to a third party
pre-issuance
submission of prior art to the USPTO and/or patent offices abroad, or become involved in opposition, derivation, revocation, reexamination, post-grant review, ex partes
review, inter partes review or interference proceedings challenging our owned or licensed patent rights, or the patent rights of others, in the US and/or abroad. An adverse determination in any such submission, proceeding or litigation could reduce
the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize medicines without
infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize
current or future product candidates.
43
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our
patents may be challenged in the courts or patent offices in the United States and abroad. Generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our or our licensors patents. Such challenges may
result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of
the patent protection of our technology and medicines. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after
such product candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We have limited foreign intellectual property rights and may not be able to protect our intellectual property rights throughout the world.
We have limited intellectual property rights outside the United States. To file and prosecute patent applications and defend and/or enforce patents relating to
our product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States is less extensive than those in the United States. Moreover, the
standards of patentability are not the same worldwide and thus a finding of patentability in one jurisdiction provides no assurance that a patent office in a different jurisdiction will find the same or even narrower claims are patentable. In
addition, the laws of some foreign countries do not protect intellectual property to the same extent as federal and state laws in the United States. Moreover, our patent strategy relies upon claims to protect methods of treatment, including methods
of treatment that involve a combination therapy. Many foreign jurisdictions do not consider such method of treatment claims to be patent eligible subject matter and/or will only consider as patent eligible claims drawn to use of a
composition in treatment. The scope and enforceability of such use claims is largely untested, and thus as associated with a high level of uncertainty as to the relative commercial value of such claims in preventing our competitors from
infringing our foreign patent rights.
Because patents are of national or regional effect, we may not be able to prevent third parties from practicing our
inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions, and further, we may not be able to prevent third parties from exporting
otherwise infringing products to territories where we have patents, but where enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be
effective or sufficient to prevent them from competing.
Additionally, certain countries in Europe and developing countries, including China and India,
have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to
grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be
inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
To date, we have not sought to enforce
any issued patents in these foreign jurisdictions. However, many companies have encountered significant problems in protecting and defending intellectual property in foreign jurisdictions. The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products and treatment methods, which could make it difficult for us to stop the
infringement of our patents or marketing of competing products in such countries in violation of our proprietary rights generally.
Proceedings to enforce
and/or defend our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, put our patents at risk of being invalidated or
interpreted narrowly, put our patent applications at risk of not issuing, and provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be
commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
We may not be successful in obtaining or maintaining necessary rights to product components and processes for our development pipeline through
acquisitions and
in-licenses.
Because our programs may include multiple product candidates, one or more of
such product candidates may require the use of proprietary rights held by third parties. Consequently, the growth of our business will likely depend in part on our ability to acquire,
in-license
or use such
proprietary rights. The licensing and acquisition of third-party intellectual property rights is a competitive area
44
and companies (some of which may be more established or have greater resources than we do) may also be pursuing strategies to license or acquire third-party intellectual property rights that we
may consider necessary or attractive in order to commercialize our product candidates. Thus, there can be no assurance that we will be able to successfully complete negotiations and ultimately acquire the rights to the intellectual property that we
may seek to acquire in the future. Even if we are able to obtain a license, it may be
non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. In that event, we may be
required to expend significant time and resources to develop or license alternative technology. Alternatively, or in addition to obtaining an exclusive or
non-exclusive
license to one or more third party
patents, we may choose to expend resources to initiate litigation or administrative proceedings to invalidate such patent(s) and/or render such patent(s) unenforceable. Such proceedings will require significant financial and personnel resources
which may result in the delay in the development of our product candidates.
Obtaining and maintaining our patent protection depends on compliance
with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance
with these
requirements.
The USPTO and foreign governmental patent offices require compliance with a number of procedural, documentary, fee payment and other
similar provisions during the patent application process in order to maintain the pendency of a patent application or the
enforceability of issued
patents. Examples of events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to
properly legalize and submit formal documents. Additionally, even after issuance of a patent, periodic maintenance fees or annuities are required by the USPTO and foreign patent agencies at multiple times during the life of the patent to maintain
the patent in force, and many foreign patent agencies require payment of annuities while a patent application is still pending. Failure to timely pay such
maintenance fees or annuities can result the lapse or abandonment of patent rights. In many cases, the patent or patent application can
be reinstated by the payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in
which noncompliance can result in irrevocable abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights
in the relevant jurisdiction. Certain of the foregoing requirements which can affect pendency or
enforceability of patents and patent applications are
outside of our direct control such as non-U.S. patents and patent applications
owned by us for which we must rely on third parties to take the requisite
actions or for those patents and patent applications licensed
to us by another entity for which we do not control prosecution. The loss of rights
associated with our failure to comply with these procedural requirements may enable our competitors to enter the market, which would have a material adverse effect on our business.
We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an
inventor or
co-inventor.
The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views
regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in
developing our product candidates or as a result of questions regarding
co-ownership
of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or
ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims,
litigation could result in substantial costs and be a distraction to management and other employees.
Third parties may initiate legal proceedings
alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates and use our proprietary technologies without
infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by an extensive history of litigation regarding patents and other intellectual property rights. In
addition to litigation in the US and abroad, there is common recourse to administrative proceedings to challenge patents, including interference, post-grant review, inter-parties review and reexamination proceedings before the USPTO, as well as
oppositions and comparable proceedings in foreign jurisdictions.
A patent does not grant the right to practice the scope of the claims by the patentee,
but merely grants the right to exclude others from practicing the claimed invention. Therefore, there is no assurance that we have the right to practice within the scope of the claims of our own existing patents or patents that may issue based on
our applications. We have not analyzed all patents or patent applications
45
of our competitors of which we are aware to determine whether our current or planned development activities fall within the pending or issued claims of the patent applications or patents of our
competitors. to assess whether we are free to operate. Even where we have analyzed, or in the future will analyze, patents or patent applications of our competitors and conclude that we the development and commercialization of our product candidates
does not fall within the scope of the pending or issued claims of such patents or patent or patent applications, our competitors may achieve issued claims that a court may interprets so as to subject us to infringement liability. Any of these
outcomes could impair our ability to commercialize our product candidates and/or prevent competition from third parties, which may have an adverse impact on our business.
There may be third-party patents, of which we are currently unaware or have not sufficiently analyzed with claims to materials, formulations, methods of
manufacture or methods for treatment related to the manufacture, use or sale of our product candidates. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are
developing our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.
Furthermore, because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents in one or more jurisdictions that our product candidates may be alleged to infringe.
In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents.
While our product
candidates are in preclinical studies and clinical trials, we believe that their use in these preclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which
exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA. If and when our products are approved by the FDA, the exemption under 35 USC 271(e) is no longer applicable and a
third party may then seek to enforce its patents by filing a patent infringement lawsuit against us or our licensee(s). Consequently, the lack of currently pending or threatened patent litigation should not be construed as an indication that third
parties view commercialization of our technology that is currently in clinical development as
non-infringing
of their patent rights.
We are testing our product candidates in combination with other product candidates or products that may be covered by patents held by other companies or
institutions. Combinations currently under clinical evaluation may result in label claims requiring the use of compositions covered by patents owned by third parties. In the event that a labeling instruction is required in product packaging
recommending that combination, we could be accused of, or held liable for, direct, contributory or induced infringement of the third-party patents covering the product candidate or product recommended for administration with our product candidates.
Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. Thus, we may in the
future become party to, or threatened with, litigation or other adversarial proceedings initiated by third parties regarding intellectual property rights with respect to, for example, our product candidates, preclinical and/or clinical programs,
product candidate formulations, product candidate manufacturing, constructs or molecules used in or formed during the manufacturing process, methods of use, including combination therapies, or patient selection methods or any final product or
technology.
We cannot provide any assurances that our activities relating to current candidate products, or any future product candidates that we may
develop, do not or will not infringe existing or future third-party patents. The result of such litigation and/or other adversarial proceedings is highly unpredictable and may result in the loss or significant diminution of the scope of our patent
rights relating to our product candidates potentially enabling third parties to compete with our products. Additionally, our participation in these proceedings can be prolonged and very expensive requiring us to divert assets from our discovery and
development efforts which may adversely affect our development timelines.
Intellectual property litigation, as well as defense of patent rights in any
legal proceeding in the US or abroad, is extremely expensive. Defense of infringement claims, and defense against third party assertions attacking patent rights, regardless of merit, would involve substantial expense and would be a substantial
diversion of employee resources from our business. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates.
We may also be required to indemnify parties with whom we have contractual relationships against such claims. As a result, we could be forced to stop or delay
research, development, manufacturing and/or sales of the product candidate that is the subject of the suit.
As a result of patent infringement claims, or
in order to avoid potential claims, we could be required to obtain, or choose to seek, a license from a third party in order to continue developing, manufacturing, and/or marketing our product candidates and technology, and would most likely be
required to pay license fees or royalties or both, that could be significant. If third parties are successful against us in litigation, such could cause us to pay substantial monetary damages, including treble damages and attorneys fees if we
46
are found to be willfully infringing a third partys patents. In addition to monetary damages, a third party asserting a claim of infringement against us may be able to obtain preliminary,
temporary or permanent injunctive relief to block our ability to develop and/or commercialize the product candidate unless we obtained a license under the applicable patent(s), or until such patents expire or are held invalid or unenforceable.
Consequently, in the event we were held to infringe a patent of third party, there is no assurance that a license would be available on commercially reasonable terms or at all. Even if we were to obtain a license, the license may require significant
up-front
payments as well as ongoing payments and royalties based on sales of our products which may materially affect our revenue. Moreover, the license obtained could be
non-exclusive,
thereby giving our competitors and other third parties access to the same technologies licensed to us. As a general rule, a patentee is not under any obligation to grant a license to its patent
rights, whether or not the patentee is practicing the patented technology. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, we may be required redesign our infringing products, which
may be impossible or require substantial time and monetary expenditure. Therefore, in the event that our product candidate(s) are found to infringe patent rights of a third party our ability to commercialize our product candidates may be prevented,
impaired or delayed, which could in turn significantly harm our business.
Ultimately, a finding of infringement, or even a threat of infringement suit,
could prevent us from commercializing our product candidates, force us to redesign our product candidates to avoid infringement, or force us to cease some or much of our business operations, which could materially harm our business. Even if we are
successful in defending against such claims, such litigation is expensive and time consuming and would divert managements attention from our core business. Any of these events could harm our business significantly. Claims that we have
misappropriated the confidential information or trade secrets of third parties could have a similar substantial negative impact on our business.
In
addition to or alternative to infringement claims against us, third parties may initiate interference, derivation, reexamination, post-grant review, ex partes review, inter partes review proceedings in the USPTO requiring our participation to defend
our rights. We may also become involved in opposition proceedings in the European Patent Office or other patent offices in foreign jurisdictions regarding our intellectual property. The results of such proceedings can result in revocation, either in
whole or in part, of the claims of the patent or result in significant restrictive amendments to the claims of such patents such that the surviving amended claims no longer cover our product candidates. In either the US or abroad, even if we are
successful in defending our patent rights, such proceedings are expensive and time consuming and would divert managements attention from our core business.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time consuming
and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. Notably, our and our licensors patent applications
cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims cover the technology. Patents are not
self-effectuating and too counter infringement or unauthorized use, we may be required or choose to pursue litigation against one or more third parties. Whether initiated by a third party against us, or initiated by us against a third party, and
even if resolved favorably to us, litigation or other legal proceedings relating to intellectual property may cause us to incur significant expenses, as well as distract our technical and management personnel from their normal responsibilities. Such
litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other
resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and
developed intellectual property portfolios.
In addition, defendants in such infringement suits could counterclaim that the patent we seek to enforce, and
which may also cover our product candidate, is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a
third party can assert invalidity or unenforceability of a patent. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, indefiniteness, written
description,
non-enablement,
or obviousness-type double patenting.
With respect to validity of our patents, we
cannot be certain that there is no prior art that was not of record in the prosecution of our patent applications that is material to the patentability of the claims or that prior art that was cited during prosecution will not be reconsidered.
Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Thus, in the course of such
litigation a court may decide that one or more of our patents is not valid or is unenforceable. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or
interpreted narrowly and
47
could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial expense and would be a substantial diversion of employee
resources from our business. The outcome following legal assertions of invalidity and unenforceability is unpredictable. If a party were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps
all, of the patents directed to our product candidates. Such a loss of patent rights could have a material adverse impact on our business.
In addition,
in an infringement proceeding, a court may refuse to stop the other party from making, using and/or selling the technology at issue in the infringement suit on the grounds that the claims of the asserted patent(s) do not cover the third partys
activities that are the basis of the lawsuit. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because substantial discovery can be required in
connection with intellectual property litigation, there is a risk that confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other
interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
Interference or derivation proceedings brought by us against a third party, provoked by third parties, or declared by the USPTO may be necessary to determine
the priority of inventions with respect to our patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be
harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our
management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license
necessary technology from third parties or enter into development partnerships that would help us bring our product candidates to market.
Additionally,
under the Merck Agreement, we have the first right, but not the obligation, to bring a suit to enforce the patent rights covering the compound or its manufacture or use that we license from Merck and patent rights we jointly own with Merck, against
any infringer of such rights. Pursuant to the terms of the Merck Agreement, Merck is required to reasonably cooperate, and to join any suit brought by us, if necessary. Should we choose to bring suit against any third party infringer, we will be
responsible for all fees and expenses for such action, which, like other litigation and legal proceeding, may result in significant expenses to us. If Merck chooses to join the suit, they will bear
one-half
of
the fees and expenses. We will need Mercks written consent in order to enter into any settlement, if such settlement would cause Merck to incur any financial liability or require Merck to admit liability, wrongdoing or fault. Such additional
steps that require Mercks cooperation may increase the time and expenses associated with such proceedings. If, within a specified period of receiving notice of infringement, we fail to obtain a discontinuance of infringement of a licensed
patent right or a jointly owned patent right, or if we fail to bring suit against any infringer, Merck will have the right to bring a suit to enforce such patent rights, and we will similarly be required to cooperate and, if necessary, join the
suit. If we choose to join a suit brought by Merck, we will bear
one-half
of the fees and expenses. Merck will also need our written consent in order to enter into any settlement if such settlement would cause
us to incur any financial liability or require us to admit liability, wrongdoing or fault. Litigation or other legal proceedings we, or Merck, may bring in connection with protecting such licensed patents or our jointly owned patents may cause us to
incur significant expenses, beyond that which we may incur in connection with protecting our own patent rights, as we may face additional challenges in enforcing rights to patents that we do not directly own and may incur additional expenses in
connection with working with Merck or joining Merck to a suit, if necessary. In the event we are unsuccessful in a suit to protect such licensed patent rights or jointly owned patent rights and Merck brings a suit to protect such rights, we will be
required to cooperate but will not have control over the suit or proceeding and may face challenges in managing such process and protecting our best interests.
We rely on trade secret and proprietary know how which can be difficult to trace and enforce, and if we are unable to protect the confidentiality of our
trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product
candidates, we also rely on trade secrets, including unpatented
know-how,
technology and other proprietary information, to maintain our competitive position. Elements of our candidate products, including
processes for their preparation and manufacture, involve proprietary
know-how,
information, or technology that is not covered by patents, and thus for these aspects we consider trade secrets and
know-how
to be our primary intellectual property. Any disclosure to, either intentional or unintentional, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or
proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market. Trade secrets and
know-how
can be difficult to
protect. In particular, we anticipate that with respect to this technology platform, these trade secrets and
know-how
will over time be disseminated within the industry through independent development, the
publication of journal articles describing the methodology, and the movement of personnel skilled in the art from academic to industry scientific positions.
48
We rely on written agreements to protect proprietary
know-how
that may or
may not be patentable. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We further seek to
protect our trade secrets, proprietary
know-how,
and information in part, by entering into
non-disclosure
and confidentiality agreements with parties who are given
access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. Typically, we enter into confidentiality and invention or
patent assignment agreements with our consultants, contractors, and outside scientific collaborators. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we
may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some
courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to
prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.
Furthermore, we cannot ensure that competitors will not gain access to our trade secrets or independently develop substantially equivalent information and
techniques. We cannot ensure that technology which we choose to protect as a trade secret may not be independently developed by third parties who may file for and potentially obtain patent rights covering such technology giving them the potential to
assert any such patent rights against us. Additionally, the laws of some foreign countries do not provide protection for trade secrets or proprietary rights to the same extent or in the same manner as the laws of the United States potentially
generating significant problems in protecting and defending our intellectual property both in the United States and abroad. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential
information, particularly in countries where the laws may not protect those rights as fully as in the United States.
We may be subject to claims
that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We have
received confidential and proprietary information from third parties. In addition, we employ individuals who have been previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees 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 cost and be a distraction to our management and employees.
Patent terms may be inadequate to protect our competitive position on our product candidates and preclinical programs for an adequate amount of time.
Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20
years from its earliest U.S.
non-provisional
filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our product
candidates and preclinical programs are obtained, once the patent life has expired, we may be open to competition from competitive products, including biosimilars. Given the amount of time required for the development, testing and regulatory review
of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others
from commercializing products similar or identical to ours.
If we do not obtain protection under the Hatch-Waxman Amendments and similar foreign
legislation for extending the term of patents covering each of our product candidates, our business may be materially harmed.
Depending upon the
timing, duration and conditions of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred
to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA
regulatory review process. However, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents, or otherwise fail to satisfy applicable requirements. Moreover, the length of
the extension could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is less than we request, the period during which we can enforce our patent rights for that product will be shortened and
our competitors may obtain approval to market competing products sooner. As a result, our revenue from applicable products could be reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in
development and trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
49
Risks Related to the Ownership of Our Common Stock
Our stock price has been subject to fluctuations and will likely continue to be subject to fluctuations and decline, due to factors beyond our control
and you may lose all or part of your investment.
The market price of our common stock is subject to wide fluctuations in response to various
factors, some of which are beyond our control. Since shares of our common stock were sold in our initial public offering in January 2018 at a price of $17.00 per share, the reported high and low sales prices of our common stock has ranged from
$57.19 to $27.00 through March 15, 2018. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
|
|
|
overall performance of the equity markets;
|
|
|
|
our operating performance and the performance of other similar companies;
|
|
|
|
results of clinical trials of AM0010 and any other future product candidates or those of our competitors;
|
|
|
|
changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;
|
|
|
|
regulatory or legal developments in the United States and other countries;
|
|
|
|
the level of expenses related to AM0010 and any other future product candidates or clinical development programs;
|
|
|
|
announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;
|
|
|
|
recruitment or departure of key personnel;
|
|
|
|
the economy as a whole and market conditions in our industry;
|
|
|
|
trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;
|
|
|
|
the expiration of market standoff or contractual
lock-up
agreements;
|
|
|
|
the size of our market float.
|
In addition, the stock markets have experienced extreme price and volume
fluctuations that have affected and continue to affect the market prices of equity securities of many immuno-oncology companies. Stock prices of many immuno-oncology companies have fluctuated in a manner unrelated or disproportionate to the
operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial
costs, divert resources and the attention of management from our business and adversely affect our business.
Substantial amounts of our outstanding
shares may be sold into the market when
lock-up
or market standoff periods end. If there are substantial sales of shares of our common stock, the price of our common stock could decline.
The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and
significant stockholders, or if there is a large number of shares of our common stock available for sale. After our initial public offering in January 2018, we had approximately 30,405,109 outstanding shares of common stock. A significant majority
of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and
lock-up
agreements. These shares will become available to be sold 181 days after
the date of our initial public offering, which occurred in January 2018. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (the
Securities Act), and various vesting agreements.
The market price of the shares of our common stock could decline as a result of the sale of a
substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.
50
Our operating results may fluctuate significantly, which makes our future operating results difficult to
predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate
significantly in the future, which makes it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict,
including the following:
|
|
|
the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our
competitors or partners;
|
|
|
|
our ability to successfully recruit patients for preclinical studies and clinical trials, and any delays caused by difficulties in such recruitment efforts;
|
|
|
|
our ability to obtain regulatory approval for our product candidates, and the timing and scope of any such approvals we may receive;
|
|
|
|
the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time;
|
|
|
|
the cost of manufacturing our product candidates, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;
|
|
|
|
our ability to attract, hire and retain qualified personnel;
|
|
|
|
expenditures that we will or may incur to develop additional product candidates;
|
|
|
|
the level of demand for our product candidates should they receive approval, which may vary significantly;
|
|
|
|
the risk/benefit profile, cost and reimbursement policies with respect to our product candidates, if approved, and existing and potential future drugs that compete with our product candidates;
|
|
|
|
the changing and volatile U.S., European and global economic environments; and
|
|
|
|
future accounting pronouncements or changes in our accounting policies.
|
The cumulative effects of these
factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a
period-to-period
basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial
analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the
expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.
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, and we intend
to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:
|
|
|
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced Managements Discussion and Analysis
of Financial Condition and Results of Operations disclosure;
|
|
|
|
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
|
|
|
|
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing
additional information about the audit and the financial statements;
|
|
|
|
reduced disclosure obligations regarding executive compensation; and
|
|
|
|
not being required to hold a
non-binding
advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.
|
51
We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we
are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in
which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by
non-affiliates
exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in
non-convertible
debt
during the prior three-year period.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely
financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.
The Sarbanes-Oxley Act
requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ending December 31, 2020, we must perform system and process design
evaluation and testing of the effectiveness of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form
10-K
filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and
finance functions and that we expend significant management efforts. We have never been required to test our internal controls within a specified period and, as a result, we may experience difficulty in meeting these reporting requirements in a
timely manner.
We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material
misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control systems objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud will be detected.
If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act
in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could
decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.
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 few securities analysts commence coverage of us, or if industry analysts cease coverage of
us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely
decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion
of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any
future gains on their investment.
The concentration of our stock ownership will likely limit your ability to influence corporate matters, including
the ability to influence the outcome of director elections and other matters requiring stockholder approval.
As of March 15, 2018, our
executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 58.1% of our common stock. As a result, these stockholders, acting together, will have significant
influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration
of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
52
Delaware law and provisions in our amended and restated certificate of incorporation and amended and
restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Our status
as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a
period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated
bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
|
|
|
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
|
|
|
|
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be
used to significantly dilute the ownership of a hostile acquirer;
|
|
|
|
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from
being able to fill vacancies on our board of directors;
|
|
|
|
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
|
|
|
|
the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the
ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
|
|
|
|
the requirement for the affirmative vote of holders of at least 66
2
/
3
% of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions
|
of our amended and
restated certificate of incorporation or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; and
|
|
|
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders meeting, which may discourage or deter a
potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of us.
|
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large
stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original
certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.
These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult
for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company.
The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for
substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any
derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws
or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
53