ITEM 1A. RISK FACTORS
You should carefully consider the following risks and uncertainties. If any of the following occurs, our business, financial condition and/or operating results could be materially harmed. These factors could cause the trading price of our common stock to decline, and you could lose all or part of your investment.
Risks related to our business and industry
We rely on third parties to manufacture and analytically test our drug. If these third parties do not successfully manufacture and test our drug, our business will be harmed.
We have limited experience in manufacturing products for clinical or commercial purposes. We intend to continue, in whole or in part, to use third parties to manufacture and analytically test our drug, Auryxia, for commercial distribution and use in clinical trials. We may not be able to enter into future contract agreements with these third-parties on terms acceptable to us, if at all.
Our ability to conduct clinical trials, manufacture and commercialize our drug will depend on the ability of such third parties to manufacture our drug on a large scale at a competitive cost and in accordance with the current good manufacturing practice, or cGMPs, and other regulatory requirements, including requirements from federal, state and local regulatory agencies and foreign regulatory requirements, if applicable. Significant scale-up of manufacturing may result in unanticipated technical challenges and will require validation studies that are subject to inspection by the U.S. Food and Drug Administration, or FDA. Scale-up and technology transfer activities can be complex, and insufficient process knowledge can result in a poorly scaled up process with inadequate process control. A lack of process control can lead to increased deviations during the manufacturing process, out of specification test results, batch rejection and the possible distribution of drug products that do not conform to predetermined specifications. In addition, a variety of factors can affect a contract manufacturer’s qualifications to produce acceptable product, including deficiencies in the contractor’s quality unit, lack of training, a shortage of qualified personnel, capacity constraints and changes in the contractor’s commercial or quality related priorities. Any of these difficulties, if they occur, and are not overcome to the satisfaction of the FDA or other regulatory agency, could lead to an interruption in the supply of our drug to the market, particularly given that some of the third parties we employ in the manufacturing process are single source providers. As a result of the large quantity of materials required for Auryxia production and the large quantities of Auryxia that is required for our commercial success, the commercial viability of Auryxia will also depend on adequate supply of starting materials that meet quality, quantity and cost standards and the ability of our contract manufacturers to continually produce the active pharmaceutical ingredient, or API, and finished drug product on a commercial scale. Failure to achieve and maintain these levels of supply can jeopardize and prevent the successful commercialization of the product. Moreover, issues that may arise in our scale-up and technology transfer of Auryxia and continued commercial scale manufacture of Auryxia may lead to significant delays in our development and commercial timelines and negatively impact our financial performance. For example, a production-related issue resulted in an interruption in the supply of Auryxia in the third and fourth quarters of 2016. This supply interruption negatively impacted our revenues in 2016. Although we have resolved this supply interruption and taken steps designed to prevent future interruptions in the supply of Auryxia, any additional supply interruptions would negatively and materially impact our reputation and financial condition.
We currently have multiple suppliers of Auryxia’s API and one supplier with two approved sites for the supply of Auryxia drug product. We are currently working with our drug product supplier to have a third site approved. If any of our suppliers were to limit or terminate production, or otherwise fail to meet the quality or delivery requirements needed to supply Auryxia at adequate levels, we could experience losses of revenue, which could materially and adversely impact our results of operations.
Our third-party manufacturers may not perform as required under the terms of our supply agreement or quality agreement with them, or may not remain in the contract manufacturing business for the time required by us to successfully manufacture and distribute our drug. In addition, our contract manufacturers will be subject to ongoing periodic and unannounced inspections by the FDA and corresponding foreign regulatory agencies to ensure strict compliance with cGMPs, as well as other governmental regulations and corresponding foreign standards. While we periodically audit our contractors for adherence to regulatory requirements, and are ultimately held responsible for their regulatory compliance, we cannot assure you that unforeseen changes at these contractors will not occur that could change their regulatory standing. The same issues apply to contract analytical services which we use for quality, impurity and release testing of our drug. We are required by law to establish adequate oversight and control over raw materials, components and finished products furnished by our third-party manufacturers, which we establish by contract, supplier qualification and periodic audits, but unforeseen circumstances could affect our third-party manufacturers’ compliance with applicable regulations and standards. As we continue to scale up production, we continue to develop analytical tools for Auryxia drug substance and drug product testing. Failure to develop effective analytical tools could result in regulatory or technical delay or could jeopardize our ability to obtain and maintain FDA approval. Moreover, even with effective analytical methods available, there is no assurance that we will be able to analyze all the raw materials and qualify all impurities to the satisfaction of the FDA, possibly requiring additional analytical studies, analytical method development, or preclinical or post-approval studies, which could significantly delay our ability to receive regulatory approvals, and effect our ability to maintain any regulatory approvals, for our drug. Additionally, changes in the analytical specifications required by the FDA or other standard setting bodies, such as United States Pharmacopeial Convention, from time to time, could delay our ability to receive regulatory approvals, and affect our ability to maintain regulatory approvals, for our drug or our commercial efforts.
In addition, switching or engaging multiple third-party contractors to produce our drug substance or drug product may be difficult and time consuming because the number of potential manufacturers may be limited and the process by which multiple manufacturers make the drug substance or drug product must meet established specifications at each manufacturing facility. It may be difficult and time consuming for us to find and engage replacement or multiple manufacturers quickly and on terms acceptable to us, if at all. For Auryxia, the loss of any of our drug substance or drug product manufacturers would result in significant additional costs and delays in our development program and, as demonstrated by our 2016 interruption in the supply of Auryxia, negatively impact our sales of Auryxia.
If we do not establish or maintain manufacturing, drug development and marketing arrangements with third parties, we may be unable to commercialize our products.
We do not possess all of the capabilities to fully commercialize our product on our own. From time to time, we may need to contract with additional third parties, or renew or revise contracts with existing third parties, to:
|
|
|
|
•
|
assist us in developing, testing and obtaining and maintaining regulatory approval for and commercializing our compound and technologies; and
|
|
|
|
|
•
|
market and distribute our drug.
|
We can provide no assurance that we will be able to successfully enter into agreements with such third parties on terms that are acceptable to us, if at all. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our product independently, which could result in significant delays or negatively impact our financial condition. Furthermore, such failure could result in the termination of license rights to our product. If these manufacturing, development or marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of our product. We cannot predict the form or scope that any such collaboration might take, and we may pursue other strategic alternatives if terms or proposed collaborations are not attractive. To the extent that we rely on third parties to research, develop or commercialize our product, we are unable to control whether such product will be scientifically or commercially successful. Additionally, if these third parties fail to perform their obligations under our agreements with them or fail to perform their work in a satisfactory manner, in spite of our efforts to monitor and ensure the quality of such work, we may face decreased sales and/or delays in achieving the business or regulatory milestones required for additional commercialization of our current drug and any future drug candidate. For additional risks associated with our ability to partner the commercialization of Fexeric in Europe, see the risks described under “Approval of Fexeric (ferric citrate coordination complex) in the European Union does not ensure successful commercialization and reimbursement.” below.
We have a limited operating history as a commercial-stage company and have incurred substantial operating losses since our inception. We expect to continue to incur losses in the future and may never become profitable.
We have a limited operating history as a commercial-stage company. You should consider our prospects in light of the risks and difficulties frequently encountered by early commercial-stage companies. In addition, we have incurred substantial operating losses since our inception and expect to continue to incur operating losses for the foreseeable future and may never become profitable. As of
June 30, 2018
, we had an accumulated deficit of $1.0 billion. As we continue our research and development and commercial efforts, we may incur increasing losses. We may continue to incur substantial operating losses even after we begin to generate meaningful revenues from our drug. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain any additional regulatory approvals that we may seek for our drug, successfully complete any post-approval regulatory obligations and successfully manufacture and commercialize our drug.
We are highly dependent on the commercial success of Auryxia in the United States for the foreseeable future and as a result we may be unable to attain profitability and positive cash flow from operations.
In September 2014, the FDA approved Auryxia for the control of serum phosphorus levels in patients with chronic kidney disease, or CKD, on dialysis and in November 2017, the FDA approved Auryxia for the treatment of iron deficiency anemia in adults with CKD, not on dialysis. The commercial success of Auryxia in the United States will depend on a number of factors, including:
|
|
|
|
•
|
the effectiveness of Auryxia as a treatment for adult patients with CKD on dialysis and for iron deficiency anemia in adults with CKD, not on dialysis;
|
|
|
|
|
•
|
the adoption of Auryxia by physicians, which depends on whether physicians view it as a safe and effective treatment for their patients;
|
|
|
|
|
•
|
our ability to successfully launch and then effectively continue to commercialize Auryxia in the newly approved indication of iron deficiency anemia in adults with CKD, not on dialysis;
|
|
|
|
|
•
|
the effectiveness of the sales, managed markets and marketing efforts by us and our competitors;
|
|
|
|
|
•
|
our ability to continue to supply Auryxia to the market without interruption;
|
|
|
|
|
•
|
our ability to identify reliable suppliers and successfully manufacture Auryxia;
|
|
|
|
|
•
|
our ability to continue to grow Auryxia product sales following the resupply of Auryxia to the market following the 2016 interruption in its supply;
|
|
|
|
|
•
|
the size of the treatable patient population;
|
|
|
|
|
•
|
our ability to both secure and maintain adequate reimbursement for, and optimize patient access to Auryxia by providing third-party payers with a strong value proposition and the benefits of Auryxia to patients;
|
|
|
|
|
•
|
our mix of business between private commercial payers and government-sponsored plans;
|
|
|
|
|
•
|
the occurrence of any side effects, adverse reactions or misuse, or any unfavorable publicity in these areas, associated with Auryxia;
|
|
|
|
|
•
|
our ability to obtain and maintain strong intellectual property protection for Auryxia; and
|
|
|
|
|
•
|
the development or commercialization of competing products, including generic versions of our drug.
|
Our revenues from the commercialization of Auryxia are subject to these and other factors, including those set forth under “Risks related to our intellectual property and third-party contracts” below, and therefore may be unpredictable from quarter-to-quarter and year-to-year. Ultimately, we may never generate sufficient revenues from Auryxia to reach or maintain profitability or sustain our anticipated levels of operations.
We have limited experience as a company in sales and marketing, and with respect to pricing and obtaining adequate third-party reimbursement and as a result we may be unable to effectively market our product and retain market access.
We currently have limited experience as a company in sales and marketing and with respect to pricing and obtaining adequate third-party reimbursement for drugs. In order to market Auryxia, including in the newly approved indication of iron deficiency anemia in adults with CKD, not on dialysis, we intend to continue to invest in our sales and marketing, which will require substantial effort and significant management and financial resources. We will need to devote significant effort, in particular, to recruiting individuals with experience in the sales and marketing of pharmaceutical products. Competition for personnel with these skills is intense and may be particularly difficult for us as no oral drug has previously been specifically marketed for the treatment of iron deficiency anemia in patients with CKD, not on dialysis.
Approval of Fexeric (ferric citrate coordination complex) in the European Union does not ensure successful commercialization and reimbursement.
On September 23, 2015, the European Commission, or EC, approved Fexeric (ferric citrate coordination complex) for the control of elevated serum phosphorus levels, or hyperphosphatemia, in adult patients with CKD, including pre-dialysis and dialysis patients. The EC also considered ferric citrate coordination complex as a New Active Substance, or NAS, which provides 10 years of data and marketing exclusivity in the European Union, or EU.
We are not currently marketing Fexeric in the EU and do not intend to commercialize Fexeric in the EU on our own. We have not been successful in finding a suitable commercialization partner for Fexeric in the EU to date. We cannot assure you that we will be able to find a suitable commercialization partner in the EU or otherwise create value from our European rights. If we do not begin to market Fexeric in the EU by September 23, 2018, we believe the EC will likely revoke its approval of Fexeric.
The commercial success of Fexeric is subject to the same types of risks we face with commercializing Auryxia in the United States. In addition, in European countries, pricing and payment of prescription pharmaceuticals is subject to more extensive governmental control than in the United States. Pricing negotiations with European governmental authorities can take six to 12 months or longer after the receipt of regulatory approval and product launch. If reimbursement for Fexeric is unavailable in any country in which reimbursement is sought, limited in scope or amount, or if pricing is set at or reduced to unsatisfactory levels, our ability or any potential partner’s ability to successfully commercialize Fexeric in such a country would be impacted negatively. Furthermore, if these measures prevent us or any potential partner from selling Fexeric on a profitable basis in a particular country, they could prevent the commercial launch or continued sale of Fexeric in that country.
Our potential revenues from the commercialization of Fexeric in the EU are subject to these and other factors, including those set forth under “Risks related to our intellectual property and third-party contracts” below, and therefore we may never commercialize Fexeric in the EU or reach or maintain profitability with respect Fexeric in the EU.
Auryxia may cause undesirable side effects or have other properties that could limit its commercial potential.
The most commonly reported adverse reactions in the clinical trials that supported the approval of Auryxia for CKD on dialysis in the United States included diarrhea (21%), discolored feces (19%), nausea (11%), constipation (8%), vomiting (7%), and cough (6%). Gastrointestinal adverse reactions were the most common reason for discontinuing Auryxia (14%) in clinical trials for that indication. The most commonly reported adverse reactions in the clinical trials that supported the approval of Auryxia in the United States for iron deficiency anemia in adults with CKD, not on dialysis included discolored feces (22%), diarrhea (21%), constipation (18%), nausea (10%), abdominal pain (5%) and hyperkalemia (5%). Diarrhea was the most common reason for discontinuing Auryxia (2.6%) in clinical trials for the iron deficiency anemia in adults with CKD, not on dialysis indication. If we or others identify previously unknown side effects, if known side effects are more frequent or severe than in the past, if we or others detect unexpected safety signals for Auryxia or any products perceived to be similar to Auryxia, or if any of the foregoing are perceived to have occurred, then:
|
|
|
|
•
|
sales of Auryxia may be impaired;
|
|
|
|
|
•
|
regulatory approvals for Auryxia may be restricted or withdrawn;
|
|
|
|
|
•
|
we may decide to, or be required to, send drug warnings or safety alerts to physicians, pharmacists and hospitals (or FDA or other government agency may choose to issue such alerts), or we may decide to conduct a product recall or be requested to do so by FDA or other government agency;
|
|
|
|
|
•
|
reformulation of the product, additional nonclinical or clinical studies, changes in labeling or changes to or re-approvals of manufacturing facilities may be required;
|
|
|
|
|
•
|
we may be precluded from pursuing additional development opportunities to enhance the clinical profile of Auryxia within its indicated populations, as well as be precluded from studying Auryxia in additional indications and populations or in new formulations; and
|
|
|
|
|
•
|
government investigations or lawsuits, including class action suits, may be brought against us.
|
Any of the above occurrences would harm or prevent sales of Auryxia, likely increase our expenses and impair our ability to successfully commercialize Auryxia.
Furthermore, as we explore development opportunities to enhance the clinical profile of Auryxia, any clinical trials conducted, if successful, may expand the patient populations treated with Auryxia within or outside of its current indications or patient populations, which could result in the identification of previously unknown side effects, increased frequency or severity of known side effects, or detection of unexpected safety signals. In addition, as Auryxia is commercialized, it will be used in wider populations and in less rigorously controlled environments than in clinical studies. As a result, regulatory authorities, healthcare practitioners, third-party payers or patients may perceive or conclude that the use of Auryxia is associated with serious adverse effects, undermining our commercialization efforts.
We will incur significant liability if it is determined that we are promoting any “off-label” use of Auryxia.
Physicians are permitted to prescribe drug products for uses that are not described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. Such “off-label” uses are common across medical specialties. Although the FDA and other regulatory agencies do not regulate a physician’s choice of treatments, the FDA and other regulatory agencies do restrict communications on the subject of off-label use. Companies are not permitted to promote drugs for off-label uses or promote drugs using marketing claims that are not otherwise consistent with the FDA-approved labeling, including comparative or superiority claims that are not consistent with the FDA-approved labeling or supported by substantial evidence. Accordingly, we may not promote Auryxia in the United States for use in any indications other than for the control of serum phosphorus levels in patients with CKD on dialysis and for the treatment of iron deficiency anemia in adults with CKD, not on dialysis, and all promotional claims must be consistent with the FDA-approved labeling for Auryxia. The FDA and other regulatory and enforcement authorities actively enforce laws and regulations prohibiting promotion of off-label uses and the promotion of products for which marketing approval has not been obtained as well as the false advertising or misleading promotion of drugs. A company that is found to have improperly promoted off-label uses or to have otherwise engaged in false or misleading promotion of drugs will be subject to significant liability, including civil and administrative remedies as well as criminal sanctions.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, and non-promotional scientific exchange concerning their products in certain circumstances. We intend to engage in medical education activities and communicate with healthcare providers in compliance with all applicable laws, regulatory guidance and industry best practices. Although we believe we have put in place a robust compliance program designed to ensure that all such activities are performed in a legal and compliant manner, Auryxia is our first commercial product, so our implementation of our compliance program in connection with commercialization activities is still relatively new.
The status of reimbursement from third-party payers for newly approved health care drugs is uncertain and failure to obtain adequate reimbursement could limit our ability to generate revenue.
Our ability to commercialize pharmaceutical products may depend, in part, on the extent to which reimbursement for the products will be available from:
|
|
|
|
•
|
government and health administration authorities;
|
|
|
|
|
•
|
private health insurers;
|
|
|
|
|
•
|
managed care programs; and
|
|
|
|
|
•
|
other third-party payers.
|
Significant uncertainty exists as to the coverage and reimbursement status of newly approved health care products, as well as the timing of coverage and reimbursement decisions by third-party payers. Third-party payers, including Medicare and Medicaid, are challenging the prices charged for medical products and services. Government and other third-party payers increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA
has not granted labeling approval. In 2003, Congress passed the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which for the first time established prescription drug coverage for Medicare beneficiaries, under Medicare Part D. Under this program, beneficiaries purchase insurance coverage from private insurance companies to cover the cost of their prescription drugs. Likewise, current and future legislative or regulatory efforts to control or reduce healthcare costs or reform government healthcare programs, such as the Patient Protection Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act of 2010, could result in lower prices or rejection of coverage and reimbursement for our drug. In addition, third-party insurance coverage may not be available to patients for our product. If government and other third-party payers do not provide adequate coverage and reimbursement levels for our product, Auryxia’s market acceptance may be significantly reduced. In addition, the mix of our business that is reimbursed by different payers can negatively impact our net U.S. Auryxia product sales on a year-to-year and quarter-to-quarter basis with a larger mix of government payers generally increasing our adjustments to gross Auryxia sales in the particular period resulting in lower net U.S. Auryxia product sales.
If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
As a manufacturer of pharmaceuticals, even though we do not (and do not expect in the future to) control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. We are subject to healthcare fraud and abuse and patient privacy regulation by both the federal government and the states in which we conduct our business. These regulations include:
|
|
|
|
•
|
federal healthcare program anti-kickback laws, which prohibit, among other things, persons from soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
|
|
|
|
|
•
|
federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, and which may apply to entities like us which provide coding and billing advice to customers;
|
|
|
|
|
•
|
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which prohibits executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
|
|
|
|
|
•
|
the Federal Food, Drug, and Cosmetic Act, or FDCA, which among other things, strictly regulates drug product marketing, prohibits manufacturers from marketing drug products for off-label use and regulates the distribution of drug samples;
|
|
|
|
|
•
|
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts;
|
|
|
|
|
•
|
the federal Foreign Corrupt Practices Act which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity; and
|
|
|
|
|
•
|
the federal Physician Payments Sunshine Act, which was passed as part of the PPACA, and similar state laws in certain states, that require pharmaceutical and medical device companies to monitor and report certain payments and transfers of value made to physicians and teaching hospitals.
|
If our operations are found to be in violation of any of the laws described above or any other laws, rules or regulations that apply to us, we will be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results.
We have assembled an experienced compliance team and implemented a compliance program based on industry best practices designed to ensure our commercialization of Auryxia complies with all applicable laws, regulations and industry standards. We also hire, manage and incentivize our employees around a culture of compliance, trust, respect and ownership. Because our compliance program is relatively new and the requirements in this area are constantly evolving, we cannot be certain that our compliance program will eliminate all areas of potential exposure. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business, as well as damage our business or reputation. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, fraud and reporting laws may prove costly.
If our competitors develop and market products that are less expensive, have a reduced pill burden, are or are promoted as more effective or safer than our drug product, or our drug product does not achieve market acceptance vis-à-vis existing treatments, our commercial opportunities may be reduced or eliminated.
The pharmaceutical industry is highly competitive. Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In addition, companies that are active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing drugs than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop technologies and products that could render our drug product obsolete or noncompetitive. To compete successfully in this industry, we must identify novel and unique drugs or methods of treatment and then acquire and/or complete the development of those drugs as treatments in advance of our competitors.
Auryxia is competing in the United States with other FDA-approved phosphate binders such as Renagel (sevelamer hydrochloride) and Renvela (sevelamer carbonate), both marketed by Genzyme Corporation (a wholly-owned subsidiary of Sanofi), PhosLo (calcium acetate), marketed by Fresenius Medical Care, Fosrenol (lanthanum carbonate), marketed by Shire Pharmaceuticals Group plc, and Velphoro (sucroferric oxyhydroxide), marketed by Fresenius Medical Care North America, as well as over-the-counter calcium carbonate products such as TUMS and metal-based options such as aluminum and magnesium. Our strategy to compete against these existing treatments depends in part on physicians and patients accepting that Auryxia is differentiated in the marketplace versus these FDA-approved phosphate binders.
In addition, we may have to compete against existing treatments on price, which becomes more challenging as generic versions of these existing treatments come to market. Manufacturers of branded products face commercial challenges from generic pharmaceutical manufacturers. For example, there are several parties that have received approval of Abbreviated New Drug Applications, or ANDAs, for generic Renvela with the FDA and launched the generic form in the United States. A generic formulation of PhosLo was launched in the United States in October 2008, and there are now numerous, FDA-approved generic version of PhosLo on the market. In addition, the first generic formulation of Fosrenol was approved by FDA in August 2017. Generic competitors often operate without large research and development expenses, as well as without costs of conveying medical information about products to the medical community. The FDA approval process also exempts generics from costly and time-consuming clinical trials to demonstrate their safety and efficacy, allowing generic manufacturers, if any, to rely on the safety and efficacy data of the innovator branded product. As a result, the generic formulations of these brand name drugs could have a further material effect on the pricing of phosphate binders. Additionally, we expect interest in making a generic version of Auryxia. The date at which generic competition in the marketplace may commence can vary and may be different from the date that patent or regulatory exclusivity expires. However, upon the expiration or loss of patent protection for Auryxia, or upon an “at-risk” launch (despite pending patent infringement litigation against the generic product) by a generic manufacturer of a generic version of Auryxia, the resulting price competition may cause us to lose significant revenues for Auryxia in a very short period of time, which could adversely affect our business. In addition, generic competitors may challenge the patents covering Auryxia before their expiration. Auryxia is also competing in the United States with other FDA-approved treatments for iron deficiency anemia, such as Venofer
®
(iron sucrose) and Injactafer
®
(ferric carboxymaltose), both marketed by American Regent (a registered trademark of Luitpold Pharmaceuticals, Inc., a member of the Daiichi Sankyo Group), Feraheme
®
(ferumoxytol), marketed by AMAG Pharmaceuticals, Inc., Triferic
®
(ferric pyrophosphate citrate), marketed by Rockwell Medical, Inc., over-the-counter iron supplement products, as well as Erythropoiesis-stimulating agents,
or ESAs, including Procrit
®
(epoetin alfa), marketed by Janssen Products, LP (a wholly-owned subsidiary of Johnson & Johnson) and Aranesp
®
(darbepoetin alfa), marketed by Amgen Inc. and may have to compete with other treatments currently in development if they are approved, such as Feraccru
®
in development by Shield Therapeutics PLC.
Furthermore, our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer than our drug product. Other companies have drug candidates in various stages of pre-clinical or clinical development to treat diseases for which we are marketing our drug and also seeking to acquire and develop other drug products. Even if we are successful in developing effective drugs, our product(s) may not compete successfully with products produced by our competitors.
Recent changes in our executive management team, additional changes in our key personnel or our inability to attract and retain additional personnel, could be disruptive to our operations and harmful to our business.
As of
June 30, 2018
, we had 196 full and part-time employees. To successfully develop and commercialize our drug and any drug candidates we may in-license or acquire, we must be able to attract and retain highly skilled personnel. Our limited resources may hinder our efforts to attract and retain highly skilled personnel. In addition, if we lose the services of our current personnel our ability to continue to execute on our business plan could be materially impaired.
In addition, on April 27, 2018, Gregory P. Madison resigned as our President and Chief Executive Officer and as a member of our Board of Directors and we appointed Jodie Morrison, a member of our Board of Directors, as our Interim Chief Executive Officer while we perform a search for a permanent Chief Executive Officer. In connection with Ms. Morrison’s appointment as Interim Chief Executive Officer, fellow director Kevin Cameron replaced Ms. Morrison on the Audit Committee of our Board of Directors. These changes in our executive management team and to the membership on our Board of Directors and its committees, may be disruptive to, or cause uncertainty in, our business, and any additional changes to the executive management team or the Board of Directors could have a negative impact on our ability to manage and grow our business effectively. In addition, if we are not effective in succession planning, there may be a negative impact on our ability to successfully hire for key executive management roles, including the permanent Chief Executive Officer position, in a timely manner. Any such disruption or uncertainty or difficulty in efficiently and effectively filling key roles could have a material adverse impact on our results of operations and the price of our common stock.
Although we have employment agreements with Ms. Morrison and employment agreements and retention bonus award agreements with the other members of our executive management team, John F. Neylan, M.D., Scott Holmes and Christine Carberry, these agreements do not prevent them from terminating their employment with us.
Risks associated with our product development efforts
If we are unable to successfully complete our clinical trial programs, or if such clinical trials take longer to complete than we project, our ability to execute our current business strategy will be adversely affected.
Although we are not currently conducting registration trials for Auryxia, we continue to conduct clinical trials and post-marketing testing of Auryxia. We also may have to complete the development of any product candidate that we develop, in-license or acquire in the future. As a result, the continued marketing of Auryxia and the clinical development of any other product is subject to the risks associated with the pre-clinical and clinical development of pharmaceutical products. Failure to fulfill our obligations with respect to post-approval testing could result in the FDA levying penalties up to and including withdrawal of the drug from the market. For example, in connection with the approvals of Auryxia, we committed to the FDA to conduct certain post-approval pediatric studies of Auryxia under the Pediatric Research Equity Act. With regards to our indication for the treatment for hyperphosphatemia in adult patients on dialysis, we committed to completing the post-approval pediatric study and submitting a final report by December 31, 2019. We do not expect to complete this study and submit a final report by this date and we are in discussions with the FDA regarding an extension of the timeframe to complete the study and submit the final report. With regards to our indication for the treatment of iron deficiency anemia in chronic kidney disease patients, not on dialysis, we committed to completing the post-approval pediatric study and submitting a final report by January 31, 2023.
Whether or not and how quickly we complete our clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients, and the rate we collect, clean, lock and analyze the clinical trial database. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study, the existence of competitive clinical trials, and whether existing or new drugs are approved for the indication we are studying. We are aware that other companies are currently
conducting or planning clinical trials that seek to enroll patients with the same disease that we are studying. If we experience delays in identifying and contracting with sites and/or in-patient enrollment in our clinical trial programs, we may incur additional costs and delays in our development programs, and may not be able to complete our clinical trials in a cost-effective or timely manner or at all. In addition, conducting multi-national studies adds another level of complexity and risk. As a result, we may be subject to events affecting countries outside the United States.
Negative or inconclusive results from the clinical trials we conduct, or unanticipated adverse medical events could cause us to have to repeat or terminate the clinical trials. For example, in May 2012, we abandoned our development efforts and terminated our license for KRX-0401 (perifosine) following negative results from the Phase 3 trial for KRX-0401. We may also opt to change the delivery method, formulation or dosage which could affect efficacy results for the drug. Accordingly, we may not be able to complete our current or future clinical trials within an acceptable time frame, if at all.
Pre-clinical testing and clinical development are long, expensive and uncertain processes.
Pre-clinical testing and clinical development are long, expensive and uncertain processes. Satisfaction of regulatory requirements typically depends on the nature, complexity and novelty of the product. It requires the expenditure of substantial resources. Data obtained from pre-clinical and clinical tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. The FDA may pose additional questions or request further toxicological, drug-drug interaction, pre-clinical or clinical data or substantiation. Negative, inconclusive, or insufficient results or medical events during a pre-clinical or clinical trial could cause us to delay or terminate our development efforts. Furthermore, interim results of pre-clinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be obtained in later studies.
Drug candidates in the later stages of clinical development may fail to show the desired traits of safety and efficacy despite positive results in earlier clinical testing. The risk also remains that a clinical program conducted by one of our partners may raise efficacy or safety concerns that may prevent approval of the drug. In addition, qualitative, quantitative and statistical interpretation of any of the prior pre-clinical and clinical safety and efficacy data of our drug may be viewed as flawed by the FDA. In addition, there can be no assurance that safety and/or efficacy concerns from the prior data were not overlooked or misinterpreted by us or our consultants, which in subsequent, larger studies might appear and prevent approval of such drug candidate.
Clinical trials have a high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after achieving what appeared to be promising results in earlier trials. We experienced such a setback with our Phase 3 KRX-0401 (perifosine) trial results in April 2012, and we can provide no assurance that we will not experience such setbacks with ferric citrate or any other drug candidate we develop or acquire. If we experience delays in the testing or approval process for any drug we may commercialize or develop or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug may be materially impaired. In addition, we have limited experience in conducting and managing the clinical trials necessary to obtain and maintain regulatory approval. Accordingly, we may encounter unforeseen problems and delays in the approval process. Although we engage, from time to time, clinical research organizations, or CROs, with experience in conducting regulatory trials, errors in the conduct, monitoring, data capture and analysis, and/or auditing could potentially invalidate the results.
Because all of our proprietary technologies are licensed or sublicensed to us by third parties, termination of these license rights would prevent us from developing and further commercializing Auryxia.
We do not own our drug, Auryxia. We have licensed and sublicensed the rights, patent or otherwise, to Auryxia from a third-party, Panion & BF Biotech, Inc., or Panion, who in turn licenses certain rights to Auryxia from one of the inventors of Auryxia. The license agreement with Panion requires us to meet development milestones and imposes development and commercialization due diligence requirements on us. In addition, under the agreement, we must pay royalties based on a mid-single digit percentage of net sales of product resulting from the licensed technologies (including Auryxia) and pay the patent filing, prosecution and maintenance costs related to the license. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our license agreement (including upon certain insolvency events), Panion could terminate the agreement, and we would lose the rights to Auryxia. In addition, if Panion breaches its agreement with the inventor from whom it licenses rights to Auryxia, Panion could lose its license, which could impair or delay our ability to develop and commercialize Auryxia. From time to time, we may have disagreements with our licensors or collaborators, or they and/or we may have disagreements with the original inventors, regarding the terms of our agreements or ownership of proprietary rights, which could lead to delays in the research, development and commercialization of our current drug and any future drug candidate, could require or result in litigation or arbitration, which would be time-consuming and expensive, or could lead to
the termination of a license, or force us to negotiate a revised or new license agreement on terms less favorable than the original. In addition, in the event that the owners and/or licensors of the rights we license were to enter into bankruptcy or similar proceedings, we could potentially lose our rights to our drug or drug candidates or our rights could otherwise be adversely affected, which could prevent us from developing or commercializing our drugs. Finally, our rights to develop and commercialize Auryxia, whether ourselves or with third parties, are subject to and limited by the terms and conditions of our licenses to Auryxia and the licenses and sublicenses we grant to others.
Our reliance on third parties, such as CROs, may result in delays in completing, or a failure to complete, clinical trials if such CROs fail to perform under our agreements with them.
In the course of product development, we engage CROs and other vendors to conduct and manage clinical studies and to assist us in guiding our products through the FDA review and approval process and maintain any approvals we receive. If the CROs or applicable vendors fail to perform their obligations under our agreements with them or fail to perform clinical trials in a satisfactory or timely manner, we may face significant delays in completing our clinical trials, submitting our regulatory filings, or approval, and we may not maintain any regulatory approvals or effectively commercialize one or more drug candidates. Furthermore, any loss or delay in obtaining contracts with such entities may also delay the completion of our clinical trials and the market approval of drug candidate(s).
Other risks related to our business
Any acquisitions or other strategic transaction we undertake may require a significant amount of our available cash, may dilute our stockholders and may not be scientifically or commercially successful.
As part of our business strategy, we may affect acquisitions or other strategic transactions to obtain additional businesses, products, technologies, capabilities and personnel. If we make one or more significant acquisitions or other strategic transactions in which the consideration includes cash, we may be required to use a substantial portion of our available cash. In addition, if we issue our equity securities as consideration in any acquisition or other strategic transaction, the ownership interests of our stockholders will be diluted.
Acquisitions and other strategic transactions involve a number of operational risks, including:
|
|
|
|
•
|
difficulty and expense of assimilating the operations, technology and personnel of the acquired business;
|
|
|
|
|
•
|
our inability to retain the management, key personnel and other employees of the acquired business;
|
|
|
|
|
•
|
our inability to maintain the acquired company’s relationship with key third parties, such as alliance partners;
|
|
|
|
|
•
|
exposure to legal claims for activities of the acquired business prior to the acquisition;
|
|
|
|
|
•
|
the diversion of our management’s attention from our core business; and
|
|
|
|
|
•
|
the potential impairment of goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations.
|
If we do not successfully integrate any such additional businesses, products, technologies, capabilities or personnel into our business, our financial condition and operating results could be materially and negatively impacted.
Health care reform measures could adversely affect our business.
The business prospects and financial condition of pharmaceutical and biotechnology companies are affected by the efforts of governmental and third-party payers to contain or reduce the costs of health care. In the United States and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the health care system, such as proposals relating to the pricing of healthcare products and services in the United States or internationally, the importation of drugs into the United States from other countries (where they are then sold at a lower price), and the amount of reimbursement available from governmental agencies or other third-party payers. For example, drug manufacturers are required to have a national rebate agreement with the Department of Health and Human Services, or HHS, in order to obtain state Medicaid coverage, which requires manufacturers to pay a rebate on drugs dispensed to Medicaid patients. On January 27, 2012, the Centers for Medicare and Medicaid Services, or CMS, issued a proposed
regulation covering the calculation of Average Manufacturer Price, or AMP, which is the key variable in the calculation of these rebates.
Furthermore, in the United States, health care reform legislation titled the PPACA was signed into law in March 2010. The impact of this legislation on our business is inherently difficult to predict as many of the details regarding the implementation of this legislation have not been determined. In a decision issued on June 29, 2012, the United States Supreme Court upheld the majority of PPACA. The Court’s decision allows implementation of key provisions impacting drug and device manufacturers to go forward. This includes PPACA changes to the Medicare Part D Program (including closing the “donut hole”), Medicaid Drug Rebate Program (including the definition of AMP), and expansion of the 340B Drug Discount Program. The decision also allows the FDA and CMS to continue with implementation efforts, including related to the Biologics Price Competition and Innovation Act and the Physician Payments Sunshine Act, both of which were enacted as part of the PPACA. Regulations to implement PPACA could result in a decrease in our stock price or limit our ability to raise capital or to obtain strategic partnerships or licenses. Government-financed comparative efficacy research could also result in new practice guidelines, labeling or reimbursement policies that discourages use of our product.
For example, in July 2010, CMS released its final rule to implement a bundled prospective payment system for end-stage renal disease facilities as required by the Medicare Improvements for Patients and Providers Act, or MIPPA. The final rule delayed the inclusion of oral medications without intravenous equivalents, such as phosphate binders, in the bundle until January 1, 2014; however, on January 3, 2013, the United States Congress passed legislation known as the American Taxpayer Relief Act of 2012, which, among other things, delayed by two years the implementation of oral-only end-stage renal disease related drugs, including phosphate binders, in the bundled end stage renal disease, or ESRD, prospective payment system, until January 1, 2016. In April 2014, the United States Congress passed legislation known as Protecting Access to Medicare Act of 2014, which, among other things, delays by eight years the implementation of oral-only ESRD related drugs, including phosphate binders, in the bundled ESRD prospective payment system, until January 1, 2025. If phosphate binders are included in the bundle beginning in 2025, or earlier, separate Medicare reimbursement will no longer be available for phosphate binders, as it is today under Medicare Part D. While it is too early to project the impact bundling may have on the phosphate binder industry, the impact could potentially cause dramatic price reductions for phosphate binders, which could significantly reduce the commercial potential of Auryxia.
On September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to require post-marketing studies and post-marketing clinical trials related to serious risks, labeling changes based on new safety information, and compliance with risk evaluation and mitigation strategies approved by the FDA. The FDA’s exercise of this authority may result in delays or increased costs during the period of product development, clinical trials and regulatory review and approval, which may also increase costs related to complying with new post-approval regulatory requirements, and increase potential FDA restrictions on the sale or distribution of approved products. On July 9, 2012, the Food and Drug Administration Safety and Innovation Act was enacted to, among other things, renew the drug user fee program, expand the FDA’s inspection records access and require manufacturers to establish appropriate oversight and controls over their suppliers and the supply chain, including raw material suppliers and contract manufacturers, as a part of cGMP compliance. On November 27, 2013, the Drug Quality and Security Act, which includes the Drug Supply Chain Security Act, was signed into law to, among other things, build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United States. Requirements for the tracing of products through the pharmaceutical distribution supply chain took effect on January 1, 2015 for manufacturers and building and maintaining internal systems to ensure compliance with this law requires dedication of resources. In addition, this law requires engaging in transactions only with authorized trading partners and could limit our pool of available trading partners.
We face product liability risks and may not be able to obtain adequate insurance.
The use of our drug commercially and in clinical trials exposes us to liability claims. In addition, the use of any other drug candidate we develop or acquire in clinical trials, the future sale of any other approved drug and the use of new technology will also expose us to liability claims. Although we are not aware of any historical or anticipated product liability claims against us, if we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to cease clinical trials of our drug product or limit commercialization of any approved product.
We have insurance coverage for the commercial sale of Auryxia; however, insurance coverage is becoming increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost. We also may not be able to obtain additional insurance coverage that will be adequate to cover product liability risks that may arise. Regardless of merit or eventual outcome, product liability claims may result in:
|
|
|
|
•
|
decreased demand for a product;
|
|
|
|
|
•
|
injury to our reputation;
|
|
|
|
|
•
|
our inability to continue to develop a drug candidate;
|
|
|
|
|
•
|
withdrawal of clinical trial volunteers; and
|
Consequently, a product liability claim or product recall may result in losses that could be material to our business.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of Auryxia patients, clinical trial participants and employees. We also have outsourced elements of our information technology structure, and as a result, we are managing independent vendor relationships with third parties who may or could have access to our confidential information. Similarly, our business partners and other third-party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. We, our partners, vendors and other third-party providers could be susceptible to third-party attacks on our, and their, information security systems, which attacks are of ever increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups. Any such breach could compromise our, and their, networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation, any of which could adversely affect our business.
Risks related to our financial condition
Our existing capital resources may not be adequate to finance our operating cash requirements for the length of time that we have estimated.
We believe that our existing cash and cash equivalents will be sufficient to fund our current and planned operations into the first quarter of 2019. To fund our operations beyond that time, we will need to either complete the proposed merger with Akebia Therapeutics, Inc. announced on June 28, 2018, utilize the remaining available capacity, if any, under the asset-based revolving credit facility that we entered in July 2018, and/or raise additional capital through the issuance of common stock or other securities. The actual amount of cash that we will need to execute our current business objectives is subject to many factors, including, but not limited to, the timing and expenditures associated with commercial activities related to Auryxia, the timing and magnitude of cash received from product sales, the timing and expenditures associated with the build-up of inventory and capacity expansion, and the timing, design and conduct of any further clinical trials for ferric citrate. As a result of these factors, we will need to seek additional financing to provide the cash necessary to execute our current operations, including working capital needs. Our capital raising activities may include, but may not be limited to, one or more of the following: the issuance of common stock or other securities via private placement or public offerings, including the potential future sales of our common stock under our Controlled Equity Offering
SM
Sales Agreement, or Sales Agreement, with Cantor Fitzgerald & Co., or Cantor Fitzgerald; the issuance of debt, including the asset-based credit facility with SVB; or possible business combinations, such as the proposed merger with Akebia Therapeutics, Inc. In addition, although we secured an up to $40.0 million revolving loan facility from SVB in July 2018, the borrowing base we may utilize at any one time under this facility or any other asset-based credit facility, if successfully entered into, may be significantly lower than the total commitment under any such facility. Additionally, while we may seek capital through a number of means, there can be no assurance that additional financing will be available on acceptable terms, if at all, and our negotiating position in capital-raising efforts may worsen as existing resources are used. Additional equity financings may be dilutive to our stockholders; and debt financing, if available, may involve significant cash payment obligations and covenants that restrict our ability to operate as a business.
Our forecast of the period of time through which our existing capital resources will be adequate to support our current operations is a forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include, but are not limited to, the following:
|
|
|
|
•
|
our ability to successfully market Auryxia as a drug for adults with CKD on dialysis and for the treatment of iron deficiency anemia in adults with CKD, not on dialysis;
|
|
|
|
|
•
|
the timing and expenditures associated with commercial activities related to Auryxia and the timing and magnitude of cash received from product sales;
|
|
|
|
|
•
|
the timing and expenditures associated with the build-up of inventory and capacity expansion;
|
|
|
|
|
•
|
our ability to continue to supply Auryxia to the market without interruption;
|
|
|
|
|
•
|
our ability to continue to grow Auryxia product sales following the resupply of Auryxia to the market following the 2016 interruption in its supply;
|
|
|
|
|
•
|
the timing, design and conduct of, and results from, clinical trials that we may conduct;
|
|
|
|
|
•
|
the timing of expenses associated with manufacturing and product development of Auryxia and those proprietary drug candidates that may be in-licensed, partnered or acquired;
|
|
|
|
|
•
|
the timing of the in-licensing, partnering and acquisition of new product opportunities;
|
|
|
|
|
•
|
the timing and expenditures associated with commercial activities, if any. related to Fexeric in Europe and other expenses incurred in connection with our Fexeric marketing rights in Europe;
|
|
|
|
|
•
|
the progress of the development efforts of parties with whom we have entered, or may enter, into research and development agreements;
|
|
|
|
|
•
|
our ability to achieve our milestones under our licensing arrangement;
|
|
|
|
|
•
|
the timing and expenses associated with capital expenditures to expand our manufacturing capabilities;
|
|
|
|
|
•
|
the timing and expenses associated with building our own commercial infrastructure to manufacture, market and sell our drug and those that may be in-licensed, partnered or acquired; and
|
|
|
|
|
•
|
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights, defending against post-grant proceedings initiated by third parties attempting to limit or cancel our intellectual property rights in the United States and elsewhere, such as U.S. inter partes review proceedings and/or European oppositions, or defending against claims of infringement initiated by third parties in respect of their intellectual property rights.
|
If our cash is insufficient to meet our future operating requirements, we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us, or at all, we may be required to cease or reduce our operating activities or sell or license to third parties some or all of our intellectual property.
If we raise additional funds by selling additional shares of our capital stock, including pursuant to our Sales Agreement with Cantor Fitzgerald, the ownership interests of our stockholders will be diluted. If we need to raise additional funds through the sale or license of our intellectual property, we may be unable to do so on terms favorable to us, if at all.
Risks related to our intellectual property and third-party contracts
If we are unable to adequately protect our intellectual property, third parties may be able to use our intellectual property, which could adversely affect our ability to compete in the market.
Our commercial success will depend in part on our ability, and the ability of our licensors, to obtain and maintain patent protection on our drug product and technologies, and to successfully defend these patents against third-party challenges. We seek to protect our proprietary products and technology by filing patent applications in the United States and certain foreign jurisdictions. The process for obtaining patent protection is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications in a cost effective or timely manner. In addition, we may fail to identify patentable subject matter before it is too late to obtain patent protection. Further, license agreements with third parties may not
allow us to control the preparation, filing and prosecution of patent applications, or the maintenance or enforcement of patents. Such third parties may decide not to enforce such patents or enforce such patents without our involvement. Thus, these patent applications and patents may not under these circumstances be prosecuted or enforced in a manner consistent with the best interests of the company.
Our pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or potentially sell our product(s) or in countries where others develop, manufacture and potentially sell products using our technologies. Moreover, our pending patent applications, if issued as patents, may not provide additional protection for our product.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in pharmaceutical and biotechnology patents has emerged to date. Changes in the patent laws or the interpretation of the patent laws in the United States and other jurisdictions may diminish the value of our patents or narrow the scope of our patent protection. Accordingly, the patents we own or license may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative drug products or technologies or design around our patented drug product and technologies which may have an adverse effect on our business. If our competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may have to participate in interference or derivation proceedings in front of the U.S. Patent and Trademark Office, or USPTO, to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that any related patent may expire prior to, or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent. The patents we own or license may be challenged or invalidated or may fail to provide us with any competitive advantage. Since we have licensed or sublicensed many patents from third parties, we may not be able to enforce such licensed patents against third-party infringers without the cooperation of the patent owner and the licensor, which may not be forthcoming. In addition, we may not be successful or timely in obtaining any patents for which we submit applications.
Additionally, the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the United States. For example, claims in a patent application directed to methods of treatment of the human body are not patentable or are restricted in many non-U.S. countries. Further, we may not pursue or obtain patent protection in all major markets. In addition, in jurisdictions outside the United States where we own or license patent rights, we may be unable to prevent unlicensed parties from selling or importing products or technologies derived elsewhere using our proprietary technology.
Generally, the first to file a patent application is entitled to the patent if all other requirements of patentability are met. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Since publications of discoveries in the scientific literature often lag behind the actual discoveries, and 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, 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. Moreover, the laws enacted by the Leahy-Smith America Invents Act of 2011, or the Act, which reformed certain patent laws in the United States, introduce procedures that permit competitors to challenge our patents in the USPTO after grant, including inter partes review and post grant review. Similar laws exist outside of the United States. The laws of the European Patent Convention, for example, provide for post-grant opposition procedures that permit competitors to challenge, or oppose, our European patents administratively at the European Patent Office. We currently have two issued European patents involved in such post-grant opposition proceedings, European patent numbers 1 931 689 and 1 978 807. Patent number 1 931 689 was revoked by the European Patent Office. We filed an appeal of this decision, which is presently pending. According to European practice, the revocation of the patent is stayed until an appeal is finally resolved. We anticipate the appeal to take several years to resolve, during which time the patent will remain in force. Opposition proceedings relating to patent number 1 978 807 are presently ongoing.
We may become involved in addressing patentability objections based on third-party submission of references, or we may become involved in defending our patent rights in oppositions, derivation proceedings, reexamination, inter partes review, post grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse result in any such 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.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged on such a basis in the courts or patent offices in the United States and abroad. As a result of
such challenges, we may lose exclusivity or freedom-to-operate or patent claims may be narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to prevent third parties from using or commercializing similar or identical products, or limit the duration of the patent protection for our products.
In addition, patents protecting our product candidate might expire before or shortly after such candidate is commercialized. Thus, our patent portfolio may not provide sufficient rights to exclude others from commercializing products similar or identical to ours.
We also rely on trade secrets and know-how to protect our intellectual property where we believe patent protection is not appropriate or obtainable. Trade secrets are difficult to protect. While we require our employees, licensees, collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to our drug product and technologies with our research collaborators and scientific advisors. If we cannot maintain the confidentiality of this information, our ability to receive patent protection or protect our trade secrets or other proprietary information will be at risk.
The intellectual property that we own or have licensed relating to our drug, Auryxia, is limited, which could adversely affect our ability to compete in the market and adversely affect the value of Auryxia.
The patent rights that we own or have licensed relating to Auryxia are limited in ways that may affect our ability to exclude third parties from competing against us. For example, a third-party may design around our owned or licensed composition of matter patent claims or not market a product for methods of use covered by our owned or licensed patents.
Obtaining proof of direct infringement by a competitor for a method of use patent requires us to demonstrate that the competitors make and market a product for the patented use(s). Alternatively, we can prove that our competitors induce or contribute to others in engaging in direct infringement. Proving that a competitor contributes to, or induces, infringement of a patented method by another has additional proof requirements. For example, proving inducement of infringement requires proof of intent by the competitor. If we are required to defend ourselves against claims or to protect our own proprietary rights against others, it could result in substantial costs to us and the distraction of our management. An adverse ruling in any litigation or administrative proceeding could prevent us from marketing and selling Auryxia, increase the risk that a generic or other similar version of Auryxia could enter the market to compete with Auryxia, limit our development and commercialization of Auryxia, or otherwise harm our competitive position and result in additional significant costs. In addition, any successful claim of infringement asserted against us could subject us to monetary damages or injunction, which could prevent us from making or selling Auryxia. We also may be required to obtain licenses to use the relevant technology. Such licenses may not be available on commercially reasonable terms, if at all.
Moreover, physicians may prescribe a competitive identical product for indications other than the one for which the product has been approved, or “off-label” indications, that are covered by the applicable patents. Although such off-label prescriptions may directly infringe or contribute to or induce infringement of method of use patents, such infringement is difficult to prevent.
In addition, any limitations of our patent protection described above may adversely affect the value of our drug product and may inhibit our ability to obtain a corporate partner at terms acceptable to us, if at all.
In addition to patent protection, we may utilize, if granted by the FDA, pediatric exclusivity or other provisions of the FDCA such as new chemical entity, or NCE, exclusivity, or exclusivity for a new use or new formulation, to provide non-patent market exclusivity for a drug product. As of the date of this report, we have not received NCE status for Auryxia from the FDA.
In the United States, the FDA has the authority to grant additional regulatory exclusivity protection for approved drugs where the sponsor conducts specified testing in pediatric or adolescent populations. If granted, this pediatric exclusivity may provide an additional six months which are added to the term of any non-patent exclusivity that has been awarded as well as to the regulatory protection related to the term of a relevant patent, to the extent these protections have not already expired.
The FDCA provides a five-year period of non-patent exclusivity within the United States to the first applicant to gain approval of a new drug application, or NDA, for an NCE. A drug is an NCE if the FDA has not previously approved any other new drug containing the same active moiety, which consists of the molecule(s) or ion(s) responsible for the action of the drug substance, (but not including those portions of the molecule that cause it to be a salt or ester or which are not bound to the molecule by covalent or similar bonds). During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a
legal right of reference to all the data required for approval. However, an ANDA or 505(b)(2) NDA that references an NDA product with NCE exclusivity may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application (for example, for new indications, dosages, or strengths of an existing drug). This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. The three-year exclusivity period, unlike five-year exclusivity, does not prevent the submission of a competing ANDA or 505(b)(2) NDA. Instead, it only prevents FDA from granting final approval to such a product until expiration of the exclusivity period. Five-year and three-year exclusivity will not delay the submission (in the case of five-year exclusivity) or the approval (in the case of three-year exclusivity) of a full NDA submitted under section 505(b)(1) of the FDCA; however, an applicant submitting a full NDA would be required to conduct all of its own studies needed to independently support a finding of safety and effectiveness for the proposed product, or have a full right of reference to all studies not conducted by the applicant.
We cannot assure that Auryxia or any drug candidates we may acquire or in-license will obtain such pediatric exclusivity, NCE exclusivity or any other market exclusivity in the United States, EU or any other territory, or that we will be the first to receive the respective regulatory approval for such drugs so as to be eligible for any market exclusivity protection. We also cannot assure that Auryxia or any drug candidates we may acquire or in-license will obtain patent term extension.
Litigation or third-party claims could require us to spend substantial time and money defending such claims and adversely affect our ability to develop and commercialize our product.
We may be forced to initiate litigation to enforce our contractual and intellectual property rights, or we may be sued by third parties asserting claims based on contract, tort or intellectual property infringement. In addition, third parties may have or may obtain patents in the future and claim that Auryxia or any other technologies infringe their patents. If we are required to defend against suits brought by third parties, or if we sue third parties to protect our rights, we may be required to pay substantial litigation costs, and our management’s attention may be diverted from operating our business. In addition, any legal action against our licensor or us that seeks damages or an injunction of our commercial activities relating to Auryxia or other technologies could subject us to monetary liability, a temporary or permanent injunction preventing the development, marketing and sale of Auryxia or such technologies, and/or require our licensor or us to obtain a license to continue to use Auryxia or other technologies. We cannot predict whether our licensor or we would prevail in any of these types of actions or that any required license would be made available on commercially acceptable terms, if at all.
We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property or claiming ownership of what we regard as our own intellectual property.
A number of our employees were previously employed at universities, or pharmaceutical or biotechnology companies, some of which may be a competitor or potential competitor. We try to ensure that our employees do not use the proprietary information or know-how of third parties in their work for us. Nonetheless, we may be subject to claims that we, or these employees, have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee's former employer. As a result, litigation may be necessary to defend against these claims.
In addition, although we typically require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Such assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
In the event that we fail in prosecuting or defending any such claims, we may need to pay monetary damages as well as lose valuable intellectual property rights or personnel. However, regardless of the success in prosecuting or defending against such claims, such litigation may result in substantial costs and distract management.
Risks related to our common stock
The Baupost Group, L.L.C, or Baupost, our largest stockholder, may have significant influence over our company and may cause us to take actions that may not be, or refrain from taking actions that may be, in our best interest or the best interest of our other stockholders.
As of June 30, 2018, Baupost beneficially owns approximately 21% of our issued and outstanding common stock. If Baupost converts all of the $164.7 million of Convertible Senior Notes due 2021 issued in May 2018, or the New Notes, into shares of our common stock pursuant to their terms, not including the additional 4.0 million shares that may be issuable under the Notes Conversion Agreement we entered into with Baupost on June 28, 2018 in connection with the proposed merger with Akebia Therapeutics Inc., Baupost would beneficially own approximately 39% of our issued and outstanding common stock. Baupost, through its equity interests, may have significant influence over matters submitted to our stockholders for approval and other corporate actions, such as:
|
|
|
|
•
|
timing and manner in which we raise additional funds;
|
|
|
|
|
•
|
timing and manner of dividend distributions;
|
|
|
|
|
•
|
approval of contracts between us and Baupost or its respective affiliates, which could involve conflicts of interest;
|
|
|
|
|
•
|
open market purchase programs or other purchases of our common shares;
|
|
|
|
|
•
|
delay, defer or prevent a change in who controls us;
|
|
|
|
|
•
|
discourage bids for our shares at a premium over the market price; and
|
|
|
|
|
•
|
adversely affect the market price of our common shares.
|
Moreover, because large stockholders have potential power to direct or influence our corporate actions, we may be required to engage in transactions that may not be agreeable to our other stockholders or that may not be in the best interest of our other stockholders. In addition, Baupost has the right to appoint a director to our Board and also has the right to appoint an observer to our Board.
Future sales or other issuances of our common stock could depress the market for our common stock.
Sales of a substantial number of shares of our common stock, or the perception by the market that those sales could occur, could cause the market price of our common stock to decline or make it more difficult for us to raise funds through the sale of equity in the future.
In November 2016, we filed a registration statement on Form S-3 (No. 333-214513), which the Securities and Exchange Commission, or SEC, declared effective on December 6, 2016, which registered the issuance from time to time of up to $250 million of our securities. At that time, we also entered into the Sales Agreement with Cantor Fitzgerald, pursuant to which we were initially able to offer and sell, from time to time, through Cantor Fitzgerald, shares of our common stock having an aggregate offering price of up to $75.0 million. In July 2017, we filed a new prospectus supplement with the SEC relating to the Sales Agreement under which we may offer and sell, from time to time, through Cantor Fitzgerald, shares of our common stock having an additional aggregate offering price of up to $75.0 million. During the year ended December 31, 2017, we sold 11,937,174 shares under the Sales Agreement for aggregate net proceeds of $75.7 million, which included all of the initial $75.0 million shares issuable pursuant to the Sales Agreement. As of the date hereof, we may sell up to an additional $72.4 million under the Sales Agreement pursuant to the July 2017 prospectus supplement. The initial $75.0 million of common stock issued pursuant to the Sales Agreement and the additional $75.0 million of common stock issuable pursuant to the Sales Agreement are included as part of the $250 million registered on the registration statement referred to above.
In October 2015, we raised $125 million through the private placement of Convertible Senior Notes due 2020, or the Old Notes, with funds managed by Baupost. The Old Notes matured in October 2020 and were convertible into approximately 33,422,460 shares of our common stock in accordance with their terms. On May 9, 2018, we issued $164.7 million of New Notes to a fund managed by Baupost in exchange for the Old Notes and an additional $10 million in cash. The zero-coupon New Notes will mature in October 2021. We do not have the right to redeem the New Notes prior to maturity. The conversion price of the New Notes is equal to $4.63 per share, the closing price of our common stock on the day prior entering into the notes exchange agreement on May 8, 2018, subject to certain adjustments under the terms of the New Notes. As a result, the principal amount of the New Notes issued in connection with the exchange of the Old Notes initially converts into approximately the same number of shares (33.4 million) into which the Old Notes were convertible and the principal amount of the New Notes issued in connection with the additional $10 million investment initially converts into an additional approximately 2.2 million shares.
On January 21, 2015, we announced the pricing of an underwritten public offering in which we sold 10,541,667 shares of our common stock at a price of $12.00 per share for gross proceeds of approximately $126.5 million. Net proceeds from this
offering were approximately $118.3 million, net of underwriting discounts and offering expenses of approximately $8.2 million. The shares were sold under registration statements (Nos. 333-201605 and 333-201639) on Form S-3 and Form S-3MEF, respectively, filed by us with the SEC.
We will need to seek additional financings to provide cash necessary to execute our current operations, including, but not limited to, beyond commercializing Auryxia, and to develop and commercialize any drugs or drug candidates we may in-license or acquire. Future issuances of common stock could depress the market for our common stock.
If we make one or more significant acquisitions or otherwise enter into one or more other strategic transactions in which the consideration includes stock or other securities, our stockholders’ holdings may be significantly diluted. In addition, stockholders’ holdings may also be diluted if we enter into arrangements with third parties permitting us to issue shares of common stock in lieu of certain cash payments upon the achievement of milestones.
Our stock price can be volatile, which increases the risk of litigation, and may result in a significant decline in the value of your investment.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in price in response to various factors, many of which are beyond our control. These factors include:
|
|
|
|
•
|
actual or anticipated variations in quarterly or annual operating results, including, in particular with respect to net U.S. Auryxia product sales;
|
|
|
|
|
•
|
announcements of technological innovations by us or our competitors;
|
|
|
|
|
•
|
introductions or announcements of new products by us or our competitors;
|
|
|
|
|
•
|
announcements of significant acquisitions, strategic partnerships, joint ventures, capital commitments or other strategic transactions involving us or our competitors;
|
|
|
|
|
•
|
changes in financial estimates by securities analysts;
|
|
|
|
|
•
|
developments relating to the marketing, safety and efficacy of our drug product, and regulatory filing and approvals for us or our competitors;
|
|
|
|
|
•
|
expectations regarding our financial condition;
|
|
|
|
|
•
|
expiration or termination of licenses, research contracts or other collaboration agreements;
|
|
|
|
|
•
|
expectations or investor speculation regarding the strength of our intellectual property position, or the availability of other forms of regulatory exclusivity;
|
|
|
|
|
•
|
conditions or trends in the regulatory climate and the biotechnology and pharmaceutical industries;
|
|
|
|
|
•
|
changes in the market valuations of similar companies;
|
|
|
|
|
•
|
negative comments and sentiment in the media; and
|
|
|
|
|
•
|
additions or departures of key personnel.
|
In addition, equity markets in general, and the market for biotechnology and life sciences companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. These broad market and industry factors may materially affect the market price of our common stock, regardless of our development and operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. For example, following our August 1, 2016 announcement of the supply interruption of Auryxia, four purported class action lawsuits were filed against us and certain of our current and former executive officers alleging false and/or misleading statements concerning the company and its business operations and future prospects, and two stockholder derivative complaints were filed against certain of our current and former executive officers and members of our board of directors. These litigations and any other litigation instituted against us could cause us to incur substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business.
Certain anti-takeover provisions in our charter documents and Delaware law could make a third-party acquisition of us difficult. This could limit the price investors might be willing to pay in the future for our common stock.
Provisions in our amended and restated certificate of incorporation and bylaws could have the effect of making it more difficult for a third-party to acquire, or of discouraging a third-party from attempting to acquire, or control us. These factors could limit the price that certain investors might be willing to pay in the future for shares of our common stock. For example, our amended and restated bylaws have provisions specifying how and when stockholders may propose director nominations and other business to be brought before meetings of our stockholders and also provide that only certain parties may call a special meeting of stockholders, which could make it more difficult for stockholders to effect certain corporate actions. Any of these provisions could also have the effect of delaying or preventing a change in control.
Risks related to our strategic merger with Akebia Therapeutics, Inc.
In addition to the risks set forth above, our proposed strategic merger with Akebia Therapeutics, Inc, or Akebia, present the following additional risks to our business and operations.
Our merger with Akebia is subject to various closing conditions, including governmental approvals, and other uncertainties and there can be no assurances as to whether and when it may be completed.
On June 28, 2018, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Akebia and Alpha Therapeutics Merger Sub, Inc., or Merger Sub, pursuant to which the Merger Sub will merge with and into us, with our company surviving as a wholly-owned subsidiary of Akebia, or the merger. The consummation of the merger is subject to customary closing conditions and a number of the conditions are not within our control, and may prevent, delay or otherwise materially adversely affect the completion of the transaction. These conditions include, among other things, (i) the effectiveness of the registration statement on Form S-4 to be filed with the SEC with respect to the shares of common stock of Akebia to be issued pursuant to the merger; (ii) the approval of the Merger Agreement by our stockholders; (iii) the approval of the issuance of Akebia common stock in connection with the merger by Akebia's stockholders; (iv) the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Clearance; and (v) the absence of any law, regulation or order that has the effect of making the merger illegal or otherwise preventing the consummation of the merger. It is also possible that a change, event, fact, effect or circumstance could occur that could lead to a material adverse effect to us, which may give Akebia the ability to not complete the merger. We cannot predict with certainty whether and when any of the required closing conditions will be satisfied or if another uncertainty may arise.
If the merger does not receive, or timely receive, the required stockholder approvals, or HSR Clearance, or if another event occurs delaying or preventing the merger, such delay or failure to complete the merger may cause uncertainty or other negative consequences that may materially and adversely affect our sales, financial performance and operating results, and the price per share for our common stock and perceived acquisition value.
Additionally, if the merger is not completed for any reason, the market price of our common stock may decline. Furthermore, we will be required to pay certain costs relating to the merger, whether or not it is completed, such as significant fees and expenses relating to legal, accounting and printing services. In addition, we could be subject to litigation related to any failure to complete the merger. If it is not completed, these risks may materially and adversely affect our stock price, operating results and ongoing business.
Further, we and our directors and Akebia could become subject to lawsuits relating to the merger that may be filed. While we intend to defend against any such actions vigorously, the costs of the defense of such lawsuits and other effects of such litigation could have an adverse effect on our business, financial condition and operating results.
If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Akebia and these costs could require us to use available cash that would have otherwise been available for general corporate purposes.
If the Merger Agreement is terminated, in certain circumstances, we would be required to pay Akebia a termination fee of $22.0 million. If the Merger Agreement is terminated, the termination fee we may be required to pay, if any, under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes. In addition, the failure to complete the merger may negatively impact our ability to raise additional funds on acceptable terms, or at all. For these and other reasons, a failed merger could materially and adversely affect our business, operating results or financial condition, which in turn would materially and adversely affect our business or financial condition, the price per share of our common stock or our perceived acquisition value.
While the merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operations and the future of our business or result in a loss of employees.
The Merger Agreement includes restrictions on the conduct of our business prior to the completion of the merger, generally requiring us to conduct our business in the ordinary course, consistent with past practice, and subjecting us to a variety of specified limitations absent Akebia’s prior written consent. We may find that these and other contractual arrangements in the Merger Agreement may delay or prevent us from or limit our ability to respond effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management and board of directors think they may be advisable. The pendency of the merger may also divert management’s attention and our resources from ongoing business and operations. Our employees and partners may have uncertainties about the effects of the merger. Similarly, current and prospective employees may experience uncertainty about their future roles with us following completion of the merger, which may materially adversely affect our ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact our revenues, earnings and cash flows and other business results and financial condition, as well as the market price of our common stock and our perceived acquisition value, regardless of whether the merger is completed. In addition, whether or not the merger is completed, while it is pending we will continue to incur costs, fees, expenses and charges related to the proposed merger, which may materially and adversely affect our business results and financial condition.
