OVERVIEW
We are a diversified healthcare company with core businesses consisting of our Crinone® (progesterone gel) (“Crinone”) franchise and our fee-for-service pharmaceutical development and manufacturing business called Juniper Pharma Services (“JPS”). In addition, we are seeking to use our differentiated intravaginal ring (“IVR”) technology to advance a pipeline of product candidates intended to address unmet needs in women’s health, through either internal development or external partnering. We are actively exploring business development collaborations, including opportunities that could leverage our IVR technology and/or the pharmaceutical development capabilities of JPS.
In January 2018, we announced that we would be exploring strategic alternatives in order to enhance shareholder value. We engaged Rothschild Global Advisory Group as our independent financial advisor to assist us and our Board of Directors in evaluating potential strategic alternatives.
In September 2017, we announced a reduction of approximately 8% of our workforce, primarily in the areas of new product research and development, in order to focus our resources on our core businesses. In addition, as part of our more focused research and development strategy, we completed our
in vivo
preclinical studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018. At the completion of the
in vivo
preclinical studies and based on our preliminary assessment of the relative clinical data and development funding requirements of our three IVR product candidates, we plan to seek the support of one or more partners for our IVR product candidates to potentially include our entire IVR platform.
Our commercial product and product development programs utilize our proprietary drug delivery technologies, which we believe are suited to applications in women’s health. These technologies consist of our bioadhesive delivery system (“BDS”), a polymer designed to adhere to epithelial surfaces or mucosa and achieve sustained and controlled delivery of active drug product, and our novel IVR technology.
We currently receive product revenues from Crinone, an 8% progesterone bioadhesive vaginal gel designed for progesterone supplementation or replacement as part of an assisted reproductive technology (“ART”) treatment for infertile women with progesterone deficien
cy. We supply Crinone to Merck KGaA (“Merck KGaA”) internationally, and sold the rights to Crinone to Allergan, plc (“Allergan”) in the United States (the “U.S.”). In January 2018, we announced the extension of the supply agreement with Merck KGaA for an additional 4.5-years through at least December 31, 2024.
Through our subsidiary, JPS, we offer a range of sophisticated technical services to the pharmaceutical and biotechnology industry on a fee-for-services basis. Within our services offering, we provide our customers expertise on the characterization, development and manufacturing of small molecule compounds. Our services model allows us to take our customers’ drug candidates from early development through to clinical trials manufacturing. We also support our customers with advanced analytical and consulting services for intellectual property issues, and we have particular expertise in problem solving for challenging compounds that are considered “difficult to progress.”
Our strategy is to support the growth of Crinone in key markets and expand both the JPS technical and geographic reach, while at the same time advancing a pipeline of new product candidates through external partnering. We believe this strategy positions us well for capital-efficient growth. Internally-funded research and development expenditures were $6.9 million, $9.7 million and $7.0 million for the fiscal years ended December 31, 2017, 2016 and 2015, respectively.
Our commercial product and product development programs are described below:
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CRINONE
, an 8% progesterone bioadhesive vaginal gel for progesterone supplementation or replacement as part of an ART treatment for infertile women with progesterone deficiency, is approved for marketing in the United States, Europe, and many additional countries around the world. Crinone is the primary source of our commercial revenue. We have licensed Crinone to our commercial partner, Merck KGaA, for all markets outside the United States, and we received product
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revenues from the manufacture and sal
e of Crinone to Merck KGaA internationally. We sold the U.S. intellectual property rights to Crinone to Allergan in 2010, and received royalty revenues from Allergan based on its U.S. sales through October 2016.
In November 2016, we entered into an agreem
ent with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us.
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JNP-0101
is an IVR product candidate designed to deliver oxybutynin for the treatment of overactive bladder (“OAB”) in women. Oxybutynin is currently approved for the treatment of OAB, however, oral oxybutynin therapy is frequently discontinued by patients due to undesirable side effects including dry mouth, blurred vision, and constipation. We expect that the delivery of oxybutynin using our IVR technology will provide an improved side effect profile as the drug will bypass first pass hepatic metabolism issues. In the case of oxybutynin the drug is metabolized in the liver to an active metabolite resulting in increased central nervous system (“CNS”) side effects. In addition, we believe that delivery using our IVR technology will improve patient compliance and convenience versus other routes of administration, including oral therapies, patches, and gels. We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.
Pending the final results of these studies, we plan to seek a partner for our JNP-0101 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.
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JNP-0201
is a segmented IVR product candidate containing both natural progesterone and natural estradiol to be used for HRT in menopausal women. JNP-0201 has been designed to deliver natural hormones locally to vaginal tissue. This is another example where avoiding first pass, hepatic metabolism of estradiol may result in an improved side-effect profile. We also believe our delivery approach will provide an improvement in the beneficial effects of estradiol when compared to the currently approved combination HRT therapies; these include orally administered formulations utilizing synthetic progestogens, which have been associated in published clinical trials with higher risk of side effects including cardiovascular events. In addition, we believe that delivery using our IVR technology will improve patient compliance and convenience versus other routes of administration, including oral therapies and patches. We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.
Pending the final results of these studies, we may seek a partner for our JNP-0201 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.
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JNP-0301
is a natural progesterone IVR product candidate for the prevention of preterm birth (“PTB”) in women with a short cervical length. Short cervical length at mid-pregnancy is a critical predictor of preterm birth in women. Medical guidelines issued by the American College of Obstetricians and Gynecologists and the Society of Maternal Fetal Medicine, among others, support use of vaginal progesterone in women with a short cervical length at mid-pregnancy to reduce the risk of PTB. There is no FDA approved therapy to prevent PTB in women at risk due to short cervix. We believe JNP-0301 can enable the consistent local delivery of progesterone while facilitating patient compliance. We completed our preclinical animal studies and expect to finalize the results of these studies for our IVR programs, which consist of JNP-0101, JNP-0201 and JNP-0301 (the “IVR program”) in the first half of 2018.
Pending the final results of these studies, we plan to seek a partner for our JNP-0301 product candidate, on a stand-alone basis or in combination with one or more of our other IVR program candidates.
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In August 2016, we announced that the Phase 2b clinical trial evaluating COL-1077 (10% lidocaine bioadhesive vaginal gel) for the reduction of pain intensity in women undergoing an endometrial biopsy with tenaculum placement did not achieve its primary and secondary endpoints. The safety and pharmacokinetic (PK) profiles of COL-1077 were consistent with what has been observed in prior clinical trials of the lidocaine bioadhesive vaginal gel. Based on the outcome of this study we discontinued further development of COL-1077 and reallocated resources to our preclinical programs.
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OUR STRATEGY
Our strategy is to grow Crinone in key markets and expand both the JPS technical and geographic reach. Key elements of our strategy include:
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Supplying Crinone to our commercial partner, Merck KGaA, for sale in over 90 countries around the world;
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Growing revenue from our formulation, analytical and product development capabilities at JPS, and potentially deploying those same capabilities for the advancement of our in-house product candidates; and
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Finalizing the results of our
in vivo
preclinical animal studies for our IVR program in the first half of 2018 with the goal of seeking one or more partners for our IVR product candidates or IVR platform.
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OUR PROPRIETARY DRUG DELIVERY TECHNOLOGIES
We have two key proprietary drug delivery technologies:
Bioadhesive Delivery System
Our BDS is a unique drug delivery technology that facilitates binding to mucosal surfaces (buccal and vaginal areas) upon administration, and allows release of the active drug in a controlled and sustained manner until the BDS gel is discharged upon normal cell turnover. This occurs every three to five days for the vaginal epithelium, and up to every 24 hours for the oral mucosa. Our BDS is utilized in Crinone.
The key BDS ingredient is polycarbophil, which is a non-immunogenic, hypo-allergenic, bioadhesive polymer. Polycarbophil bonds to the cells of the body’s mucosal surfaces upon administration. This happens because polycarbophil mimics negatively charged mucin, the glycoprotein component of mucus that is responsible for its attachment to underlying epithelial surfaces.
Intravaginal Ring Technology
In March 2015, we obtained an exclusive worldwide license to the intellectual property rights for a novel segmented IVR technology. This IVR technology has the potential to deliver one or more drugs, including hormones and larger molecules such as peptides, at different dosages and release rates within a single segmented ring. Drugs such as progesterone and leuprolide have already been tested using the technology and demonstrated sustained release for up to three weeks.
We believe our proprietary multi-segment IVR may have advantages over currently available intravaginal rings for the reasons described below.
Homogenized, Membrane-Free-Design
Currently marketed intravaginal rings utilize a polymer membrane to control the delivery of a single drug to the patient from the ring. The two membrane ring types in use are reservoir-type and sandwich type. Reservoir rings utilize a drug-loaded core that is encapsulated by a polymer membrane. Sandwich-type rings utilize a drug-loaded layer between a core, typically silicone, and a polymer membrane. The inherent risk associated with membrane rings is “drug dumping” which occurs if the membrane ruptures or tears.
By contrast, our IVR has a solid homogenous cross-section with drug and specific excipients distributed within an ethylene vinyl acetate (“EVA”) polymer. The ring is manufactured using hot melt extrusion with no drug reservoirs or layers and active drug is released to the patient by diffusions through the polymer.
Molecular Weight Not Limited to Small Molecules
Reservoir and sandwich type rings are limited in the size of molecules, typically small molecules, they are able to deliver due to the use of a polymer membrane. By contrast, to date, no molecular weight limit has been
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identified for our IVR, and preclinical and clinical studies, including a study by Kimball et al, published in the
Journal of Controlled Release
in May 2016, have demonstrated its ability to deliver larger sized peptides and
lipophilic hormones
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This publication describes a Phase 1 clinical trial in which our IVR was used to administer leuprolide, a nine amino acid peptide. Serum leuprolide levels rose within eight hours to levels typically seen following parenteral injections. This was the first demonstration of trans-epithelial delivery of leuprolide across the vaginal mucosa, and provided proof-of-concept demonstrating that we could achieve therapeutic levels with our IVRs.
Segmentation Capability
To date, membrane rings have been limited to delivering a single drug at a single dosage range. Our IVR technology allows a ring to be designed to deliver one or more drugs in a single ring using specific drug segments, with each segment designed based on its own dose delivery criteria. Each segment is specifically designed and produced and the segmented ring is assembled using proprietary know-how, thus allowing generation of new intellectual property as each new combined drug-device is created.
We believe our IVR technology may provide the basis for developing products we could bring to market ourselves as well as products in which we expect there would be significant partnering interest.
In September 2017, we announced a strategic reprioritization to allow us to focus our resources on our core business of Crinone and JPS. In addition, as part of our more focused research and development strategy, we completed our
in vivo
preclinical animal studies for our IVR program, and based on the final results of these studies in the first half of 2018, we plan to seek the support of one or more partners for our IVR product candidates.
COMMERCIAL PRODUCT
CRINONE
Crinone is a progesterone gel designed for progesterone supplementation or replacement as part of ART for infertile women with progesterone deficiency. Crinone is approved for marketing in the United States, Europe, Asia, Japan and certain other markets, and the primary source of our commercial revenue. We have licensed Crinone to our commercial partner, Merck KGaA, for the markets outside the United States and we receive product revenues from the manufacture and sale of Crinone internationally. In 2010, we sold the U.S. intellectual property rights of Crinone to Allergan, and received royalty revenues from Allergan based on their U.S. sales through October 2016.
In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to make future royalty payments to us.
Crinone continues to be introduced in new countries by Merck KGaA. In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. Under the terms of our current license and supply agreement with Merck KGaA, we sell Crinone to Merck KGaA on a country-by-country basis at the greater of (i) direct manufacturing cost plus 20% or (ii) a percentage of Merck KGaA’s net selling price based on a tiered structure. Additionally, we are jointly cooperating with Merck KGaA to evaluate and implement clinical manufacturing cost reductions, with both parties sharing any benefits realized from these initiatives. In January 2018, we announced the extension of this supply agreement for an additional 4.5-years through at least December 31, 2024. This extension allows for a volume tiered, fixed price per unit with minimum annual volume guarantees, beginning on July 1, 2020.
If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of the Company’s assets related to the Crinone supply chain and to transfer the manufacturing to a third party or take over the management of the supply of the product. See “– Collaboration Agreements – Merck KGaA.”
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Kimball A
et al,
A novel approach to administration of peptides in women: Systemic absorption of a GnRH agonist via transvaginal ring delivery system.
J Control Release,
2016 Jul 10;233;19-28.
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PHARMACEUTICAL SERVICE BUSINESS
JPS, our pharmaceutical service business, offers a range of sophisticated technical services to the pharmaceutical and biotechnology industry. Our customers range from start-up biotechnology firms to global pharmaceutical companies.
Within our services offering, we provide expertise to our customers on the characterization, development, and manufacturing of pharmaceutical compounds for clinical trials. We believe we have particular expertise in problem solving for challenging compounds that are considered “difficult to progress.” Our service model allows us to take our customers’ product candidates from early development through clinical trial manufacturing. We also support our customers with advanced analytical and consulting services for intellectual property issues. We deploy these same capabilities for our in-house proprietary product development activities.
Through JPS, we also manage the global supply chain and contract manufacturing of Crinone, for our partner, Merck KGaA.
OUR PRECLINICAL PROGRAMS
In September 2017, we announced a strategic reprioritization to allow us to focus our resources on the core businesses of Crinone progesterone gel and JPS and, as part of our more focused research and development strategy, we completed our
in vivo
preclinical animal studies for our IVR program and based on the final results of these studies, we plan to seek the support of one or more partners for our IVR product candidates.
JNP-0101
Overactive Bladder
OAB is a widespread, chronic condition caused by involuntary contraction of the detrusor muscles before the bladder is full. OAB affects approximately 20 million women in the United States, with an estimated nine million receiving pharmacotherapy to treat the condition. In 2015, the U.S. OAB market was estimated to be $2.3 billion.
The most common prescription drug is generic oral oxybutynin. Oxybutynin addresses OAB by decreasing muscle spasms of the bladder and the frequent urge to urinate caused by these spasms. Unfortunately, more than 70% of women discontinue oxybutynin within the first year due to adverse events (45-55%) or perceived inadequate efficacy (~25%). According to Technavio Insights, 7 to 9 million women are eligible for OAB treatment and approximately 6.8 million patients failed oral oxybutynin. Current branded therapies range from $3,000-4,000 per year. We believe that a new therapy that demonstrates improved side effect profile could support pricing above the current generic products.
Our Solution – JNP-0101
JNP-0101, our novel oxybutynin IVR, has the potential to address the most pressing unserved clinical needs in the treatment of OAB. By delivering oxybutynin intravaginally, JNP-0101 leverages the region’s shared vascular and lymphatic networks to achieve localized absorption of oxybutynin by relevant tissues, while bypassing hepatic first pass metabolism. We anticipate an improvement in the side effect profile of oxybutynin using this delivery route, in addition to improved compliance afforded by a once monthly ring insertion. We believe JNP-0101 has the potential to increase convenience in many patients and improve disease management and overall outcomes.
Supporting Data
Initial proof-of-concept for JNP-0101 was provided by multiple peer reviewed publications on the safety and efficacy of a once-monthly oxybutynin vaginal ring. The ring evaluated in these studies was a reservoir-type ring constructed of molded silicone with a cylindrical cavity into which the oxybutynin or placebo material was loaded. By contrast, JNP-0101 is constructed of ethylene vinyl acetate with the oxybutynin homogenized throughout.
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In these studies, delivery of oxybutynin was found to offer women a once-monthly treatment option for OAB. However, the molded silicone oxybutynin IVR evaluated was not brought to market by the sponsor due to fac
tors that included its decision to exit women’s health.
JNP-0201
JNP-0201 is a segmented IVR containing both natural progesterone and estradiol for HRT in menopausal women. This delivery approach is expected to provide an improved side effect profile as natural hormones will be delivered locally to vaginal tissue where they are needed. In addition, delivery using our IVR technology is expected to improve patient compliance and convenience versus other routes of administration, including oral and transdermal approaches.
Hormone Replacement Therapy
In the United States, there is a large and growing market for HRT. In 2015, the U.S. HRT market was estimated at over $4 billion, comprising both pharmacy-compounded and FDA-approved therapies, of which prescription for oral hormone therapy accounted for $2 billion in U.S. sales on 21 million prescriptions.
While there are nearly 40 FDA-approved HRT products on the market, the HRT combination therapies fall short. Currently, HRT combination therapies only occupy approximately 30% of the U.S. HRT market. All FDA-approved HRT combination products contain synthetic progestin rather than natural progesterone; recent studies suggest natural progestogens are associated with fewer cardiovascular adverse events. In addition, all current combination HRT products are orally administered, which cause extensive first pass metabolism and require daily dosing.
In 2012, the North American Menopause Society (“NAMS”) issued a Consensus Statement which supports HRT in peri- and post-menopausal women. This statement endorsed use of HRT in women within 10 years of menopause, concluded that hormone treatment should be individualized based on each patient’s personal risk factors, and identified a growing body of evidence that HRT formulation, route of administration, and the timing of therapy produce different biologic effects. In 2017, the NAMS updated their 2012 statement and reaffirmed and
strengthened their position statement that estradiol- based HRT continues to be the most effective therapy to reduce symptoms of menopause and to prevent bone loss and fracture.
These position statements are endorsed by many important health organizations, including the Academy of Women’s Health, the American Association of Clinical Endocrinologists, the American Society for Reproductive Medicine, and the Association of Reproductive Health Professionals. This underscores the need for new and innovative treatment options such as an IVR administration, and reaffirms our commitment to furthering our IVR platform.
We expect that as a result of the 2017 NAMS Statement, the percentage of the approximately 45 million American women who are menopausal or approaching menopause who receive HRT will increase.
Our Solution – JNP-0201
We believe that JNP-0201, our combination estrogen and progesterone IVR product candidate, has the potential to offer patients multiple benefits as compared with currently available therapies, including: integrated administration of natural progesterone and natural estrogen; improved patient compliance; improved side effect profile; and continuous local vaginal delivery of natural hormones, while eliminating the need for daily administration.
JNP-0301
JNP-0301 is a natural progesterone IVR for the prevention of PTB in women with a short cervical length at mid-pregnancy. Short cervical length at mid-pregnancy is a critical predictor of PTB in women, and medical guidelines support use of vaginal progesterone for treatment of this condition. There is no FDA-approved
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erapy to prevent PTB in women at-risk due to short cervix. We believe JNP-0301 has the potential to enable the consistent local delivery of progesterone improving patient compliance.
Preterm Birth due to Short Cervical Length
PTB, defined as delivery before 37 weeks gestation, is a significant public health issue. Globally, 15 million babies are born prematurely each year, and approximately one million die due to PTB complications. In the United States, approximately 10% of live-births are delivered prematurely. In a typical pregnancy, the average cervical length at 24 weeks gestation is 35mm; short cervical length is generally considered 10 mm – 30 mm. A review of 39,000 cases of PTB found that short cervical length at mid-pregnancy was the most important single predictor of PTB
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. Over 30% of cases of PTB have short cervical length at mid-pregnancy. Approximately 400,000 women in the United States are estimated to be at risk for PTB due to short cervical length. The incidence of this condition is expected to rise as more physicians adopt the current medical guidelines to screen for short cervical length in all pregnant women.
Clinical data strongly support the use of vaginal progesterone for prevention of PTB. Furthermore, there is clear consensus that vaginal progesterone should be used for prevention of PTB in women with short cervical length at mid-pregnancy, including Medical Practice Guidelines from the Society for Maternal-Fetal Medicine, an American Congress of Obstetricians and Gynecologists (“ACOG”) Committee Opinion, and an Issue Brief from Medicaid Health Plans of America. Despite the medical need and cost savings associated with prevention of PTB, there are currently no products that are FDA approved to prolong gestation in this patient population.
Our Solution – JNP-0301
JNP-0301, our progesterone IVR, may offer meaningful benefits to pregnant women with short cervical length. By providing continuous, consistent, local delivery of natural progesterone, this product candidate may increase patient compliance as compared to current off-label progestogens, which require daily administration, thereby potentially improving overall outcomes.
MANUFACTURING AND COMMERCIALIZATION
Our business strategy includes pursuing collaborative arrangements with third parties to complete the development and commercialization of our product candidates, including our IVR program. Even if we were to internally develop our product candidates,
we plan to use a third-party contract manufacturer for the clinical supply and commercial manufacture of these product candidates.
Our ability to conduct later-stage clinical trials, manufacture and commercialize our product candidates may depend on the ability of third-party manufacturers to manufacture our product candidates on a large scale at a competitive cost and in accordance with current Good Manufacturing Practices (“cGMP”), and foreign regulatory requirements, if applicable.
Use of third-party manufacturers limits our control over and ability to monitor the manufacturing process. As a result, we may not be able to detect a variety of problems that may arise in the manufacturing process, and we may incur additional costs in the process of interfacing with and monitoring the progress of our contract manufacturers. If third-party manufacturers fail to meet our manufacturing needs in an acceptable manner, we would face delays and additional costs while we develop internal manufacturing capabilities or find alternate third-party manufacturers. It may not be possible to have multiple third-party manufacturers ready to supply us with needed material at all or without incurring significant costs.
SOURCES OF SUPPLY
The major raw materials we use in our products and product candidates are polycarbophil, progesterone and ethylene vinyl acetate (“EVA”).
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To, MS, et al (2006).
Ultrasound Obstet Gynecol,
27: 362-367. Koi: 10.1002/uog.2773
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Medical grade, cross-linked polycarbophil, the polymer used in our BDS-based product, Crinone, is currently available from only one supplier, Lubrizol, Inc. (“Lubrizol”). We believe that Lubrizol will supply as much of the material as we requi
re because our product ranks among the highest value-added uses of the polymer. In the event that Lubrizol cannot or will not supply enough polycarbophil to satisfy our needs, however, we will be required to seek alternative sources of supply.
Currently we only have one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.
Our IVR technology utilizes medical grade EVA polymer for which there are a limited number of vendors. We are not aware of any companies, other than our existing supplier, which manufacture EVA meeting the specifications required for use in our pharmaceutical IVR application. We have purchased cGMP pharmaceutical grade EVA from a single supplier for development applications but have not entered into a commercial supply agreement. Even if an acceptable commercial supply agreement can be negotiated with our existing supplier, it may not be possible to identify a back-up, or second source of EVA, should they be unable to supply material, for any reason.
As discussed in greater detail in Item 1A of this Annual Report, the loss of any of our current third-party suppliers of raw materials for our product and product candidates could impair our ability to manufacture and sell our products.
COMPETITION
We and our commercial partners compete against established pharmaceutical companies who market products and services addressing the same markets and patient needs. Further, numerous companies are developing, or may develop, enhanced delivery systems, products and services that compete with our present and proposed products and services. It is possible that we may not have the resources to withstand these and other competitive forces. Some of these competitors possess greater financial, research and technical resources than us or our partners. Moreover, these companies may possess greater marketing capabilities than we or our partners possess, including the resources to implement extensive advertising campaigns.
The pharmaceutical industry is subject to change as new delivery technologies are developed, new products enter the market, regulatory requirements change, generic versions of available drugs become available and treatment paradigms evolve to reflect these and other medical research discoveries. We face significant competition in all areas of our business. The rapid pace of change in the pharmaceutical industry continually creates new opportunities for competitors and start-ups and can quickly render existing products, technologies and services less valuable. Customer requirements and physician and patient preferences continually change as new treatment options emerge, are more or less heavily promoted, and become less expensive. As a result, we and our partners may not gain, and may lose, market share.
According to published reports, menopause, post-menopause, osteoporosis, breast cancer, and polycystic ovary syndrome (“PCOS”) are the most common issues affecting women’s health in the U.S. The US market for women’s health is expected to grow from nearly $19.5 billion in 2015 to over $25.3 billion by 2020. The women’s health therapeutics market is one of the most attractive markets in the global pharmaceutical industry. Hormone therapy, gynecological disorders and musculoskeletal disorders in women are the prime area of focus in the women’s health therapeutics market.
CRINONE
Crinone, a natural progesterone product, competes in markets with other progestins, both synthetic and natural, that may be delivered by pharmacy-compounded injections or vaginal suppositories, including Prometrium
®
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(oral micronized progesterone) marketed by Abbott Laboratories, and Endometrin
®
(progesterone vaginal insert) marketed by Ferring Ph
armaceuticals, Inc.
Juniper Pharma Services
There is a range of large and smaller scale competitors who compete with JPS, providing similar pharmaceutical development and consulting services. Some of these competitors have greater financial and human resources than we do and have established reputations, as well as worldwide distribution channels and sales and marketing capabilities, that are larger and more established than ours.
Additional competitors may also enter the market, and we are likely to compete with new companies in the future.
Competition among organizations providing pharmaceutical development and analytical services is characterized by technical expertise and reputation, breadth of technical services, budget considerations, and the ability to timely meet the customer’s requirements. Accordingly, our success depends in part on establishing, maintaining and expanding our client base, offering new innovative services and maintaining regulatory and quality compliance.
Potential customers also may decide not to purchase our services, or to delay such purchases, due to technical, clinical, regulatory or financial considerations beyond our control. In addition, we expect that competitive pressures may result in price competition, which could affect our profitability.
JNP-0101
JNP-0101 is our IVR designed to deliver oxybutynin to treat OAB in women.
Oxybutynin is currently approved for the treatment of OAB in oral and transdermal gel formulations. Oral oxybutynin chloride tablets are the most widely prescribed formulation of this antimuscarinic agent, the first of which was approved in 2006. Gelnique
®
(oxybutynin chloride 10% topical gel), marketed by Allergan, was approved by the FDA in 2009.
Additional antimuscarinics approved for the treatment of OAB include VESIcare
®
(solifenacin) marketed by Astellas Pharma Inc. (“Astellas”) and Detrol LA
®
(tolterodine), Toviaz
®
(fesoterodine), and Enablex
®
(darifenacin), all marketed by Pfizer. Additionally, the beta agonist Mybetriq
®
(mirabegron) was approved by the FDA in 2012 and is marketed by Astellas. Other treatments include Allergan’s Botox
®
(botulinum toxin type A) which was approved for OAB in 2013.
There are currently ongoing clinical trials for several prospective OAB therapeutics, including Premarin
®
vaginal cream and the Axonics Sacral Neuromodulation System, which received marketing approval in Canada and the CE Mark. Additionally, there is a combination of already approved oral therapies being developed by Astellas.
JNP-0201
JNP-0201 is our combination estrogen and progesterone IVR candidate designed to be used for HRT in menopausal women.
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Since 2013, there has been increased oversight by the FDA on all non-FDA approved combination therapies, supplied by compounding pharmacies and commonly
referred to as “bioidentical” drugs. These non-approved drugs are difficult to measure and monitor by the FDA, leading to concerns over safe use. JNP-0201, if approved, will offer an alternative combination therapy. The largest competitors in the FDA-appro
ved market are Pfizer with Premarin (conjugated estrogens) and Prempro (conjugated estrogens/medroxyprogesterone acetate tablets) Mylan, with Barr (generic estradiol) and Noven (minivelle), with sales of Prempro leading combination therapeutics used for HR
T in menopausal women. It was approved by the FDA in 1995 for use in women with an intact uterus for the treatment of moderate to severe vasomotor symptoms and/or vulvar and vaginal atrophy due to menopause, and for the prevention of postmenopausal osteopo
rosis.
None of the current FDA-approved therapies for the treatment of moderate to severe VMS due to menopause are bioidentical to the estradiol and progesterone the ovaries produce. U.S. sales of non-FDA approved compounded hormone therapy products are very fragmented as these drugs are typically prepared and sold by individual compounding pharmacies. Despite this, the US sales of non-FDA approved compounded combination estradiol and progesterone products is estimated to be over $1.5 billion per year based on various reports.
If approved, JNP-0201 would compete directly with other combination products of estradiol and progesterone that are bioidentical to the natural estradiol and progesterone produced in the ovaries. An oral combination estradiol and progesterone drug candidate for the treatment of moderate to severe vasomotor symptoms (“VMS”) due to menopause, TX-001HR by TherapeuticsMD, has completed Phase 3 clinical trials and proven statistical significance in the reduction of vasomotor symptoms of menopause. TherapeuticsMD is also working on additional products for post-menopausal indications in various forms of delivery. WC-3011 by Allergan, a vaginal cream estradiol acetate formulation, has completed multiple Phase 3 clinical trials for the treatment of VVA and dyspareunia and has achieved efficacy endpoints.
JNP-0301
JNP-0301 is our natural progesterone IVR designed to prevent PTB in women with short cervical length (“SCL”) at mid-pregnancy.
To date, there is currently no FDA-approved product to prevent PTB in women at-risk due to SCL. There are currently ongoing clinical trials evaluating use of pessary to PTB birth in women with SCL; cerclage to prevent PTB in women with SCL and a history of a prior preterm birth or mid-trimester miscarriage. One Phase 3 study by the University of Kansas Medical Center that is currently recruiting participants is attempting to determine if giving a larger amount of Docosahexaenoic acid (DHA) than currently included in some prenatal supplements can reduce early preterm birth. Another ongoing and recruiting Phase 4 study by Federico II University is investigating cervical cerclage for preventing spontaneous preterm birth in singleton pregnancies without prior spontaneous preterm birth and with short transvaginal ultrasound cervical length. Another study completed several years ago by Maternal-Infantil Vall d´Hebron Hospital investigated the use of the Aravin pessary, a silicon ring, for the reduction of spontaneous preterm birth in women with short cervical length at 18-22 weeks scan.
COLLABORATION AGREEMENTS
Our primary revenue product is Crinone. We have licensed Crinone to Merck KGaA, outside the United States, and sold the rights to Crinone to Allergan, in the United States.
Merck KGaA
In April 2013, our license and supply agreement with Merck KGaA for the sale of Crinone outside the United States was renewed for an additional five-year term, extending the expiration date to May 19, 2020. We are the exclusive supplier of Crinone to Merck KGaA. Merck KGaA holds marketing authorizations for Crinone in over 90 countries outside the United States. In January 2018, we announced the extension of this supply agreement for an additional 4.5-years through at least December 31, 2024.
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Under the terms of our current license and s
upply agreement with Merck KGaA, we will sell Crinone to Merck KGaA on a country-by-country basis at the greater of (i) direct manufacturing cost plus 20% or (ii) a percentage of Merck KGaA’s net selling price on a tiered structure. Additionally, we are jo
intly cooperating with Merck KGaA to evaluate and implement manufacturing cost reduction measures, with both parties sharing any benefits realized from these initiatives. This agreement requires Merck KGaA to provide a rolling 18-month forecast of its Crin
one requirements for each country in which the product is marketed. The first four months of each forecast are considered firm orders. Under the agreement, each party is responsible for new clinical trials and government registrations in its territory and
the parties are obligated to consult from time to time regarding the studies. Each party has agreed to promptly provide the other party the data from its Crinone studies free-of-charge. During the term of the agreement, we have agreed not to develop, licen
se, manufacture or sell to another party outside the United States any product for the vaginal delivery of progesterone or progestational agents for hormone replacement therapy or other indications where progesterone or progestational agents are commonly u
sed.
The extension of the supply agreement allows for a volume tiered, fixed price per unit with minimum annual volume guarantees, beginning on July 1, 2020. If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of the Company’s assets related to the Crinone supply chain and to transfer the manufacturing to a third party or take over the management of the supply of the product.
Allergan
Within the United States, Crinone was marketed by Allergan (which changed its name from Actavis, Inc. in 2015 and from Watson Pharmaceuticals, Inc. in 2012, each as a result of an acquisition) pursuant to a Purchase and Collaboration Agreement dated March 2010. In November 2016, we entered into an agreement with Allergan to monetize future royalty payments due to us. Under the agreement, we received a one-time non-refundable payment of $11.0 million in exchange for which Allergan will no longer be required to pay future royalty payments to us. This amount was recognized as revenue in the year ended December 31, 2016.
Massachusetts General Hospital
On March 27, 2015 we entered into an Exclusive Patent License Agreement with Massachusetts General Hospital, (“MGH”) pursuant to which we licensed the exclusive worldwide rights to MGH’s patent rights in a novel IVR technology for the delivery of one or more pharmaceuticals at different dosages and release rates in a single segmented ring.
Unless earlier terminated by the parties, the license agreement will remain in effect until the later of (i) the date on which all issued patents and filed patent applications within the licensed patent rights have expired or been abandoned and (ii) one year after the last sale for which a royalty is due under the license agreement or 10 years after such expiration or abandonment date referred to in (i), whichever is earlier. We have the right to terminate the license agreement by giving 90 days advance written notice to MGH. MGH has the right to terminate the license agreement based on our failure to make payments due under the license agreement, subject to a 15-day cure period, or our failure to maintain the insurance required by the license agreement. MGH may also terminate the license agreement based on our non-financial default under the license agreement, subject to a 60-day cure period.
Pursuant to the terms of the license agreement, we have agreed to reimburse MGH for all costs associated with the preparation, filing, prosecution and maintenance of the licensed patent rights and have agreed to pay MGH a $50,000 annual license fee on each of the first five year anniversaries of the effective date of the license agreement, and a $100,000 annual license fee beginning on the sixth anniversary of the effective date of the license agreement and on each subsequent anniversary thereafter. The annual license fee is creditable against any royalties or sublicense income payable in each calendar year.
Under the terms of the license agreement, we have agreed to use commercially reasonable efforts to develop and commercialize at least one product and/or process related to the IVR technology, which efforts will include the making of certain minimum annual expenditures in each of the first five years following the effective date of the license agreement. We have also agreed to pay MGH certain milestone payments totaling up to $1.2 million tied to our achievement of certain development and commercialization milestones, and certain annual royalty payments based on net sales of any such patented products or processes developed by us.
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INTELLECTUAL PROPERTY
We strive to protect the proprietary technologies that we believe are important to our business, including pursuing and maintaining patent protection intended to cover the composition of matter of our product candidates, their manufacture and methods of use, and other inventions that are important to our business. In addition to patent protection, we also rely on trade secrets to protect certain aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, including certain aspects of our formulation and device development expertise and know-how.
Our commercial success depends in part upon our ability to obtain and maintain patent and other proprietary protection for commercially important technologies, inventions and know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets and operate without infringing valid and enforceable intellectual property rights of others.
The patent positions for pharmaceutical companies like us are generally uncertain and can involve complex legal, scientific, and factual issues. In addition, the coverage claimed in a patent application can be significantly reduced before a patent is issued, and its scope can be reinterpreted and even challenged after issuance. As a result, we cannot guarantee that any of our product candidates will be protectable or remain protected by enforceable patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third parties.
With regard to our Crinone product, all of our patents covering the product have expired in all countries other than Argentina.
With regard to our JNP-0101, JNP-0201, and JNP-0301 product candidates, we have exclusively in-licensed from MGH (as discussed above) four issued U.S. patents with composition of matter, method of manufacture and method of use claims directed to the JNP-0101, JNP-0201, and JPN-0301 product candidates and their manufacture and use. These U.S. patents are scheduled to expire from 2024 to 2027. In addition, we have in-licensed counterpart patents that have been granted in Australia, Canada, Europe, and Japan, which are expected to expire in 2024. Allergan holds a United States method of use patent that would apply to JNP-0301 and expires in 2028.
The term of any individual patent depends upon laws of the countries in which such patent is obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.
In addition to patent protection, we also rely on trade secret protection for our proprietary information that is not amenable to, or that we do not consider appropriate for, patent protection, including, for example, certain aspects of our formulation and device development expertise and know-how. However, trade secrets can be difficult to protect. Although we take reasonable steps to protect our proprietary information, including restricting access to our premises and to our confidential information, as well as entering into agreements with our employees, consultants, advisors and potential collaborators, third parties may independently develop the same or similar subject matter and know-how or may otherwise gain access to our proprietary information. As a result, we may be unable to meaningfully protect our trade secrets and proprietary information.
GOVERNMENT REGULATIONS
Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
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In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and its implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process o
f obtaining regulatory approvals and subsequently maintaining compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U
.S. requirements at any time during the product development process, approval process or following approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve
pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, voluntary product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusa
ls of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of extensive nonclinical laboratory tests, animal studies and formulation studies in accordance with applicable regulations, including the FDA’s Good Laboratory Practice (“GLP”) regulations;
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submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical study related regulations, referred to as good clinical practices (“GCPs”) to establish the safety and efficacy of the proposed drug for its proposed indication;
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submission to the FDA of an NDA;
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a determination by the FDA within 60 days of its receipt of an NDA to file the NDA for review;
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satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDA’s cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity;
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potential FDA audit of the clinical trial sites that generated the data in support of the NDA; and
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FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
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Nonclinical Studies and IND Submission
The testing and approval process of product candidates requires substantial time, effort, and financial resources. Nonclinical studies include laboratory evaluation of drug substance chemistry, pharmacology, toxicity, and drug product formulation, as well as animal studies to assess potential safety and efficacy. Such studies must generally be conducted in accordance with the FDA’s GLP regulations. Prior to commencing the first clinical trial with a product candidate, an IND sponsor must submit the results of the nonclinical tests and nonclinical literature, together with manufacturing information, analytical data, any available clinical data or literature, and proposed clinical study protocols, among other things, to the FDA as part of an IND. In the case of 505(b)(2) applications, though, some of the IND components may not be required. Some nonclinical testing may continue even after the IND is submitted.
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An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA,
within the 30-day time period, notifies the applicant of safety concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns
before the clinical trial can begin. The FDA also may impose a clinical hold at any time before or during trials due to safety concerns or noncompliance. As a result, submission of an IND may not result in FDA authorization to commence a clinical trial.
Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the FDA with the submission of an NDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, subject selection and exclusion criteria, the trial procedures, the parameters to be used in monitoring safety, the efficacy criteria to be evaluated, and a statistical analysis plan. A protocol for each clinical trial, and any subsequent protocol amendments, must be submitted to the FDA as part of the IND. In addition, an institutional review board (“IRB”), at each study site participating in the clinical trial or a central IRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subject protections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted. Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the FDA for review, and to the IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to the FDA. Written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events, findings from other studies, and animal or in vitro testing that suggest a significant risk to humans exposed to the drug, and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
Information about certain clinical trials, including a description of the study and study results, must be submitted within specific timeframes to the National Institutes of Health (“NIH”), for public dissemination on their clinicaltrials.gov website.
Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding the continuing safety of trial subjects, enrollment of potential trial subjects, and the continuing validity and scientific merit of the clinical trial. The data safety monitoring board receives special access to unblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determined there is an unacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy.
The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active pharmaceutical ingredients imported into the United States are also subject to regulation by the FDA relating to their labeling and distribution. Further, the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.
In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined.
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Phase 1 – Studies are initially conducted in healthy human volunteers or subjects with the target disease or condition and test the investigational drug for safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption, metabolism, distribution, and excretion. If possible, Phase 1 clinical trials may also be used to gain early evidence on effectiveness.
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Phase 2 – Controlled studies are conducted in limited subject populations with a specified disease or condition to evaluate preliminary efficacy, identify opt
imal dosages, dosage tolerance and schedule, possible adverse effects and safety risks.
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Phase 3 – These adequate and well-controlled clinical trials are undertaken in expanded subject populations, generally at geographically dispersed clinical trial sites, to generate enough data to provide evidence of clinical efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product. Typically, two Phase 3 clinical trials are required by the FDA for product approval.
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The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These so-called Phase 4 clinical trials may be made a condition to be satisfied after approval. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information.
In the case of a 505(b)(2) NDA, which is a marketing application in which sponsors may rely on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted, some of the above-described clinical trials and nonclinical studies may not be required or may be abbreviated. Bridging studies may be needed, however, to demonstrate the applicability of the studies that were previously conducted by other sponsors to the drug that is the subject of the marketing application.
Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Regulatory authorities or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk, or the clinical trial is not being conducted in accordance with the FDA’s requirements. Similarly, an IRB can suspend or terminate approval of a trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to subjects.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer, among other things, must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
NDA Submission and Review by the FDA
Assuming successful completion of the required clinical and nonclinical testing, the results of nonclinical studies and clinical trials, including negative or ambiguous results, and information about the manufacturing process and facilities, are all submitted to the FDA, along with the proposed labeling, as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. The user fee must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in certain circumstances including where the applicant employs fewer than 500 employees (including employees of affiliates) where the applicant does not have a drug product that has been approved and introduced or delivered for introduction into interstate commerce and where the applicant (including its affiliates) is submitting its first marketing application. Product candidates that are designated as orphan drugs, which are further described below, are also not subject to application user fees unless the application includes an indication other than the orphan indication.
In addition, under the Pediatric Research Equity Act (“PREA”), as amended, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen, or route of administration must
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contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indicatio
ns in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for s
ubmission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”) to ens
ure that the benefits of the drug outweigh the risks of the drug. The REMS plan could include medication guides, physician communication plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk mini
mization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that the
benefits of the drug outweigh the risks of the drug.
Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, before it accepts the application for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA.
Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act (“PDUFA”), the FDA has set the goal of completing its review of 90% of all applications within 10 months from the 60-day filing date for its initial review of a standard NDA for a New Molecular Entity (“NME”). For non-NME standard applications, the FDA has set the goal of completing its review of 90% of all applications within 10 months from the submission date. Such deadlines are referred to as the PDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also be extended if the FDA requests or the NDA sponsor otherwise provides substantial additional information or clarification regarding the submission.
The FDA must refer applications for drugs that contain active ingredients, including any ester or salt of the active ingredients, that have not previously been approved by the FDA to an advisory committee or provide in an action letter a summary of its reasons for not referring the application to an advisory committee. The FDA may also refer drugs to advisory committees when it is determined that an advisory committee’s expertise would be beneficial to the regulatory decision-making process, including the evaluation of novel products and the use of new technology. An advisory committee is typically a panel that includes clinicians and other experts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA reviews applications to determine, among other things, whether a product is safe and effective for its intended use and whether the manufacturing methods and controls are adequate to assure and preserve the product’s identity, strength, quality, safety, potency, and purity. Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection. The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA the FDA will inspect one or more clinical trial sites to assure compliance with GCPs.
The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than an applicant interprets the same data.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter (“CRL”). If a CRL is issued, the
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applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter; wit
hdraw the application; or request an opportunity for a hearing. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval and describes all of the specific deficiencies that the FDA identified in the
NDA. A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA, and may require additional clinical or nonclinical testing in order for the FDA to reconsider the application. The deficiencies
identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. The FDA has the goal of reviewing 90% of application resubmissions in either two or six months of the resubmission date, dependi
ng on the kind of resubmission. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfact
ion, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization and marketing.
The FDA may withdraw the product approval if compliance with the pre- and post-marketing regulatory requirements is not maintained or if problems occur after the product reaches the marketplace. Further, should new safety information arise, additional testing, product labeling, or FDA notification may be required.
505(b)(2) Approval Process
Section 505(b)(2) of the FDCA provides an alternate regulatory pathway to FDA approval for new or improved formulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments, and permits the filing of an NDA where at least one or more of the investigations relied upon by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The applicant may rely upon the FDA’s prior findings of safety and effectiveness for a previously approved product or on published scientific literature, in support of its application. The FDA may also require 505(b)(2) applicants to perform additional trials to support the changes from the previously approved drug and to further demonstrate the new drug’s safety and effectiveness. The FDA may then approve the new product candidate for all or some of the labeled indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
Orange Book Listing
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A Section 505(b)(2) NDA is an application in which the applicant, in part, relies on investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application (“ANDA”). An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics, and intended use, among other things, to a previously approved product. Limited changes must be pre-approved by the FDA via a suitability petition. ANDAs are termed “abbreviated” because they are generally not required to include nonclinical and clinical data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of
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active ingredients into a subject’s bloodstream in the same amount of time as the innovator
drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.
In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with the FDA certain patents whose claims cover the applicant’s product and method of use. Upon approval of an NDA, each of the patents listed in the application for the drug is then published in Approved Drug Products with Therapeutic Equivalence Evaluations, also known as the Orange Book. These products may be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.
Any applicant who files an ANDA seeking approval of a generic equivalent version of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must make patent certifications to the FDA that: (1) no patent information on the drug or method of use that is the subject of the application has been submitted to the FDA; (2) the patent has expired; (3) the date on which the patent has expired and approval will not be sought until after the patent expiration; or (4) the patent is invalid or will not be infringed upon by the manufacture, use, or sale of the drug product for which the application is submitted. The last certification is known as a paragraph IV certification. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through a paragraph IV certification or if the applicant is not seeking approval of a patented method of use. If the applicant does not challenge the listed patents or does not indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all of the listed patents claiming the referenced product have expired.
If the competitor has provided a paragraph IV certification to the FDA, the competitor must also send notice of the paragraph IV certification to the holder of the NDA for the reference listed drug and the patent owner within 20 days after the application has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringement lawsuit in response to the notice of the paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a paragraph IV certification notice prevents the FDA from approving the ANDA or 505(b)(2) application until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of the lawsuit, a decision in the infringement case that is favorable to the applicant or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay.
In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owners regularly take action to trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.
Exclusivity
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDA limited protection from new competition in the marketplace for the innovation represented by its approved drug. Five years of exclusivity are available to New Chemical Entities (“NCEs”). An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA. An active moiety is the molecule or ion excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent derivatives, such as a complex, chelate, or clathrate, of the molecule, responsible for the therapeutic activity of the drug substance. During the exclusivity period, the FDA may not accept for review and approve an ANDA or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if a paragraph IV certification is filed.
If a product is not eligible for NCE exclusivity, it may be eligible for three years of exclusivity. Three-year exclusivity is available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or change to a marketed product, such as a new formulation or indication for a previously approved product, if one or more new clinical studies, other than bioavailability or bioequivalence studies, was essential to the
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approval of the application and was conducted or sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for the condition of the
new drug’s approval. As a general matter, the three-year exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will also not delay t
he submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate saf
ety and efficacy. Moreover, even if a product receives a period of exclusivity, a physician may prescribe the reference listed drug or a generic version of the reference listed drug off-label for the same use as the newly approved drug.
Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity period described above. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or Orange Book listed patent protection cover the drug are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve an ANDA or 505(b)(2) application owing to regulatory exclusivity or listed patents. Moreover, pediatric exclusivity attaches to all formulations, dosage forms, and indications for products with existing marketing exclusivity or patent life that contain the same active moiety as that which was studied.
Post-approval Requirements
Any drug manufactured or distributed pursuant to FDA approvals is subject to pervasive and continuing regulation by the FDA, including, among other things: requirements related to manufacturing, recordkeeping, and reporting, including adverse experience reporting, drug shortage reporting, and periodic reporting; product sampling and distribution; advertising; marketing; promotion; certain electronic records and signatures; and post-approval obligations imposed as a condition of approval, such as Phase 4 clinical trials, REMS, and surveillance to assess safety and effectiveness after commercialization.
After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are annual prescription drug product programs fees. In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and list their drug products, and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMP and other requirements, which impose certain procedural and documentation requirements upon the company and third-party manufacturers.
Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notification before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and specifications, and impose reporting and documentation requirements upon the manufacturer and any third-party manufacturers that the NDA holder may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
The FDA also strictly regulates marketing, labeling, advertising, including direct to consumer advertising, and promotion of drug products that are placed on the market. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Physicians, in their independent professional medical judgment, may prescribe legally available products for unapproved indications that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Pharmaceutical companies, however, are required to promote their drug products only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including, but not limited to, criminal and civil penalties under the FDCA and False Claims
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Act, exclusion from participation in federal healthcare programs, mandatory compliance programs under corporate integrity agreement
s, debarment, and refusal of government contracts.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.
Moreover, the Drug Quality and Security Act (“DQSA”), enacted in 2013, imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing, which are being implemented over a 10-year period. Among the requirements of this legislation, manufacturers are or will be required to provide certain information regarding the drug products to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. The transfer of information to subsequent product owners by manufacturers will eventually be required to be done electronically. Manufacturers are also required to verify that purchasers of the manufacturers’ products are appropriately licensed. Further, under this legislation, manufacturers have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences or death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal to approve pending applications, withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, modification of promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, voluntary product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receiving government contracts and new orders under existing contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties including fines and imprisonment, and may result in adverse publicity, among other adverse consequences.
Regulation of Combination Products in the United States
Certain products may be comprised of components that would normally be regulated by different regulatory authorities, and frequently by different centers within the FDA. These products are known as combination products. Specifically, under regulations issued by the FDA, a combination product may be:
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a product comprised of two or more regulated components that are physically, chemically, or otherwise combined or mixed and produced as a single entity;
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two or more separate products packaged together in a single package or as a unit and comprised of drug and device products, device and biological products, or biological and drug products;
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a drug, device, or biological product packaged separately that according to its
investigational plan or proposed labeling is intended for use only with an approved individually-specified drug, or device, or biological product where both are required to achieve the intended use, indication, or effect and where upon approval of the pro
posed product the labeling of the approved product would need to be changed, e.g., to reflect a change in intended use, dosage form, strength, route of administration, or significant change in dose; or
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any investigational drug, device, or biological product packaged separately that according to its proposed labeling is for use only with another individually specified investigational drug, device, or biological product where both are required to achieve the intended use, indication, or effect.
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Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. That determination is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a drug-device combination product is attributable to the drug product, the FDA center responsible for premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has also established an Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in ways that may significantly affect our business and our product candidates. It is impossible to predict whether further legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations changed or what the effect of such changes, if any, may be.
Pricing and Reimbursement
Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, once approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved or that any required patient cost-sharing amount will be acceptable to the patient. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor and among the insured lives of an individual payor depending upon the benefits applicable to the insured person. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an adequate
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reimbursement rate. As a result, the coverag
e determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services, examining the medical necessity and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.
The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. The Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health develop research plans and periodically report on the status of the research and related expenditures to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for governmental or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if approved, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates, if approved.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be priced significantly lower.
Anti-Kickback and False Claims Laws and Other Regulatory Matters
In the United States, among other things, the research, manufacturing, distribution, sale and promotion of drug products are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General and the Health Resources and Services Administration), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state attorneys general and other state and local government agencies. Our current and future business activities, including for example, sales, marketing and scientific/educational grant programs must comply with healthcare regulatory laws, including the Federal Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy regulations promulgated under the Health Insurance Portability and Accountability Act (“HIPAA”), as amended, physician payment transparency laws, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The Federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering or
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arranging for or recommending the purchase, lease or order of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicar
e or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers a
nd formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration
that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception
or regulatory safe harbor does not make the conduct per se illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstanc
es. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010 (collectively, the “Affordable Care Act”), t
o a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim includin
g items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in prison, criminal fines, a
dministrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patient
s for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for additional legal or regulatory change in this a
rea, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with healthcare providers might be challenged under anti-kickback laws, which could harm us.
The Federal False Claims Act prohibits anyone from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent. This statute has been interpreted to prohibit presenting claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal False Claims Act in connection with their off-label promotion of drugs. Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $10,781 and $21,563 for each separate false claim, the potential for exclusion from participation in federal healthcare programs. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.
Although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. The government may further prosecute conduct constituting a false claim under the criminal False Claims Act, which prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.
The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
Additionally, HIPAA created federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any
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materially false, fictitious or fraudulent state
ment in connection with the delivery of or payment for healthcare benefits, items or services.
Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs to submit pricing information to CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report price points, which are used to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for the drug. For drugs paid under Medicare Part B, manufacturers must also calculate and report their Average Sales Price, which is used to determine the Medicare Part B payment rate for the drug. Drugs that are approved under an NDA, including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase rebate payments. In addition, for NDA drugs, the Veterans Health Care Act (“VHCA”), requires manufacturers to calculate and report to the Veterans Administration (“VA”), a different price called the Non-Federal Average Manufacturing Price, which is used to determine the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price (“FCP”). Like the Medicaid rebate amount, the FCP includes an inflation penalty. A Department of Defense regulation requires manufacturers to provide this discount on drugs dispensed by retail pharmacies when paid by the TRICARE Program. All of these price reporting requirements create risk of submitting false information to the government, and potential False Claims Act liability.
The VHCA also requires manufacturers of covered drugs participating in the Medicaid program to enter into Federal Supply Schedule contracts with the VA through which their covered drugs must be sold to certain federal agencies at FCP and to report pricing information. This necessitates compliance with applicable federal procure laws and regulations and subjects us to contractual remedies as well as administrative, civil, and criminal sanctions. In addition, the VHCA requires manufacturers participating in Medicaid to agree to provide different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics.
The Affordable Care Act included a provision commonly referred to as the Sunshine Act, which requires certain pharmaceutical manufacturers to track and report annually certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers are required to submit reports to CMS by the 90th day of each subsequent calendar year. The information reported is publicly available on a searchable website. There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities. These laws may affect our sales, marketing and other promotional activities by imposing administrative and compliance burdens on us.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and their respective implementing regulations, including the final omnibus rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
In addition to HIPAA and HITECH, other federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use and disclosure of personal information. Various foreign countries also have, or are developing, laws governing the collection, use and transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business.
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The failure to comply with applicable regulatory requirements subjects us to possible legal or regulatory acti
on. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, suc
h as Medicare and Medicaid, injunctions, voluntary recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, cont
ractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operation
s.
Should we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs, we will develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the law and program requirements to which we will or may become subject.
To the extent that our products are sold in a foreign country, we or our collaborators may be subject to similar foreign laws and regulations, which may include, for instance, clinical trial and pre- and post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Affordable Care Act and Other Reform Initiatives
In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.
The Affordable Care Act was enacted in March 2010. The Affordable Care Act includes measures that have significantly changed, and are expected to continue to significantly change, the way healthcare is financed by both governmental and private insurers. Among the provisions of the Affordable Care Act of greatest importance to the pharmaceutical industry are the following:
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The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The Affordable Care Act made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs to 23.1% of average manufacturer price (“AMP”) and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.
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The Affordable Care Act expanded the types of entities eligible to receive discounted 340B pricing. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The Affordable Care Act imposed a requirement on manufacturers of branded drugs to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).
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The Affordable Care Act imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs, apportioned among these entities according to their market share in certain government healthcare programs.
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The Affordable Care Act established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such
research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.
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The Affordable Care Act created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.
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The Affordable Care Act established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.
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Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. For example, the 2017 Tax Reform Act includes a provision repealing the Affordable Care Act’s individual health insurance coverage mandate, effective January 1, 2019. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse the insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through these marketplaces. Congress will likely consider other legislation to replace elements of the ACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Further changes to the Affordable Care Act, including its repeal and replacement, are possible. Thus, the full impact of the Affordable Care Act, any law changing or replacing elements of it, and the political uncertainty surrounding any change, repeal or replacement of it on our business remains unclear.
Other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2025 unless additional congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law. This Act, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
OUR REPORTING SEGMENTS
We currently operate in two segments: product and service. The product segment oversees the supply chain and manufacturing of Crinone, our sole commercialized product to our commercial partner, Merck KGaA, internationally. The product segment also includes the royalty stream we received, until October 2016 from Allergan, for Crinone sales in the United States as well as the development of new product candidates. The service segment includes pharmaceutical development, clinical trial manufacturing, and advanced analytical and consulting services provided to our customers, as well as characterizing and developing pharmaceutical product candidates for our internal programs and managing the preclinical and clinical manufacturing of our technology. In the years
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ended December 31, 2017, 2016 and 2015, revenue from our product segment was $32.7 million, $41.5 million and $26.6 million, respectively. In the years ended December 31, 2017, 2016 and 2015, revenue from our service segment was $17.3 milli
on, $13.1 million and $11.7 million, respectively.
We view the development and clinical trial manufacturing of drug product for our pharmaceutical company clients and the manufacturing of Crinone for our commercial partner to be similar activities. Accordingly, we have integrated all operational activities for the Crinone business into JPS. These activities, including management of Crinone manufacturing, quality assurance and logistics and, management of our intellectual property estate are now managed out of our Nottingham, U.K. facility.
Segment information is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have determined to be the chief executive officer, for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. Our chief operating decision maker evaluates the performance of our product and service segments based on revenue and gross profit. Our chief operating decision maker does not review our assets, operating expenses or non-operating income and expenses by business segment at this time.
See Note 11 to our consolidated audited financial statements included in Item 8 of this Annual Report for certain financial information related to our two operating segments and for certain selected financial information by geographic area, which is incorporated by reference into Item 1 of this Annual Report.
EMPLOYEES
As of February 28, 2018, we had 155 employees, including three executive officers, 13 employees in supply chain management and quality, four employees in sales and marketing functions, 106 employees in technical and other production functions, three employees in research and development functions and 26 employees in other administrative functions. We also use consultants as necessary to support key functions.
Our success is highly dependent on our ability to attract and retain qualified employees. Competition for employees is intense in the pharmaceutical industry. We believe we have been successful in our efforts to recruit qualified employees, but we cannot guarantee that we will continue to be as successful in the future. None of the Company’s employees are represented by a labor union or are subject to collective bargaining agreements. We believe that our relationship with our employees is good.
ADDITIONAL INFORMATION
We were incorporated as a Delaware corporation in 1986. Our principal executive offices are located at 33 Arch Street, Suite 3110, Boston Massachusetts 02110, and our telephone number is (617) 639-1500. In April 2015 we changed our name from Columbia Laboratories, Inc. to Juniper Pharmaceuticals, Inc. and also changed our ticker symbol from CBRX to JNP. Our wholly-owned subsidiaries are Columbia Laboratories (Bermuda) Ltd. (“Columbia Bermuda”), Juniper Pharmaceuticals (France) SARL (“Juniper France”), Juniper Pharmaceuticals (U.K.) Limited (“Juniper U.K.”), and Juniper Pharma Services Ltd (U.K.) (“JPS”).
Our Internet address is
www.juniperpharma.com
. Through a link on the “Investor Relations” section of this website,
ir.juniperpharma.com
, we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, proxy statement on Form DEF 14A, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material or furnish them to the Securities and Exchange Commission (“SEC”). In addition, we will provide electronic or paper copies of our filings free of charge upon request. Information contained on our corporate website or any other website is not incorporated into this Annual Report and does not constitute a part of this Annual Report.
In addition, the public may read and copy any materials filed by the Company with the SEC at the SEC’s Reference Room, which is located at 100 F Street NE, Washington, D.C., 20549. Interested parties may call (800) SEC-0330 for further information on the Reference Room. The SEC also maintains a website containing reports, proxy materials and information statements, among other information, at
http://www.sec.gov
.
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We post our code of business conduct and ethics, which applies to all employees, including all executive officers, senior financial officers and directors, in the
“Corporate Governance” sub-section of the “Investor Relations” section (
ir.juniperpharma.com
) of our corporate website at
www.juniperpharma.com
. Our code of business conduct and ethics complies with Item 406 of SEC Regulation S-K and the rules of NASDAQ.
We intend to disclose any changes to the code that affect the provisions required by Item 406 of Regulation S-K, and any waivers of the code of ethics for our executive officers, senior financial officers or directors, on our corporate website.
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should carefully consider the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. The occurrence of any of the risks described below could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our product revenue is dependent on the continued sale of Crinone to Merck KGaA.
Our operating results are dependent on the product revenues from Merck KGaA derived from the sale of Crinone in countries outside the U.S. Revenues from sales to Merck KGaA during the years ended December 31, 2017, 2016 and 2015 constituted approximately 65%, 50% and 60% of our total revenues, respectively. We do not control the amount and timing of marketing resources that Merck KGaA may or may not devote to our product. The failure of Merck KGaA to effectively market Crinone and maintain licensure in marketed countries could have a material adverse effect on our business, financial condition and results of operations. Our current supply agreement with Merck KGaA has an expiration date through December 31, 2024.
If, at the end of the supply term, the parties cannot agree upon mutually acceptable terms for renewal of the supply arrangement, Merck KGaA will have the option to negotiate the purchase of all of our assets related to the Crinone supply chain and to transfer the manufacturing to a third party or over the management of the supply of the product.
We may fail to obtain new customer
taking
projects, renew existing customers or have customer project cancellations at our wholly-owned subsidiary, JPS, which may adversely affect our service revenue and gross margin.
The majority of our customer projects at JPS are short-term in duration. As a result, we must maintain a robust backlog of customer programs to replace projects as they are completed. In the event we are unable to replace these customer projects in a timely manner or at all, our revenues may not be able to be sustained or may decline. In addition, customer projects may be cancelled or delayed by clients for any reason upon notice and this can materially impact our business. While we intend to seek new or extended agreements, if new contracts cannot be completed or existing contracts cannot be extended on terms acceptable to us or at all, our business, results of operation and financial condition could be materially adversely affected.
We have made significant capital investments in our JPS business to meet growth expectations. If we are unable to utilize the facilities’ expected capacity, our margins could be adversely affected.
We have made substantial investments in our Nottingham, U.K. facilities and equipment to support increased development and contract manufacturing activity. If new customer agreements are not executed or do not generate expected revenues, we may have excess fixed costs capacity that may require an impairment charge that will negatively affect our financial performance.
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Foreign governments often impose strict price controls, which may adversely affect our future profitability.
We intend to seek approval to market our product candidates in both the U.S. and foreign jurisdictions either directly or through a potential partner. If we or a potential partner obtain approval in one or more foreign jurisdictions, we or such potential partner will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we or a potential partner may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability
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If our products are marketed or distributed in a manner that violates federal, state or foreign healthcare fraud and abuse laws, marketing disclosure laws or other federal, state or foreign laws and regulations, we may be subject to civil or criminal penalties.
In addition to FDA and related regulatory requirements in the U.S. and abroad, our general operations, and the research, development, manufacture, sale and marketing of our products, are subject to extensive additional federal, state and foreign healthcare regulation, including the FCA, the Federal Anti-Kickback Statute, the Foreign Corrupt Practices Act, and their state analogues, and similar laws in countries outside of the U.S., laws, such as the U.K. Bribery Act of 2010 and governing sampling and distribution of products, and government price reporting laws.
Our activities relating to the sale and marketing of our products may be subject to scrutiny under these laws and private individuals have been active in bringing lawsuits on behalf of the government under the FCA and similar laws in other countries. We have developed and implemented a corporate compliance program based on what we believe are current best practices in the pharmaceutical industry; however, these laws are broad in scope and there may not be regulations, guidance or court decisions that definitively interpret these laws in the context of particular industry practices. We cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with all federal, state and foreign regulations. If we or our representatives fail to comply with any of these laws or regulations, a range of fines, penalties and/or other sanctions could be imposed on us, including, but not limited to, restrictions on how we market and sell our products, significant fines, exclusions from government healthcare programs, including Medicare and Medicaid, litigation, or other sanctions. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could also have an adverse effect on our business, financial condition and results of operations. Such investigations or suits may also result in related shareholder lawsuits, which can also have an adverse effect on our business.
Further, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. For drug products that are approved by the FDA under the FDA’s accelerated approval regulations, unless otherwise informed by the FDA, the sponsor must submit promotional materials at least 30 days prior to the intended time of initial dissemination of the promotional materials, which delays and may negatively impact our commercial team’s ability to implement changes to such product’s marketing materials, thereby negatively impacting revenues. Moreover, under Subpart H, the FDA may also withdraw approval of such product if, among other things, the promotional materials are false or misleading, or other evidence demonstrates that such product is not shown to be safe or effective under its conditions of use.
The U.S. government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The government has also required companies to enter into complex corporate integrity agreements and/or non-prosecution agreements that can impose significant restrictions and other burdens on the affected companies. If we are found to have promoted such off-label uses, we may become subject to similar consequences.
In recent years, several U.S. states have enacted legislation requiring pharmaceutical companies to establish marketing and promotional compliance programs or codes of conduct and/or to file periodic reports with
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the state or make periodic public disclosures on sales, marketing, pricing, c
linical trials, and other activities. In addition, as part of the Affordable Care Act, manufacturers of drugs are required to publicly report gifts and other payments or transfers of value made to U.S. physicians and teaching hospitals. Several states have
also adopted laws that prohibit certain marketing-related activities, including the provision of gifts, meals or other items to certain healthcare providers. Many of these requirements are new and uncertain, and the likely extent of penalties for failure
to comply with these requirements is unclear; however, compliance with these laws is difficult, time consuming and costly, and if we are found to not be in full compliance with these laws, we may face enforcement actions, fines and other penalties, and we
could receive adverse publicity which could have an adverse effect on our business, financial condition, and results of operations.
If we fail to comply with any federal, state, or foreign laws or regulations governing our industry, we could be subject to a range of regulatory actions that could adversely affect our ability to commercialize our products, harm or prevent sales of our products, or substantially increase the costs and expenses of commercializing and marketing our products, all of which could have a material adverse effect on our business, financial condition, and results of operations.
In addition, incentives exist under applicable U.S. law that encourage employees and physicians to report violations of rules governing promotional activities for pharmaceutical products. These incentives could lead to so-called “whistleblower” lawsuits as part of which such persons seek to collect a portion of moneys allegedly overbilled to government agencies as a result of, for example, promotion of pharmaceutical products beyond labeled claims. Such lawsuits, whether with or without merit, are typically time-consuming and costly to defend. Such suits may also result in related shareholder lawsuits, which are also costly to defend.
Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable regulations.
As a pharmaceutical development and services company, we are subject to a large body of legal and regulatory requirements. In addition, as a publicly traded company we are subject to significant regulations. We cannot assure you that we are or will be in compliance with all potentially applicable laws and regulations. Failure to comply with all potentially applicable laws and regulations could lead to the imposition of fines, cause the value of our common stock to decline, impede our ability to raise capital, or lead to the de-listing of our stock.
We may acquire additional businesses or form strategic alliances in the future, and we may not realize the benefits of such acquisitions or alliances.
We may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may have difficulty in developing, manufacturing, and marketing the products of a newly acquired company that enhances the performance of our combined businesses or product lines to realize value from expected synergies. We cannot assure that, following an acquisition, we will achieve the revenues or specific net income that justifies the acquisition.
The loss of our key executives could have a significant impact on us.
Our success depends in large part upon the abilities and continued service of our executive officers and other key employees. Our employment agreements with our executive officers are terminable by either party on short notice. The loss of key employees may result in a significant loss in the knowledge and experience that we, as an organization, possess, and could cause significant delays in, or outright failure of, the management of our supply chain, our pharmaceutical development, analytical, and consulting services business and/ or, our development of future products and product candidates. If we are unable to attract and retain qualified and talented senior management personnel, our business may suffer.
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We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of February 28, 2018, we had 155 employees. As part of our strategic reprioritization, we will focus our resources on the growth of our core businesses of Crinone and JPS. As our strategy develops, we expect to expand our employee base for managerial, operational, financial and other resources. Our future growth may impose added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate new employees. Also, our management may need to divert a disproportionate amount of its attention away from their day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to increase revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize
or seek potential partner to commercialize
our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively manage any future growth in our organization.
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism and other natural or man-made disasters or business interruptions. The occurrence of any business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our ability to produce clinical supplies of JNP-0101, JNP-0201, JNP-0301 and other potential product candidates could be disrupted if the operations of JPS or our other suppliers are affected by a man-made or natural disaster or other business interruption.
Our internal computer systems, or those used by our third-party collaborators, CROs, or other contractors or consultants, may fail or suffer security breaches.
Despite the implementation of security measures, our internal computer systems and those of our third-party collaborators, CROs, and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. Although to our knowledge we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from current or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on our third-party collaborators and other third parties for research and to conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and/or suffer substantial reputational harm and the further development and commercialization of our product candidates could be delayed.
Our operations involve hazardous materials and are subject to environmental, health, and safety controls and regulations.
We are subject to environmental, health, and safety laws and regulations, including those governing the use of hazardous materials, and we spend considerable time complying with such laws and regulations. Our business activities involve the controlled use of hazardous materials and although we take precautions to prevent accidental contamination or injury from these materials, we cannot completely eliminate the risk of using these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may materially harm our business, financial condition and results of operations.
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Risks Related to the Clinical Develo
pment, Regulatory Review, Approval and Commercialization of Our Product Candidates
Preclinical drug development is a lengthy and expensive process with an uncertain outcome.
In order to obtain FDA approval to market a new drug product we or our potential partner must demonstrate proof of safety and efficacy in humans. To meet these requirements, we or our potential partner will have to conduct “adequate and well-controlled” clinical trials. Before we or our potential partner can commence clinical trials for a product candidate, extensive preclinical testing and studies that support an Investigational New Drug application, or IND, must be completed. While we expect that our planned preclinical work will help support a IND submissions to the FDA when and if such submissions occur, we cannot be certain of the timely completion or outcome of these prototype development efforts and planned preclinical studies. We also cannot predict if the FDA will accept our or our potential partner’s proposed clinical programs or if the outcome of our or our potential partner’s prototype development efforts and planned preclinical activities will ultimately support the further development of these product candidates. Thus, we cannot be sure that we or our potential partner will be able to submit INDs in the planned time-frame if at all, and we cannot be sure that submission of the INDs will result in the FDA in allowing clinical trials to begin.
Conducting preclinical testing studies is a lengthy, time-consuming and expensive process. The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per product candidate. Delays associated with product candidates for which we are directly conducting preclinical testing and studies may cause us to incur additional operating expenses. Moreover, we may be affected by delays associated with the preclinical testing and studies of certain product candidates conducted by our potential partner over which we have no control. The commencement and rate of completion of preclinical studies and studies for a product candidate may be delayed by many factors, including, for example:
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the inability to generate sufficient preclinical or other in vivo or in vitro data to support the initiation of clinical trials;
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delays in reaching a consensus with regulatory agencies on study design; and
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the FDA not allowing us to rely on previous findings of safety and efficacy for other similar but approved products and published scientific literature.
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Moreover, even if clinical trials do begin, our or our potential partner’s development efforts may not be successful, and clinical trials that we or our potential partner conduct, or that third parties conduct on our or our potential partner’s behalf may not demonstrate statistically sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates or product candidates employing our technology. Even if we or our potential partner obtain positive results from preclinical studies or initial clinical trials, the same success may not be achieved in future trials. The failure of clinical trials to demonstrate the safety and effectiveness of a product candidate for its desired indications could harm the development of such product candidate as well as our other product candidates. Any change in, or termination of, our or our potential partner’s clinical trials could materially harm our business, financial condition, and results of operations.
Delays in clinical trials are common for many reasons, and any such delay could result in increased costs to us or our potential partner and jeopardize or delay our or our potential partner’s ability to obtain regulatory approval and commence product sales
.
If our preclinical studies and activities for our product candidates are successful, we plan to seek a potential partner to conduct clinical trials of such product candidates. Our potential partner may experience delays in clinical trials for our product candidates. Our potential partner’s planned clinical trials, including those for JNP-0101, JNP-0201 and JNP-0301, might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might not produce results to support further development of the product candidates; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:
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delays in obtaining regulatory approval to commence a trial;
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imposition of a clinical hold following an inspection of our
or our potential partner’s
clinical trial operations or trial site
s by the FDA or other regulatory authorities;
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imposition of a clinical hold because of safety or efficacy concerns by the Data and Safety Monitoring Board or DSMB, the FDA, or the Institutional Review Board, IRB, or us
or our potential partner
;
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imposition of a clinical hold by the FDA or other regulatory authorities because of significant problems with a product candidate in the same class as one of our product candidates;
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reaching agreement on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites, particularly those in foreign jurisdictions;
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delays in obtaining required IRB approval at each site;
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delays in identifying, recruiting, and training suitable clinical investigators;
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slower than expected rates of patient recruitment due to narrow screening requirements;
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the inability of patients to meet FDA or other regulatory authorities’ imposed protocol requirements;
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the inability to retain patients who have initiated participation in a clinical trial but may be prone to withdraw due to various clinical or personal reasons, or who are lost to further follow-up;
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delays in having patients complete participation in a trial or return for post-treatment follow-up;
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the inability to adequately observe patients after treatment;
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clinical sites dropping out of a trial to the detriment of enrollment;
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time required to add new sites;
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the inability to manufacture sufficient quantities of qualified materials under current good manufacturing practices (“cGMPs”) for use in clinical trials;
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shortages of the active pharmaceutical ingredient (“API”);
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non-compliance with regulatory requirements;
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delays in obtaining sufficient supplies of clinical trial materials, including suitable API;
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the need or desire to modify manufacturing processes;
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changes in regulatory requirements for clinical trials;
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the lack of effectiveness during the clinical trials;
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unforeseen safety issues, or adverse drug reactions;
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delays, suspension, or termination of the clinical trials due to the IRB responsible for overseeing the study at a particular study site;
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insufficient financial resources;
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government or regulatory delays or “clinical holds” requiring suspension or termination of the trials; and
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delays resulting from negative or equivocal findings of DSMB for a trial.
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Any of these delays in completing
our potential partner’s
clinical trials could increase costs, slow down product development and approv
al process, and jeopardize our
or our potential partner’s
ability to commence product sales and generate revenue.
Failure to recruit, enroll, and retain patients for clinical trials may cause the development of our current product and/or candidates to be delayed or development costs to increase substantially.
We have experienced, and may experience in the future, delays in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our
or our potential partner’s
ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:
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the patient eligibility criteria defined in the protocol;
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the size and nature of the patient population required for analysis of the trial’s primary endpoints;
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the proximity of patients to study sites;
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the design of the trial;
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our ability to recruit clinical trial investigators with the appropriate competencies and experience;
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our ability to obtain and maintain patient consents;
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the risk that patients enrolled in clinical trials will drop out of the trials before completion;
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competition for patients by clinical trial programs for other competitive treatments; and,
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clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we
or our potential partner
are investigating.
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Our
or our potential partner’s
clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of patients available to us, because some patients who might have opted to enroll in our
or our potential partner’s
trials opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we
or our potential partner
will conduct some of the clinical trials at the same clinical trial sites that some of our competitors’ use, which reduces the number of patients who are available for our
or our potential partner’s
clinical trials in such clinical trial site. Delays in patient enrollment in the future as a result of these and other factors may result in increased costs or may affect the timing or outcome of our
or our potential partner’s
clinical trials, which could prevent us or our potential partner from completing these trials and adversely affect our
or our potential partner’s
ability to advance the development of our product candidates.
Our
or our potential partner’s
clinical trials may be halted at any time for a variety of reasons.
Our
or our potential partner’s
clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated by us, our potential partner, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the DSMB or the IRB for a clinical trial. An IRB may also suspend or terminate our
or our potential partner’s
clinical trials for failure to protect patient safety or patient rights. We
or our potential partner
may voluntarily suspend or terminate clinical trials if at any time we
or our potential partner
believe that they present an unacceptable risk to participants. In addition, regulatory agencies may order the temporary or permanent discontinuation of our
or our potential partner’s
clinical trials at any time if they believe the clinical trials are not being conducted in accordance with applicable regulatory requirements or present an unacceptable safety risk to participants. If we
or our potential partner
elect or are forced to suspend or terminate any clinical trial for the development of any proposed product, the commercial prospects of such proposed product will be harmed and our ability to generate product revenue, or royalty or milestone revenue from our
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potential partner, from any of these proposed products will be delayed or eliminated. Any of these occurrences may harm our business, financial condition, results of operations,
and prospects significantly.
Additionally, our current and/or future product candidates may demonstrate serious adverse side effects in clinical trials. These adverse side effects could interrupt, delay, or halt clinical trials of product candidates and could result in FDA or other regulatory authorities denying approval of product candidates for any or all targeted indications. An IRB or independent data safety monitoring board, the FDA, other regulatory authorities, or we ourselves, our potential partner, or our customers may suspend or terminate clinical trials at any time. Product candidates may prove not to be safe for human use. In such circumstances, we may not be able to complete development or successful licensing or partnering of our own internal programs.
Our product development efforts may not be successful.
All of our product candidates are in research and preclinical stages of development. We or our partners may have never obtained regulatory approval for any of our product candidates. If the results from any of our clinical trials are not positive, those results may adversely affect our ability to obtain regulatory approval to conduct additional clinical trials, our ability to seek development or commercialization partners for such product candidates, or possibly our ability to raise additional capital, which will affect our ability to continue research and development activities. In addition, our product candidates may take longer than anticipated to progress through clinical trials, or patient enrollment in the clinical trials may be delayed or prolonged significantly, thus delaying the clinical trials.
Even if we or our potential partner obtain regulatory approval for our product candidates, we or our potential partner will still face extensive, ongoing regulatory requirements and review, and our products may face future development and regulatory difficulties.
Even if we
or our potential partner
obtain regulatory approval for one or more of our product candidates in the United States, the FDA may still impose significant restrictions on a product’s indicated uses or marketing or to the conditions for approval, or impose ongoing requirements for potentially costly post-approval studies, including phase 4 clinical trials or post-market surveillance. As a condition to granting marketing approval of a product, the FDA may require a company to conduct additional clinical trials. The results generated in these post-approval clinical trials could result in loss of marketing approval, changes in product labeling, or new or increased concerns about side effects or efficacy of a product. For example, the labeling for our hormone therapy product candidates, if approved, may include restrictions on use or warnings. The Food and Drug Administration Amendments Act of 2007 (“FDAAA”) gives the FDA enhanced post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with FDA-approved Risk Evaluation and Mitigation Strategies (“REMS”) programs. If approved, our product candidates will also be subject to ongoing FDA requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record keeping, and reporting of safety and other post-market information. The FDA’s exercise of its authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements, and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar authority and may impose comparable measures. Post-marketing studies, whether conducted by us or by others and whether mandated by regulatory agencies or voluntary, and other emerging data about marketed products, such as adverse event reports, may also adversely affect sales of our product candidates if approved, and potentially our other marketed products. Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of our approved products. Accordingly, new data about our products could negatively affect demand because of real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal or voluntary recall. Furthermore, new data and information, including information about product misuse, may lead government agencies, professional societies, and practice management groups or organizations involved with various diseases or conditions to publish guidelines or recommendations related to the use of our products or the use of related therapies or place restrictions on sales. Such guidelines or recommendations may lead to lower sales of our products.
The holder of an approved New Drug Application (“NDA”) also is subject to obligations to monitor and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application
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holders must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Applic
ation holders must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials. Legal requirements have also been enacted to require disclosure of clinical trial results on publicly available databases.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with the FDA’s cGMPs regulations or comparable foreign requirements. If we, our potential partner or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility, or us or our partner. Such restrictions may include requesting a recall or requiring withdrawal of the product from the market or suspension of manufacturing, requiring new warnings or other labeling changes to limit use of the drug, requiring that we or our potential partner conduct additional clinical trials, imposing new monitoring requirements, or requiring that we
or our potential partner
establish a REMS program. Advertising and promotional materials must comply with FDA rules in addition to other potentially applicable federal and state laws. The distribution of product samples to physicians must comply with the requirements of the Prescription Drug Marketing Act. Sales, marketing, and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws. If we or our potential partner fail to comply with applicable regulatory requirements, a regulatory agency may take any of the following actions:
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conduct an investigation into our
or our potential partner’s
practices and any alleged violation of law;
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issue warning letters or untitled letters asserting that we
or our potential partner
are in violation of the law;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend or withdraw regulatory approval;
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require that we
or our potential partner
suspend or terminate any ongoing clinical trials;
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refuse to approve pending applications or supplements to applications filed by us
or our potential partner
;
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suspend or impose restrictions on operations, including costly new manufacturing requirements;
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seize or detain products, refuse to permit the import or export of products, or request that we
or our potential partner
initiate a product recall; or
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exclude us
or our potential partner
from providing our products to those participating in government health care programs, such as Medicare and Medicaid, and refuse to allow us
or our potential partner
to enter into supply contracts, including government contracts.
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The occurrence of any of the foregoing events or penalties may force us
or our potential partner
to expend significant amounts of time and money and may significantly inhibit our
or our potential partner’s
ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign jurisdictions.
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The manufacture and packaging of pharmaceutical products are subject to FDA requirements and those of similar foreign regulatory bodies. If we or our third-party
manufacturers fail to satisfy these requirements, our product development and commercial efforts may be harmed.
The manufacture and packaging of pharmaceutical products, if approved, are regulated by the FDA and similar foreign regulatory bodies and must be conducted in accordance with the FDA’s cGMP and comparable requirements of foreign regulatory bodies. Failure by us or our third-party manufacturers to comply with applicable regulations or requirements could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delays, suspension or withdrawal of approvals, seizures or voluntary recalls of product, operating restrictions and criminal prosecutions, any of which could harm our business. The same requirements and risks are applicable to the suppliers of the key raw material used to manufacture the API for Crinone.
Currently we only have one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone which we believe did not result in a change in demand for Crinone. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.
Changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, may require prior FDA review and approval of the manufacturing process and procedures in accordance with the FDA’s cGMPs. Any new facility is subject to a pre-approval inspection by the FDA and would again require us to demonstrate product comparability to the FDA. There are comparable foreign requirements. This review may be costly and time consuming and could delay or prevent the launch of a product.
Furthermore, in order to obtain approval of our product candidates, by the FDA and foreign regulatory agencies, we will be required to consistently produce the API and the finished product in commercial quantities and of specified quality on a repeated basis and document our ability to do so. This requirement is referred to as process validation. Each of our potential API suppliers will likely use a different method to manufacture API, which has the potential to increase the risk to us that our manufacturers will fail to meet applicable regulatory requirements. We also need to complete process validation on the finished product in the packaging we propose for commercial sales. This includes testing of stability, measurement of impurities and testing of other product specifications by validated test methods. If the FDA does not consider the results of the process validation or required testing to be satisfactory, we may not obtain approval to launch the product or approval, launch or commercial supply after launch may be delayed.
The FDA and similar foreign regulatory bodies may also implement new requirements, or change their interpretation and enforcement of existing requirements, for the manufacturing, packaging or testing of products at any time. If we are unable to comply, we may be subject to regulatory, civil actions or penalties which could harm our business.
Our development, regulatory and commercialization strategy for our product candidates for which we choose to develop internally depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products.
The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or Section 505(b)(2). Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials to support any difference from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the listed drug has been approved, as well as for
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any new indication(s) sought by the Section 505(b)(2) applicant as supported by additional data. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the listed drug’s label, including a bla
ck box warning, or may require additional limitations, contraindications, warnings or precautions.
If we choose to internally develop JNP-0101, JNP-0201 or JNP-0301, we intend to design our clinical programs to advance JNP-0101, JNP-0201 and JNP-0301 for registration filing in the United States using the FDA’s 505(b)(2) regulatory pathway and the hybrid application pathway, which is analogous to the 505(b)(2) regulatory pathway, in Europe. As such, our NDAs in the United States will rely, and our marketing authorization applications, or MAA, in Europe will rely, in part, on previous findings of safety and efficacy for other similar but approved products and published scientific literature. Even though we expect to be able to take advantage of Section 505(b)(2) and the hybrid application pathway to support potential regulatory approval of our product candidates in the United States and Europe, the relevant regulatory authorities may require us to perform additional clinical trials to support approval over and above the clinical trials that we currently plan to commence. The relevant regulatory authorities also may determine that we have not provided sufficient data to justify reliance on prior investigations involving the approved active ingredients in our product candidates.
In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), in the past some pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). For example, parties have filed citizen petitions objecting to the FDA approving a Section 505(b)(2) NDA on both scientific and legal and regulatory grounds. Scientific arguments have included the assertions that for the FDA to determine the similarity of the drug in the 505(b)(2) NDA to the listed drug, the agency would need to reference proprietary manufacturing information or trade secrets in the listed drug’s NDA; that it would be scientifically inappropriate for the FDA to rely on public or nonpublic information about the listed drug because it differs in various ways from the drug in the 505(b)(2) NDA; or that differences between the listed drug and the drug in the 505(b)(2) NDA may impair the latter’s safety and effectiveness. Legal and regulatory arguments have included the assertion that Section 505(b)(2) NDAs must contain a full report of investigations conducted on the drug proposed for approval, and that approving a drug through the 505(b)(2) regulatory pathway would lower the approval standards. In addition, citizen petitions have made patent-based challenges against 505(b)(2) NDAs. For example, petitioners have asserted that the FDA should refuse to file a 505(b)(2) NDA unless it references a specific NDA as the listed drug, because it is “most similar” to the proposed drug, and provides appropriate patent certification to all patents listed for that NDA; or that when a 505(b)(2) NDA is pending before the agency, but before it is approved, where the FDA approves an NDA for a drug that is pharmaceutically equivalent to the drug that is the subject of the 505(b)(2) NDA, then the FDA should require that the 505(b)(2) NDA be resubmitted referencing the approved NDA as the listed drug and certifying to the listed patents for that approved drug. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of any future product candidates we may develop.
The commercial success of Crinone and any current or future product candidates that are approved for marketing and sale, will depend upon gaining and retaining significant market acceptance of these products among physicians and payors, including perceptions related to pricing and access.
Physicians may not prescribe our products, including any current or future product candidates that are approved by the appropriate regulatory authorities for marketing and sale, which would prevent us from generating revenue or becoming profitable. Market acceptance of our products by physicians, patients, and payors, will depend on a number of factors, many of which are beyond our control, including the following:
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the clinical indications for which our product candidates are approved, if at all;
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acceptance by physicians and payors of each product as safe and effective treatment;
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the cost of treatment in relation to alternative treatments, including numerous generic drug products;
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the relative convenience and ease of administration of our products in the treatment of the symptoms for which they are intended;
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the availability and efficacy of competitive and generic drugs;
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the effectiveness of our sales force and marketing efforts;
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the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations;
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the availability of coverage and adequate reimbursement by third parties, such as insurance companies and other health care payors, or by government health care programs, including Medicare and Medicaid;
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limitations or warnings contained in a product’s FDA-approved labeling; and
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prevalence and severity of adverse side effects.
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Even if the medical community accepts that our products are safe and efficacious for their approved indications, physicians may not immediately be receptive to their use or may be slow to adopt our products as an accepted treatment for the symptoms for which they are intended. We cannot assure you that any labeling approved by the FDA will permit us
or our potential partner
to promote our products as being superior to competing products. If our products, if approved, do not achieve an adequate level of acceptance by physicians and payors, we may not generate sufficient or any revenue from these products and we may not become profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our products may require significant resources and may never be successful.
If our product candidates, are approved for sale, and the actual number of patients in the applicable market is smaller than we estimate, our revenue could be adversely affected, possibly materially.
There is no patient registry or other method for establishing with precision the actual number of patients that might benefit from our product candidates. There is no guarantee that our assumptions and estimates are correct. The number of patients our product candidates could benefit, if approved for use, could actually be significantly lower than our estimates.
We believe that the actual size of the total addressable markets for our product candidates, if approved, will be determined only after we have substantial history as a commercial company. If the total addressable market for our products is smaller than we expect, our revenue could be adversely affected, possibly materially.
The longer term growth of our business depends in part on our efforts to utilize our proprietary technologies to expand our portfolio of product candidates for development and commercialization either internally or with potential partner, which may require substantial financial resources and may ultimately be unsuccessful.
The longer term growth of our business depends in part upon our ability to utilize current and future proprietary technologies to develop and commercialize therapeutic products either internally or with potential partner. In addition, any intention to pursue the development and commercialization of JNP-0101, JNP-0201, and JNP-0301, with a potential partner will require the leveraging of our IVR technology. A significant portion of the research we conducted involves our IVR technology.
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Research programs to identify new disease targets or conditions and product candidates require substantial technical, financial, and human resources whether or not we ultimately identify any additional product candidate
s. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including that:
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the research methodology used may not be successful in identifying potential product candidates; or,
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potential product candidates may on further study be shown to have harmful side effects or other characteristics that indicate they are unlikely to be effective drugs.
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If we are able to identify additional potential product candidates and choose to pursue development internally, satisfaction of these regulatory requirements will entail substantial time, effort, and financial resources. We may never satisfy these requirements. The effort, and financial resources we expend on the identification or development of additional product candidates may impair our ability to continue development, obtain regulatory approval, and commercialize our current product candidates, or seek potential partner to do the foregoing, and we or our potential partner may never commence clinical trials of such development programs despite expending significant resources in pursuit of their development. If we or our potential partner do commence clinical trials of other product candidates, these product candidates may never demonstrate sufficient safety and efficacy to be approved by the FDA or other regulatory authorities. If any of these events occur, we may be forced to abandon our development efforts for such program or programs, which would harm our business
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Healthcare insurers and other payors may not pay for our products or may impose limits on reimbursement.
The ability of us or our potential partner to commercialize our prescription products will depend, in part, on the extent to which reimbursement for our products is available from third-party payors, such as health maintenance organizations, health insurers and other public and private payors. If we or our potential partner succeed in bringing new products to market or expand the approved label for existing products, we cannot be assured that third-party payors will pay for such products, or establish and maintain price levels sufficient for realization of an appropriate return on our investment in product development.
Government health agencies, private health maintenance organizations and other third-party payors may use one or more tools including price controls, profit or reimbursement caps, and use of formularies, or lists of drugs for which coverage is provided under a healthcare benefit plan, to control the costs of prescription drugs. Each payor that maintains a drug formulary makes its own determination as to whether a new drug will be added to the formulary and whether particular drugs in a therapeutic class will have preferred status over other drugs in the same class. This determination often involves an assessment of the clinical appropriateness of the drug and, in some cases, the cost of the drug in comparison to alternative products. Our products marketed by us or our potential partner from which we derive sales revenues and royalties may not be added to payors’ formularies, our products may not have preferred status to alternative therapies, and formulary decisions may not be conducted in a timely manner. Once reimbursement at an agreed level is approved by a payor organization, reimbursement may be lost entirely or be reduced compared to competitive products. As reimbursement is often approved for a period of time, this risk is greater at the end of the time period, if any, for which the reimbursement was approved. Our potential partner may also decide to enter into discount or formulary fee arrangements with payors, which could result in lower or discounted prices for Crinone or future products. The cost of drugs has received a lot of attention from government authorities, including the U.S. Congress, and it is impossible to predict whether legislative changes will be enacted or whether regulations or policies will be changed or what the effect of such changes, if any, may be
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If our products do not have the effects intended or cause adverse events, our business may suffer.
Although many of the ingredients in our current product candidates are approved generics, human hormones, and other substances for which there is a long history of human consumption, they also contain innovative ingredients or combinations of ingredients. Our product or product candidates could have certain undesirable adverse events, including if not taken as directed or if taken by a consumer who has certain medical conditions. In addition, our product and product candidates may not have the effect intended, including if they are not taken in accordance with certain instructions. Furthermore, there can be no assurance that our product or product candidates, even when used as directed, will have the effects intended or will not have adverse events in an
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unforeseen way or on an unforeseen cohort. If any of our products or products we or our potential partner develop or commercialize in the fu
ture are shown to be harmful or generate negative publicity from adverse events, our business, financial condition, results of operations, and prospects would be harmed significantly
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Our products could demonstrate hormone replacement risks.
In the past, certain studies of female hormone replacement therapy products, such as conjugated equine estrogen, have reported an increase in health risks. Progesterone is a natural female hormone present at normal levels in most women throughout their lifetimes. However, some women require progesterone supplementation due to a natural or chemical-related progesterone deficiency. It is possible that data suggesting risks or problems may come to light in the future that could demonstrate a health risk associated with progesterone or progestin supplementation or Crinone or our product candidates. It is also possible that future study results for hormone replacement therapy could be negative and could result in negative publicity about the risks and benefits of hormone replacement therapy. As a result, physicians and patients may not wish to prescribe or use progesterone or other hormones, including Crinone.
We may be exposed to product liability claims.
We could be exposed to future product liability claims by consumers. Although we presently maintain product liability insurance coverage at what we believe is a commercially reasonable level, such insurance may not be sufficient to cover all possible liabilities. An award against us in an amount greater than our insurance coverage could have a material adverse effect on our operations.
We face substantial competition from larger companies with considerable resources that already have comparable treatments available in the market, and they or others may also discover, develop or commercialize additional products before or more successfully than we do.
Our industry is highly competitive and subject to rapid and significant technological change as researchers learn more about diseases and develop new technologies and treatments. Our potential competitors include primarily large pharmaceutical, biotechnology, and specialty pharmaceutical companies. In attempting to achieve the widespread commercialization of our product candidates, we will face competition from established drugs and major brand names and also generic versions of these products. In addition, new products developed by others could emerge as competitors to our future products.
Our services business competes directly with the in-house research departments of pharmaceutical companies and biotechnology companies, as well as contract research companies, and research and academic institutions. We also experience significant competition from foreign companies operating under lower cost structures. Many of our competitors have greater financial and other resources than we have. We expect to face increased competition as new companies enter the market and as more advanced technologies become available. In the future, any one of our competitors may develop technological advances that render the services that we provide obsolete. While we plan to develop technologies, which will give us competitive advantages, our competitors plan to do the same. We may not be able to develop the technologies we need to successfully compete in the future, and our competitors may be able to develop such technologies before we do or provide those services at a lower cost. Consequently, we may not be able to successfully compete in the future.
Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. These companies also have long-established relationships within the medical and patient community, including patients, physicians, nurses and commercial third-party payors and government payors. Our ability to compete successfully will depend largely on our ability to:
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discover and develop product candidates that are superior to other products in the market;
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obtain required regulatory approvals;
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adequately communicate the benefits of our product candidates, if approved;
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attract and retain qualified perso
nnel;
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obtain and maintain patent and/or other proprietary protection for our product candidates and any future product candidates we may develop; and
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obtain collaboration arrangements to commercialize our product candidates and any future product candidates we may develop.
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Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval of drugs and achieving widespread market acceptance. Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we or our potential partner may commercialize and may render our product candidates or any future product candidates we may develop obsolete or non-competitive before we can recover the expenses of developing and commercializing our product candidates or any future product candidates we may develop. Our competitors may also obtain FDA or other regulatory approval of their products more rapidly than we may obtain approval of ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and more advanced technologies become available. For example, a competitor could develop therapies that are more efficacious or convenient than our product candidates. If we are unable to compete effectively, our opportunity to generate revenue from the sale of our product candidates or any future product candidates we may develop, if approved, could be impaired
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Legislative or regulatory reform of the health care system and other regulatory or statutory changes in the United States and foreign jurisdictions may adversely impact our business, operations, or financial results.
Our industry is highly regulated and changes in law may adversely impact our business, operations, or financial results. In particular, in March 2010 the Patient Protection and Affordable Care Act and a related reconciliation bill (collectively the “Affordable Care Act”) were signed into law. This legislation changes the current system of healthcare insurance and benefits and is intended to broaden coverage and control costs. The law also contains provisions that affect companies in the pharmaceutical industry and other healthcare related industries by imposing additional costs and changes to business practices. Provisions affecting pharmaceutical companies include the following:
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Mandatory rebates for drugs sold into the Medicaid program have been increased, and the rebate requirement has been extended to drugs used in risk-based Medicaid managed care plans.
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The definition of “average manufacturer price” was revised for reporting purposes, which could increase the amount of Medicaid drug rebates by state.
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The 340B Drug Pricing Program under the Public Health Service Act has been extended to require mandatory discounts for drug products sold to certain critical access hospitals, cancer hospitals and other covered entities.
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Pharmaceutical companies are required to offer discounts on brand-name drugs to patients who fall within the Medicare Part D coverage gap, commonly referred to as the “donut hole.”
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Pharmaceutical companies are required to pay an annual non-tax deductible fee to the federal government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs. The aggregated industry-wide fee is expected to total $28 billion through 2019. Since we expect our branded pharmaceutical sales to constitute a small portion of the total federal healthcare program pharmaceutical market, we do not expect this annual assessment to have a material impact on our financial condition.
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Some of the provisions of the Affordable Care Act have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. For example, the 2017 Tax Reform Act includes a provision repealing the Affordable Care Act’s individual health insurance coverage mandate, effective January 1, 2019. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse the insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge
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in California on October 25, 2017. In addition, CMS has recently proposed regulations that would give states greater flexibility in setting benchmarks for insurers in the indiv
idual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through these marketplaces. Congress will likely consider other legislation to replace elements of the ACA. Furthe
r, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Aff
ordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subse
quent legislation to replace elements of the Affordable Care Act that are repealed. Thus, the full impact of the Affordable Care Act, any law replacing elements of it, and the political uncertainty surrounding any repeal or replacement of it on our busines
s remains unclear
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In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which began in 2013, which will remain in effect until 2025 unless additional congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, increased the statute of limitations period for the government to recover overpayments to providers from three to five years. We expect that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.
In addition, in September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted giving the FDA enhanced post-marketing authority including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to ensure compliance with post-approval regulatory requirements and potential restrictions on the sale and/or distribution of approved products. Other legislative and regulatory initiatives have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. For example, the Drug Supply Chain Security Act of 2013 imposes new obligations on manufacturers of certain pharmaceutical products related to product tracking and tracing. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance documents or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Further, in some foreign jurisdictions, including the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take 12 months or longer after the receipt of regulatory approval and product launch. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.
Moreover, we cannot predict what healthcare reform initiatives may be adopted in the future. Further, federal and state legislative and regulatory developments are likely, and we expect ongoing initiatives in the United States to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated revenues from our current and future products and may affect our overall financial condition and ability to develop product candidates.
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Risks Related to Our Reliance on Third Parties
We rely on third parties to conduct our clinical trials and many of our preclinical studies. If those parties do not successfully carry out their contractual duties or meet expected deadlines, our product candidates may not advance in a timely manner or at all.
In the course of our discovery, preclinical testing, and clinical trials, we rely on third parties, including universities, investigators, and CROs, to perform critical services for us. For example, we rely on third parties to conduct our clinical trials and many of our preclinical studies. CROs and investigators are responsible for many aspects of the trials, including finding and enrolling patients for testing and administering the trials. We therefore must rely on third parties to conduct our clinical trials, but their failure to comply with all regulatory and contractual requirements, or to perform their services in a timely and acceptable manner, may compromise our clinical trials in particular or our business in general. Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial patients are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. These third parties may not be available when we need them or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner. Any failings by these third parties may compromise our clinical trials in particular or our business in general. Similarly, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated. These independent third parties may also have relationships with other commercial entities, some of which may compete with us. For example, if such third parties fail to perform their obligations in compliance with our clinical trial protocols, our clinical trials may not meet regulatory requirements or may need to be repeated. As a result of our dependence on third parties, we may face delays or failures outside of our direct control. These risks also apply to the development activities of our potential partner, and we do not control our potential partner’s research and development, clinical trials or regulatory activities.
In addition, from time to time we have prepaid research and development expenses to third parties that have been deferred and capitalized as pre-payments to secure the receipt of future preclinical and clinical research and development services. These pre-payments are recognized as an expense in the period that the services are performed. We assess our prepaid research and development expenses for impairment when events or changes in circumstances indicate that the carrying amount of the prepaid expense may not be recoverable or provide a future economic benefit, including the risk of third-party nonperformance. If there are indicators that the third parties are unable to perform the research and development services, we may be required to take an impairment charge.
Our research and development activities rely on technology licensed from third parties, and termination of any of those licenses would result in loss of significant rights to develop and market our products, which would impair our business, prospects, financial condition and results of operations.
We have been granted rights to a technology necessary for our research and development activities from third parties through license agreements. The license generally may be terminated by the licensor if we fail to perform our obligations under the agreement, including obligations to develop the product candidates under license. If terminated, we would lose the right to develop the product candidates, which could adversely affect our business, prospects, financial condition and results of operations. The license agreements also generally require us to meet specified milestones or show reasonable diligence in development of the technology. If disputes arise over the definition of these requirements or whether we have satisfied the requirements in a timely manner, or if any other obligations in the license agreements are disputed by the other party, the other party could terminate the agreement, and we could lose our rights to develop the licensed technology.
In addition, if new technology is developed from these licenses, we may be required to negotiate certain key financial and other terms, such as milestone and royalty payments, for the licensing of this future technology with the third-party licensors, and it might not be possible to obtain any such license on terms that are satisfactory to us, or at all.
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We are completely dependent on third parties to manufacture our commercial products, and we use single-source supplier for certain of our raw materials, and any difficulties, disruptions, or delays, or the need to find alternative sources, could advers
ely affect our profitability and future business prospects.
We do not currently own or operate, and currently do not plan to own or operate, facilities for the commercial manufacture of our products. We currently rely solely on third-party contract manufacturers to manufacture Crinone and will rely on third-party contract manufacturers to manufacture any product candidates that are approved for marketing and sale. We also currently have a single supplier of ethylene vinyl acetate (“EVA”) for development applications only. We do not currently have an alternative manufacturer for our drug substance and finished drug product, and we may not be able to enter into agreements with second source manufacturers whose facilities and procedures comply with cGMP, regulations and other regulatory requirements on a timely basis and with terms that are favorable to us, if at all.
Our ability to have our commercial products manufactured in sufficient quantities and at acceptable costs to meet our commercial demand and clinical development needs is dependent on the uninterrupted and efficient operation of our third-party contract manufacturing facilities. Any difficulties, disruptions or delays in the manufacturing process could result in product defects or shipment delays, suspension of manufacturing or sale of the product, recall or withdrawal of product previously shipped for commercial or clinical purposes, inventory write-offs or the inability to meet commercial demand in a timely and cost-effective manner. Furthermore, our current third-party manufacturers do not manufacture for us exclusively and may exhaust some or all of their resources meeting the demand of other customers. In addition, securing additional third-party contract manufacturers for our products will require significant time for transitioning the necessary manufacturing processes, gaining regulatory approval, and for having the appropriate oversight and may increase the risk of certain problems, including cost overruns, process reproducibility, stability issues, the inability to deliver required quantities of product that conform to specifications in a timely manner, or the inability to manufacture our products in accordance with cGMP.
Further, we and our third-party manufacturers currently purchase certain raw and other materials used to manufacture our products from third-party suppliers and, at present, do not have long-term supply contracts with most of these third parties. These third-party suppliers may cease to produce the raw or other materials used in our product or product candidates or otherwise fail to supply these materials to us or our third-party manufacturers or fail to supply sufficient quantities of these materials to us or our third-party manufacturers in a timely manner for a number of reasons, including but not limited to the following:
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unexpected demand for or shortage of raw or other materials;
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adverse financial developments at or affecting the supplier;
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regulatory requirements or action;
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an inability to provide timely scheduling and/or sufficient capacity;
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manufacturing difficulties;
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changes to the specifications of the raw materials such that they no longer meet our standards;
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lack of sufficient quantities or profit on the production of raw materials to interest suppliers;
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labor disputes or shortages; or
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import or export problems.
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Any other interruption in our third-party supply chain could adversely affect our ability to satisfy commercial demand and our clinical development needs for our products and product candidates. In addition, we or our third-party manufacturers sometimes obtain raw or other materials from one vendor only, even where multiple sources are available, to maintain quality control and enhance working relationships with suppliers, which could make us susceptible to price inflation by the sole supplier, thereby increasing our production costs. As a result of the high-quality standards imposed on our raw or other materials, we or our third-party manufacturers may not be able to obtain such materials of the quality required to manufacture our products and product candidates from an alternative source on commercially reasonable terms, or in a timely manner, if at all.
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If we are unable to have our products and product candidates manufactured on a timely or sufficient basis becau
se of the factors discussed above, we may not be able to meet commercial demand or our clinical development needs for our products and product candidates, or may not be able to manufacture our products and product candidates in a cost-effective manner. As
a result, we may lose sales, fail to generate increased revenues or suffer regulatory setbacks, any of which could have an adverse impact on our profitability and future business prospects.
For example, our IVR technology utilizes medical grade ethlyene vinyl acetate polymers for which there are a limited number of vendors from a single supplier. The EVA polymer used in our IVR products must meet certain manufacturing and quality specifications in order to be used in pharmaceutical applications. We are not aware of any companies, other than our existing supplier, which manufacture EVA meeting the specifications required for use in our pharmaceutical IVR application. We have purchased GMP pharmaceutical grade EVA from a single supplier for development applications but have not entered into a commercial supply agreement. There can be no guarantee that we will be able to enter into a commercial supply agreement under terms that are commercially acceptable. Even if an acceptable commercial supply agreement can be negotiated with our existing supplier, it may not be possible to identify a back-up, or second source of EVA, should they be unable to supply material, for any reason.
If we are unable to reach acceptable financial terms for research and commercial supplies with one of these vendors, our ability to commercialize products using the technology will be significantly delayed or prohibited.
We are dependent on single-source third-party suppliers of raw materials for our product, the loss of whom could impair our ability to manufacture and sell our products.
Medical grade, cross-linked polycarbophil, the polymer used in our BDS-based product is currently available from only one supplier, Lubrizol, Inc.(“Lubrizol”). We believe that Lubrizol will supply as much of the material as we require because our product ranks among the highest value-added uses of the polymer. In the event that Lubrizol cannot or will not supply enough of the product to satisfy our needs, we will be required to seek alternative sources of polycarbophil. An alternative source of polycarbophil may not be available on satisfactory terms or at all, which would impair our ability to manufacture and sell our product. While we purchase polycarbophil from Lubrizol from time to time, we do not have an agreement with them concerning future purchases.
Only one supplier of progesterone is approved by regulatory authorities outside the United States If this supplier is unable or unwilling to satisfy our needs, we will be required to seek alternative sources of supply. While alternative sources of progesterone exist, it would take time to receive approval in all countries in which we sell Crinone, and we may never receive approval from local regulatory authorities. We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in numerous other countries. We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.
We are dependent upon single-source third-party manufacturers for our sale of Crinone, the loss of which could result in a loss of revenues.
We rely on third parties to manufacture Crinone, including, Fleet Laboratories Limited (“Fleet”), which manufactures Crinone in bulk, Maropack AG (“Maropack”), which fills Crinone into applicators, and Central Pharma Ltd (“Central Pharma”), which packages Crinone in final containers. These third parties may not be able to satisfy our needs in the future, and we may not be able to find or obtain approval from regulatory authorities of alternate developers and manufacturers. Delays in the manufacture of Crinone could have a material adverse effect on our business. This reliance on third parties could have an adverse effect on our profit margins. Any interruption in the manufacture of Crinone would impair our ability to deliver our product to customers on a timely and competitive basis, and could result in the loss of revenues.
Currently we have only one supplier of progesterone for Crinone approved by regulatory authorities in all the countries in which we sell Crinone outside the United States. To date, we have not experienced production delays due to shortages of progesterone. Beginning in 2017, this supplier increased the price for its progesterone.
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We have identified a second supplier of progesterone. The second supplier has been approved in several countries and is in the regulatory approval process in num
erous other countries.
We expect to receive regulatory approval for our second supplier in the countries where we sell Crinone within the next two years.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses since our inception and may continue to incur losses in the future and thus may never achieve or maintain profitability.
We may incur additional operating losses over the next several years. Future operating losses may have an adverse effect on our cash resources, stockholders’ equity and working capital. If we obtain regulatory approval of any future product candidates, we may incur significant sales, marketing, and outsourced manufacturing expenses, as well as continued research and development expenses. We have completed our
in vivo
preclinical animal studies for our IVR program, and based on the final results of these studies, we plan to seek the support of one or more partners for our IVR product candidates. In 2018, we plan to incur additional research and development expenses as part of our more focused research and development strategy. In addition, we may continue to incur costs associated operating as a public company. As a result, we may incur operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all.
We may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable could depress the value of our stock and impair our ability to raise capital, expand our business, maintain our development efforts, obtain regulatory approvals, diversify our portfolio of product candidates, or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We may not be able to complete the development and commercialization of our product candidates if we fail to obtain additional financing.
We need substantial amounts of cash to complete the preclinical and clinical development of future product candidates. Although we have existing cash and cash equivalents, and future cash is expected from the ongoing results of our core operations, it may not be sufficient to fund our requirements in an expeditious manner. In addition, changing circumstances may cause us to consume funds significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We may attempt to raise additional capital from the issuance of equity or debt securities, collaborations with third parties, licensing of rights to these products, or other means, or a combination of any of the foregoing. Securing additional financing will require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from our day-to-day activities, which may adversely affect our ability to conduct our day-to-day operations. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to take one or more of the following actions:
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significantly delay, scale back, or discontinue our product development and commercialization efforts;
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seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be the case; and
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license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.
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Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to
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relinquish valuable rights to our technologies, future revenue
streams, research programs, or proposed products, or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing discovery, development, and commercialization efforts, and our ability to generate revenue and achieve or sustain profitability will be substantially harmed.
Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.
We have significant intangible assets, including goodwill and intangibles with useful lives ranging from three to seven years, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant intangible assets we have is goodwill as well as developed technology and customer relationships. We amortize our intangible assets that have finite lives using either the straight-line or accelerated method, based on the useful life of the asset over which it is expected to be consumed utilizing expected undiscounted future cash flows. Amortization is recorded over the estimated useful lives ranging from three to seven years. We assess the potential impairment of goodwill on an annual basis. Goodwill and intangible assets are assessed whenever triggering events or certain changes in circumstances have occurred. Factors that could trigger an impairment of such assets include the following:
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significant underperformance relative to historical or projected future operating results;
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significant changes in the manner of or use of the acquired assets or the strategy for our overall business;
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significant negative industry or economic trends;
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significant decline in our stock price for a sustained period;
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changes in our organization or management reporting structure that could result in additional reporting units, which may require alternative methods of estimating fair values or greater disaggregation in our analysis by reporting unit; and
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a decline in our market capitalization below net book value.
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Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations and financial position in the reporting period identified.
We are exposed to market risk from foreign currency exchange rates.
With four international subsidiaries and third-party manufacturers in the European Union, economic and political developments in the European Union can have a significant impact on our business. All of our products are currently manufactured in the European Union. We are exposed to currency fluctuations related to payment for the manufacture of our products in Euros, Pounds Sterling, Swiss Francs, and other currencies and selling them in U.S. dollars and other currencies.
Comprehensive tax reform legislation could adversely affect our business or financial condition.
The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities, referenced herein as the Tax Reform Act. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, allowing for the expensing of capital expenditures, and putting into effect the migration from a “worldwide” system of taxation to a territorial system. The overall impact of this tax reform is uncertain, and it is possible that our business and financial condition could be adversely affected. We continue to examine the impact this tax reform legislation may have on our business. We urge our shareholders to consult with their legal and tax advisors with respect to any such legislation and the potential tax consequences of investing in our ordinary shares.
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Risks Related to Our Intelle
ctual Property
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to gain approval of, and commercialize, our product candidates in foreign markets for which we may rely on collaboration with third parties. If we are able to gain approval for, and commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:
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the amount of reimbursement for our product candidates in foreign markets, and the nature of any limitations and caps on such reimbursement;
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our inability to directly control commercial activities to the extent we are relying on third parties;
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the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
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different medical practices and customs in foreign countries affecting acceptance in the marketplace;
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import or export licensing requirements;
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longer accounts receivable collection times;
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longer lead times for shipping;
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language barriers for technical training;
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reduced protection of intellectual property rights in some foreign countries;
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the existence of additional potentially relevant third-party intellectual property rights;
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foreign currency exchange rate fluctuations; and
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the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
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Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.
The patent protection for our Crinone product has expired, and our competitors may develop and commercialize generic or otherwise competitive products, the sales of which may materially affect the revenue we receive based on the sale of our Crinone product around the world.
Although our Crinone product is the primary source of our commercial revenue, the patents covering Crinone have expired in all the major jurisdictions where Crinone is currently being sold. As a result, we may face significant competition in those markets. Our competitors may develop and commercialize products that compete with Crinone, and the sales of such products may materially affect the revenue we receive from Merck KGaA, based on sales of Crinone outside the United States.
If we are unable to obtain and maintain adequate patent protection for our product candidates, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize our product candidates successfully may be adversely affected; also, the term of our or our licensor’s issued patents may be inadequate to protect our competitive position for our product candidates for an adequate amount of time.
The success of our JNP-0101, JNP-0201, and JNP-0301 product candidates depends, in part, upon our and our licensors ability to obtain and maintain patent protection in the United States and other countries for our product candidates. If we do not receive adequate intellectual property protection, our competitors may be able to erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. To protect our proprietary position, we or our licensors have filed and, when appropriate, will file patent applications in the United States and abroad to seek protection for innovations relating to our novel product candidates that are important to our business. The patent application and approval process, however, is expensive
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and time-consuming. We may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely ma
nner.
The patent position of pharmaceutical companies generally is highly uncertain. In addition, the determination of patent rights with respect to pharmaceutical products commonly involves complex legal and factual questions, which has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain.
Pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Assuming that the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. 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. Therefore, we cannot be certain that 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, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office (“USPTO”), or become involved in post-grant review procedures, oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging our or our licensor’s patent rights. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products.
Our pending and future patent applications may not result in patents being issued which protect our product candidates, in whole or in part, or which effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. In addition, the laws of foreign countries may not protect our rights to the same extent or in the same manner as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does.
Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection and prevent competitors from competing with us or otherwise provide us with any competitive advantage. For example, our competitors may be able to circumvent our patents by developing alternative formulations that have biological activities the same as or similar to our product candidates but fall outside the scope of the claims of our issued patents. Also, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our competitors may be able to commercialize products that compete with our product candidates, which may have a material adverse effect on our business position, business prospects, and financial condition.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe our patents or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke those parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our
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patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability
to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition.
Even if we prevail in our infringement action, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.
Our commercial success depends, in part, on our and our potential partner’s ability to develop, manufacture, market and sell our product candidates and to sell Crinone without infringing the intellectual property and other proprietary rights of third parties. If any third-party patents or patent applications are found to cover our product candidates or their methods of use, we may not be free to manufacture or market our product candidates as planned without obtaining a license, which may not be available on commercially reasonable terms, or at all. For example, we are aware of a United States method of use patent owned by Allergan that would apply to JNP-0301, which may require us to obtain a license in order to commercialize JNP-0301.
There is a substantial amount of intellectual property litigation in the pharmaceutical industry, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our product candidates, including interference proceedings before the USPTO. Third parties may assert infringement claims against us based on existing or future intellectual property rights. The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. The pharmaceutical industry has produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could significantly harm our business and operating results. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.
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If we are found to infringe
a third-party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such
third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we we
re able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found
to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could have a material adverse effect on our business. Claims that we ha
ve misappropriated the confidential information or trade secrets of third-parties could have a similar negative impact on our business.
If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.
While we have obtained composition of matter patents with respect to some of our product candidates, we also rely on trade secret protection for certain aspects of our technology platform, including certain aspects of our formulation and device development expertise and know-how. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, consultants, independent contractors, advisors, contract manufacturers, suppliers and other third parties. We also enter into confidentiality and invention or patent assignment agreements with employees and certain consultants. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. Furthermore, even if the information were to become available to the public by improper means, once released, we will not be able to stop other innocent parties from using the released information. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us or from disclosing the information widely. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed.
We may not be able to enforce our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly in developing countries. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents or where any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us.
Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. Additionally, laws of some countries outside of the United States and Europe do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, including India, China and other developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. Furthermore, certain foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties under certain circumstances. Consequently, we may not be able to prevent third parties from practicing our inventions in certain countries outside the United States and Europe. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to
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enforce our pa
tents to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Some of our employees, including members of our senior management, were previously employed at other pharmaceutical companies, and some of these employees, including members of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, 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 third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from that third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while we typically require our employees, consultants 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, which may result in claims by or against us related to the ownership of such intellectual property. Even if we enter into such agreements, we cannot prevent the other party from, for example, attempting to challenge the ownership or inventorship of the proprietary rights that was intended to be covered by the agreement. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our senior management and scientific personnel.
Risks Related to Ownership of Our Common Stock
The price of our common stock has been and may continue to be volatile.
The market prices and volume of securities of small specialty pharmaceutical companies, including ours, from time to time experience significant price and volume fluctuations. Historically, the market price of our common stock has fluctuated over a wide range. Between 2015 and 2017, our common stock traded in a range from $3.65 to $15.44 per share. During the twelve months ended December 31, 2017, our common stock traded in a range from $3.65 to $6.10 per share. It is likely that the price of our common stock will continue to fluctuate. In particular, the market price of our common stock may fluctuate significantly due to a variety of factors, including: the results of our operations, our ability to develop additional products and services, and general market conditions. In addition, the occurrence of any of the risks described in these “Risk Factors” could have a material and adverse impact on the market price of our common stock.
Sales of large amounts of our common stock may adversely affect our market price. The issuance of preferred stock or convertible debt may adversely affect the rights of our common stockholders.
As of December 31, 2017, we had 10,844,113 shares of common stock outstanding, all of which were freely tradable. As of that date, approximately 432,625 shares of our common stock were held by affiliates. We also have outstanding options and restricted stock. If all of these securities are exercised are exercised or converted, an additional 2.0 million shares of our common stock will be outstanding, all of which will be available for resale under the Securities Act, subject in some cases to applicable volume limitations under Rule 144 of the Securities Act. The exercise and conversion of these securities would likely dilute the book value per share of our common stock. In
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addition, the existence of these securities may adversely affect the terms on which we can obtain additional equity financing.
In March 2002, our Board of Directors authorized shares of series D junior participating preferred stock in connection with its adoption of a stockholder rights plan which plan was amended and restated on November 29, 2010 and subsequently on January 28, 2015 (the “Amended Rights Plan”), under which we issued, to holders of our common stock, rights to purchase series D convertible preferred stock. Upon certain triggering events, such rights become exercisable to purchase shares of our common stock (or, in the discretion of our Board of Directors, series D convertible preferred stock) at a price substantially discounted from the then current market price of our common stock. The Amended Rights Plan expired on July 3, 2016.
Under our certificate of incorporation, our Board of Directors has the authority to issue up to 1.0 million shares of preferred stock and to determine the price, rights, preferences and privileges of those shares without any further vote or action by our stockholders. In addition, we may issue convertible debt without shareholder approval. The rights of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock or convertible debt that may be issued in the future. While we have no present intention to authorize or issue any additional series of preferred stock or convertible debt, such preferred stock or convertible debt, if authorized and issued, may have other rights, including economic rights senior to our common stock, and, as a result, their issuance could have a material adverse effect on the market value of our common stock.
Anti-takeover provisions could impede or discourage a third party acquisition of the Company. This could prevent stockholders from receiving a premium over market price for their stock.
We are a Delaware corporation. Anti-takeover provisions of Delaware law impose various obstacles to the ability of a third party to acquire control of our company, even if a change in control would be beneficial to our existing stockholders. In addition, our Board of Directors has adopted a stockholder rights plan (as discussed above, this plan was amended and restated on November 29, 2010 and subsequently on January 28, 2015) and has designated a series of preferred stock that could be used defensively if a takeover is threatened. Our incorporation under Delaware law, our stockholder rights plan, our ability to issue additional series of preferred stock, among other things, could impede a merger, takeover or other business combination involving our company or discourage a potential acquirer from making a tender offer for our common stock. This could reduce the market value of our common stock if investors view these factors as preventing stockholders from receiving a premium for their shares.
If equity research analysts stop publishing research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity research analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.
We may be limited in our use of our net operating loss carryforwards.
As of December 31, 2017, we had federal and state net operating loss carryforwards of approximately $164.0 million and $20.0 million, respectively, that may be used to reduce our future U.S. federal income tax liabilities, if we become profitable on a federal income tax basis. If unused, these tax loss carryforwards will begin to expire in 2020 and 2018, respectively. Our ability to use these loss carryforwards to reduce our future U.S. federal income tax liabilities could also be lost if we were to experience more than a 50% change in ownership within the meaning of Section 382(g) of the Internal Revenue Code of 1986, as amended, the “Code”). If we were to lose the benefits of these loss carryforwards, our future earnings and cash resources would be materially and adversely affected.
On January 22, 2015, our Board of Directors adopted an amendment and restatement of the Amended and Restated Rights Agreement, dated as of November 29, 2010, (the “Rights Plan”), between the Company and American Stock Transfer & Trust Company, LLC, as successor rights agent as (amended and restated, the “Amended Rights Plan”). We adopted the Rights Plan to preserve the value of our net operating loss carry forwards
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by reducing the likelihood that we would experience an ownership change by discouraging any person (together with such person’s affiliates and associates), witho
ut the approval of the Board of Directors, (i) from acquiring 4.99% or more of the outstanding Voting Stock (as defined in the Rights Plan) and (ii) that currently beneficially owns 4.99% or more of the outstanding Voting Stock from acquiring more shares o
f Voting Stock, other than by exercise or conversion of currently existing warrants, convertible securities or other equity-linked securities. In general, the Amended Rights Plan leaves the Rights Plan unchanged in all material respects, other than increas
ing from 4.99% or more to 9.99% or more the percentage of outstanding shares of Voting Stock that a Person must Beneficially Own (as defined in the Amended Rights Plan) in order to qualify as an “Acquiring Person” for purposes of triggering the Rights (as
defined in the Amended Rights Plan) under the Amended Rights Plan. The Amended Rights Plan expired on July 3, 2016.
There is no guarantee that the Rights Plan will prevent an ownership change within the meaning of Section 382(g) of the Internal Revenue Code and, therefore, no guarantee that the value of our net operating loss carryforwards will be preserved.
Our management identified material weaknesses in our internal control over financial reporting for which we implemented certain remediation measures. This remediation is now complete. However, if these material weaknesses were not remediated properly, they could lead to future restatements and have a material adverse effect on our business, financial condition, cash flows and results of options and could cause the market value of our common shares and/or debt securities to decline.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and the Sarbanes-Oxley Act of 2002 and SEC rules require that our management report annually on the effectiveness of the Company’s internal control over financial reporting and our disclosure controls and procedures. Among other things, our management must conduct an assessment of the Company’s internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to audit, the effectiveness of the Company’s internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. As disclosed in Part II, Item 9A, “Controls and Procedures” of our annual report for the fiscal year ended December 31, 2016 and this report, our management, with the participation of our current President and Chief Executive Officer and our current Chief Financial Officer, implemented certain remediation measures to address the identified material weaknesses in our internal control over financial reporting, which related to technical accounting review of significant contractual agreements and our monitoring of expenses incurred under our clinical research agreements, have been remediated. As a result of these remediation measures, these material weaknesses were remediated as of December 31, 2017.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We implemented a remediation plan and addressed previously identified material weaknesses. However, if another material weaknesses is identified in the future it could result in material misstatements in our consolidated financial statements. These misstatements could result in a further restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
We cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to implement and document new and more precise monitoring controls or to implement organizational changes including skillset enhancements through resource changes or education to improve detection and communication of financial misstatements across all levels of the organization could result in additional material weaknesses, result in material misstatements in our financial statements and cause us to fail to meet our reporting obligations, which in turn could cause the trading price of our common stock to decline.
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We
do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings, if any, for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Any return to holders of our common stock would therefore be limited to the appreciation of their stock.
We could be adversely impacted by actions of activist shareholders, and such activism could impact the value of our securities.
While we continually engage the shareholders and consider their views on business and strategy, responding to activist shareholders can be costly and time-consuming, disrupt operations and divert the attention of management and employees. The uncertainties associated with such activities could interfere with our ability to effectively execute our strategic plan, impact long-term growth and limit our ability to hire and retain personnel. In addition, a proxy contest for the election of directors could require the Company to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and the board of directors. Uncertainties related to, or the results of, such activism could affect the market price and volatility of our securities.