Item 1A. Risk Factors
You should carefully consider the risks described below, together with the other information contained in this quarterly report and the
financial statements and notes thereto for the year ended
December
31, 2013 before making your decision whether to purchase or sell shares of our common stock. We cannot assure you that any of the events discussed in the risk
factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and growth prospects. If that were to happen, the trading price of our common stock could decline.
Risks Related to Our Financial Position and Capital Requirements
We are a clinical-stage company with no approved products and no historical product revenues, which makes it difficult to assess our future prospects and
financial results.
We are a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate
our business and prospects. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing our technology, undertaking preclinical
studies and clinical trials of our product candidate RPC1063, and in-licensing and preparing for the clinical development of our product candidate RPC4046. As an early stage company, we have not yet demonstrated an ability to overcome many of the
risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Consequently, the ability to predict our future operating results or business prospects is more limited than
if we had a longer operating history or approved products on the market.
Our actual financial condition and operating results have varied
significantly in the past and are expected to continue to fluctuate significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to
these fluctuations include:
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the results of our clinical trials through all phases of clinical development;
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the timing of commencement of, and enrollment in, our clinical trials;
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potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;
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our ability to obtain, as well as the timeliness of obtaining, additional funding to develop our product candidates;
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our ability to secure and maintain collaborations, licensing or other arrangements for the future development and/or commercialization of our product candidates, as well as the terms of such arrangements;
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the results of clinical trials or marketing applications for product candidates that may compete with our product candidates;
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competition from existing products, as well as new products that may receive marketing approval;
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the availability of generic versions of products that compete with our product candidates;
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the timing of regulatory review and approval of our product candidates;
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market acceptance of our product candidates that receive regulatory approval, if any;
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our ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;
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the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
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our ability, and the ability of third parties on which we rely upon for clinical development of our product candidates such as contract research organizations (CROs), to adhere to clinical study and other regulatory
requirements;
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the ability of third-party manufacturers to manufacture our product candidates for the conduct of clinical trials and, if approved, for successful commercialization;
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the cost, availability and timeliness of supply of sufficient quantities of comparator drugs used in certain of our clinical trials;
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the costs to us, and our ability as well as the ability of any third-party collaborators, to obtain, maintain and protect intellectual property rights covering our product candidates and technologies;
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costs related to potential intellectual property disputes, and the outcome of any such dispute;
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our ability to adequately support future growth;
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our ability to attract and retain key personnel to manage our business effectively;
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our ability to identify and develop additional product candidates; and
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our ability to build our finance infrastructure and improve our accounting systems and controls.
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Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early
stage drug development company, many of which are outside of our control, and past operating or financial results should not be relied on as an indication of future results.
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We
have never generated any revenue from product sales and may never be profitable.
We have incurred significant operating losses
since our inception in 2008. Our net loss attributable to common stockholders for the three months ended March 31, 2014 was approximately $21.5 million, and as of March 31, 2014, we had an accumulated deficit of $117.4 million. Our
prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and working capital. We expect to continue incurring significant research, development and other expenses
related to our ongoing operations, and to continue incurring losses for the foreseeable future. We also expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates.
We do not anticipate generating revenues from sales of products for the foreseeable future, if ever. If any of our product candidates fail in
clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain
profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavily on our success in:
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completing development and clinical trial programs for our product candidates RPC1063 and RPC4046;
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entering into collaboration and license agreements, particularly with respect to the development and commercialization of RPC1063;
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seeking and obtaining marketing approvals for any product candidates that successfully complete clinical trials;
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establishing and maintaining supply and manufacturing relationships with third parties; and
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successfully commercializing any product candidates for which marketing approval is obtained, including with one or more partners or, if launched independently, successfully establishing a sales force, marketing and
distribution infrastructure.
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If one or more of our product candidates is approved for commercial sale and we retain
commercial rights, we anticipate incurring significant costs associated with commercializing any such approved product candidate. Therefore, even if we are able to generate revenues from the sale of any approved product, we may never become
profitable. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to predict the timing or amount of expenses and when we will be able to achieve or maintain profitability, if ever.
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all.
Our operations have consumed substantial amounts of cash since inception. We are currently conducting the Phase 2 and Phase 3
portions of a Phase 2/3 study of RPC1063 in Relapsing Multiple Sclerosis (RMS) and a Phase 2 study of RPC1063 in Ulcerative Colitis (UC), and we are preparing to conduct a Phase 2 study of RPC4046 in Eosinophilic Esophagitis
(EoE). Developing pharmaceutical product candidates, including conducting clinical trials, is expensive. We will require substantial additional future capital in order to complete clinical development and, if we are successful, to commercialize any
of our current product candidates. If the US Food and Drug Administration (FDA) or any foreign regulatory agency, such as the European Medicines Agency (EMA), requires that we perform studies or trials in addition to those that we currently
anticipate with respect to the development of RPC1063 and RPC4046, or repeat studies or trials, our expenses would further increase beyond what we currently expect, and any delay resulting from such further or repeat studies or trials could also
result in the need for additional financing.
Our existing cash and cash equivalents and our access to funds through our credit and
security agreement with MidCap Funding III, LLC (MidCap), will not be sufficient for us to complete advanced clinical development of any of our product candidates or, if applicable, to prepare for commercializing any product candidate that is
approved. Accordingly, we will continue to require substantial additional capital to continue our clinical development activities and potentially engage in commercialization activities. Because successful development of our product candidates is
uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our product candidates. The amount and timing of our future funding requirements will depend on many factors, including but
not limited to:
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the progress, costs, results of and timing of our ongoing and planned clinical trials;
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our ability to enter into collaborative agreements for the development and commercialization of our product candidates, particularly RPC1063;
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the willingness of the FDA and EMA to accept our clinical and preclinical studies and other work as the basis for review and approval of product candidates;
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the outcome, costs and timing of seeking and obtaining regulatory approvals from the FDA, EMA and any similar regulatory agencies;
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whether AbbVie Bahamas Ltd. and AbbVie Inc., which we refer to together as AbbVie (formerly a part of Abbott Laboratories), exercises its option, following the availability of results from the planned
Phase 2 trial of RPC4046 in EoE, to collaborate with us on the development and commercialization of RPC4046;
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the number of product candidates and indications that we pursue, whether developed from our research program for glucagon-like peptide-1 small molecule positive allosteric modulators (GLP-1R PAMs), otherwise developed
internally or in-licensed;
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the timing and costs associated with manufacturing our product candidates for clinical trials and other studies and, if approved, for commercial sale;
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our need to expand our development activities and, potentially, our research activities;
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the timing and costs associated with establishing sales and marketing capabilities;
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market acceptance of any approved product candidates;
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the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;
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the cost to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing,
filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
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the extent to which we are required to pay milestone or other payments under our in-license agreements and the timing of such payments;
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our need and ability to hire additional management, development and scientific personnel; and
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our need to implement additional internal systems and infrastructure, including financial and reporting systems.
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Some of these factors are outside of our control. Based upon our current expected level of operating expenditures, our existing cash and cash
equivalents and our access to funds through our credit and security agreement with MidCap, we believe that we will be able to fund our operations for at least the next 12 months. This period could be shortened if there are any significant increases
beyond our expectations in spending on development programs or more rapid progress of development programs than anticipated. We do not expect our existing capital resources to be sufficient to enable us to complete the Phase 3 portion of the
Phase 2/3 study of RPC1063 in RMS. Accordingly, we expect that we will need to raise substantial additional funds in the future. Additional funding may not be available to us on acceptable terms, or at all. If we are unable to obtain funding
from equity offerings or debt financings, including on a timely basis, we may be required to:
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seek collaborators for one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;
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relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or
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significantly curtail one or more of our research or development programs or cease operations altogether.
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Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product
candidates or technologies.
We may seek additional funding through a combination of equity offerings, debt financings,
collaborations and/or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership
interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of additional indebtedness and/or the issuance of certain equity securities could result in
increased fixed payment obligations and could also result in certain additional restrictive covenants, such as limitations on our ability to incur additional debt and/or issue additional equity, limitations on our ability to acquire or license
intellectual property rights and other operating
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restrictions that could adversely impact our ability to conduct our business. In addition, issuance of additional equity securities, or the possibility of such issuance, may cause the market
price of our common stock to decline. In the event that we enter into collaborations and/or licensing arrangements in order to raise capital, we may be required to accept unfavorable terms, including relinquishing or licensing to a third party on
unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves or potentially reserve for future potential arrangements when we might be able to achieve more favorable terms.
Our credit and security agreement with MidCap contains restrictions that limit our flexibility in operating our business. We may be required to
make a prepayment or repay the outstanding indebtedness earlier than we expect under our credit and security agreement if a prepayment event or an event of default occurs, including a material adverse change with respect to us, which could have a
materially adverse effect on our business.
Our credit and security agreement with MidCap, pursuant to which we have drawn down
$5.0 million, contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:
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incur or assume certain debt;
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merge or consolidate or acquire all or substantially all of the capital stock or property of another entity;
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change the nature of our business;
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change our organizational structure or type;
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amend, modify or waive any of our organizational documents;
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license, transfer or dispose of certain assets;
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grant certain types of liens on our assets;
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make certain investments;
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enter into material transactions with affiliates; and
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amend or waive provisions of material agreements in certain manners.
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The restrictive
covenants of the agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial. A breach of any of these covenants could result in an event of default under the agreement. An event of
default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under the agreement occurs. In
the case of a continuing event of default under the agreement, MidCap could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit, proceed against the collateral in which we
granted MidCap a security interest under the agreement, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the agreement are secured by all of our existing and future assets (excluding intellectual property we own,
which is subject to a negative pledge arrangement). Additionally, in the event we receive negative clinical data for RPC1063 and discontinue development of RPC1063 for all indications in humans, at MidCaps election we could be required to
prepay an amount under the credit agreement equal to the lesser of $10.0 million or 50% of the sum otherwise then-payable upon a full repayment under the credit agreement.
We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings
to make any required prepayment or repay such indebtedness at the time any such prepayment event or event of default occurs. In such an event, we may be required to delay, limit, reduce or terminate our product development or commercialization
efforts or grant to others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our business, financial condition and results of operations could be materially adversely affected as a
result.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history. We do not anticipate generating revenues from sales of products for the foreseeable
future, if ever, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 of
the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporations
ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed our analysis to determine what, if any, impact any prior ownership change has
had on our ability to utilize our net operating loss carryfowards. In addition, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2013, we had federal net operating
loss carryforwards of approximately $87.1 million that could be limited if we have experienced, or if in the future we experience, an ownership change, which could have an adverse effect on our future results of operations.
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Risks Related to Our Business and Industry
We are heavily dependent on the success of our product candidate RPC1063. We are also dependent on the success of our product candidate RPC4046. We
cannot give any assurance that any product candidate will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized.
Our business and future success is substantially dependent on our ability to develop successfully, obtain regulatory approval for, and then
successfully commercialize our product candidate RPC1063, which is in the Phase 2 and Phase 3 portions of a Phase 2/3 study for RMS and a Phase 2 study for UC. Our business and future success also depends on our ability to develop successfully,
obtain regulatory approval for, and then successfully commercialize our product candidate RPC4046, which we are preparing for a Phase 2 study in EoE. Our product candidates will require additional clinical development, management of clinical
and manufacturing activities, regulatory approval in multiple jurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply, building of, or partnering with, a commercial organization, substantial
investment and significant marketing efforts before any revenues can be generated from product sales. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA, the EMA or any other
foreign regulatory authority, and we may never receive such regulatory approval for any of our product candidates. We cannot assure you that our clinical trials for RPC1063 or RPC4046 will be completed in a timely manner, or at all, or that we will
be able to obtain approval from the FDA, the EMA or any other foreign regulatory authority for either of these product candidates. We cannot be certain that we will advance any other product candidates into clinical trials. If any of RPC1063,
RPC4046 or any future product candidate is not approved and commercialized, we will not be able to generate any product revenues. Moreover, any delay or setback in the development of any product candidate could adversely affect our business and
cause our stock price to fall.
Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies
and trials as well as data from an interim analysis of a current clinical trial may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development. We have never completed a Phase 2 or 3 study or
submitted a New Drug Application (NDA) or a Biologics License Application (BLA).
Clinical testing is expensive and can take many
years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates and data from an interim analysis of
a current clinical trial, as well as studies and trials of other products with similar mechanisms of action to our product candidates, may not be predictive of the results of later-stage clinical trials. For example, the positive results generated
to date in preclinical and Phase 1 clinical studies for RPC1063, as well as the observations from an interim analysis of our Phase 2 study of RPC1063 in RMS, do not ensure that our current Phase 2 trials or later clinical trials will
demonstrate similar results or observations. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. In addition
to the safety and efficacy traits of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the
biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we or our
collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our
data as favorably as we do, which may delay, limit or prevent regulatory approval.
We may experience delays in our ongoing clinical
trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related
to:
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obtaining regulatory approval to commence a trial;
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reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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obtaining Institutional Review Board (IRB) approval at each site;
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obtaining regulatory concurrence on the design and parameters for the trial;
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obtaining approval for the design of the Phase2/3 trial of RPC1063 in RMS for each country targeted for trial enrollment;
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recruiting suitable patients to participate in a trial, which may be impacted by the number of competing trials that are enrolling patients;
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having patients complete a trial or return for post-treatment follow-up;
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clinical sites deviating from trial protocol or dropping out of a trial;
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adding new clinical trial sites;
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manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of comparator drug for use in clinical trials; or
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the availability of adequate financing and other resources.
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Patient enrollment, a significant
factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial,
competing clinical trials and 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 are
investigating. With respect to our clinical development of RPC1063 in RMS, the recent availability of oral therapies such as Gilenya
®
(fingolimod), Aubagio
®
(teriflunomide) and Tecfidera
®
(dimethyl fumarate) may cause patients to be less willing to participate in our clinical trial for an oral
therapy in regions in which an oral therapy has been approved. Since RMS is a competitive market in certain regions such as the US and the European Union (EU) with a number of product candidates in development, patients may have other choices with
respect to potential clinical trial participation and we may have difficulty in reaching our enrollment targets. In addition, the relatively limited number of RMS patients worldwide (estimated at 500,000) may make enrollment more challenging.
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being
conducted, by the Data Monitoring Committee (DMC) for such trial or by the FDA or other regulatory authorities. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with
regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to
demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. For example, it is possible that safety issues or adverse side effects could be
observed in one or both of our Phase 2 trials for RPC1063 in RMS and UC or the Phase 3 portion of the Phase 2/3 study of RPC1063 in RMS, which could result in a delay, suspension or termination of either or both of the Phase 2
trials or the Phase 3 portion of the Phase 2/3 study of RPC1063 in RMS. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will
be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval
process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause or lead to a delay in
the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
If RPC1063, RPC4046 or any other product candidate is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval
for it and our business would be materially harmed. For example, if the results of our Phase 2 trials ongoing for RPC1063 in RMS and/or UC, or the Phase 3 portion of our Phase 2/3 study of RPC1063 in RMS, do not achieve the primary efficacy
endpoints or demonstrate unexpected safety findings, the prospects for approval of RPC1063 as well our stock price and our ability to create stockholder value would be materially and adversely affected.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product
candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We
do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our collaborators may conduct will demonstrate consistent or adequate efficacy and safety to obtain regulatory approval to market our product candidates. If we
are unable to bring any of our current or future product candidates to market, or to acquire any marketed, previously approved products, our ability to create long-term stockholder value will be limited.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete
effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant
technological change. The competition in the RMS market is particularly intense. We have competitors both in the US and
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internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. For example, the branded RMS treatment market
today includes the ABCRs (including Avonex
®
(interferon (IFN) ß-1a), Betaseron
®
(IFN ß -1b), Copaxone
®
(glatiramer acetate) and Rebif
®
(IFN ß-1a)), Tysabri
®
(natalizumab),
mitoxantrone, Aubagio
®
, Gilenya
®
and Tecfidera
®
. In addition, in 2012 two drug
candidates for RMS were submitted for regulatory approval, laquinimod (in the EU) and LemtradaTM, and there are a number of active clinical trials ongoing in RMS for additional product candidates. For Inflammatory Bowel Disease (IBD), which consists
of UC and Crohns Disease (CD), drug sales from three therapeutic categories substantially comprise the market, including intestinal anti-inflammatory drugs (including mesalamine, budesonide, hydrocortisone and others), immunosuppressive agents
(including Remicade
®
(infliximab), Simponi
®
(golimumab), Tysabri
®
, Cimzia
®
(certolizumab pegol) and Humira
®
(adalimumab)) and antimetabolites (including methotrexate and others). In addition, there are several
late-stage pipeline programs in development for IBD indications, including Entyvio
®
(vedolizumab) which was submitted for regulatory approval for UC and CD in June 2013 and has a Prescription
Drug User Fee Act (PDUFA) action date of May 20, 2014. For EoE, there are currently no approved drugs indicated for that disorder, although steroids are prescribed off-label and several anti-inflammatory targeted drugs are in development for
EoE.
Oral RMS therapies in particular represent competition for us, since RPC1063 is being developed as an oral therapy. The first oral
treatment for RMS, Novartis Gilenya
®
, was approved in September 2010. In 2013, Gilenya
®
achieved approximately
$1.9 billion in worldwide sales and in the first quarter of 2014 achieved $552 million in worldwide sales, an increase of 31% over 2013 first quarter sales. Like RPC1063, Gilenya
®
is an
S1PR modulator, although non-selective. Whereas Gilenya
®
is already approved and is currently being marketed, RPC1063 is in the Phase 2 and Phase 3 portions of a Phase 2/3 trial for RMS
and will require significant additional clinical development before it will be eligible for approval, if ever. Gilenya
®
will thus have at least a several-year period, prior to any market
entrance by RPC1063, in which to acquire additional brand identity and market share. Aside from Gilenya
®
, other oral therapies for RMS have recently been, or may soon be, approved.
Specifically, in September 2012, Genzymes Aubagio
®
became the second oral therapy approved for RMS, and in March 2013, Biogen Idecs Tecfidera
®
became the third oral therapy approved for RMS. Of the two drug candidates for RMS submitted for regulatory approval in 2012, one (laquinimod, submitted for approval in the EU) is also an oral
therapy. The second, Sanofis Lemtrada
TM
(alemtuzumab), was approved in the EU in September 2013 as a twice-yearly, intravenously infused therapy. Following a BLA submission, the FDA provided
Sanofi with a Complete Response Letter in December 2013, and Sanofi has announced that it plans to resubmit a supplemental BLA (sBLA) in the second quarter of 2014 addressing the issues noted by the FDA in the Complete Response Letter. Although not
an S1PR modulator, Tecfidera
®
in particular has built upon the shift in treatment paradigm from a largely injectable product landscape to an oral product landscape. Tecfidera
®
achieved $877 million in sales in 2013, and in the first quarter of 2014 achieved $506 million in worldwide sales. Beyond Gilenya
®
, which
is approved, the late-stage S1PR modulator drug pipeline of potential competition in RMS consists of four programs: siponimod (under development by Novartis); ceralifimod (under development by Merck Serono and Ono Pharmaceuticals); ponesimod (under
development by Actelion); and MT-1303 (under development by Mitsubishi Tanabe).
Although we believe RPC1063 has the potential to
demonstrate differentiation as the best S1PR modulator in RMS, as clinical development of RPC1063 is conducted and trial results become known it is possible that the data will not support such differentiation, whether as a result of the
effectiveness of RPC1063 in RMS or as a result of its safety profile. With respect to efficacy, for example, whereas Gilenya
®
is a non-selective S1PR modulator with activity on four of the
five S1P receptors and RPC1063 is by comparison more selective for the S1P1R, it is possible that efficacy for an S1PR modulator benefits from, and is potentially dependent upon, broader activity among the S1P receptors and that RPC1063s
profile will not result in best-among-S1PR modulator effectiveness, or even meaningful effectiveness. Moreover, although we believe RPC1063 has the potential for clinically meaningful improved safety features, no data yet exists with respect to the
safety profile of RPC1063 beyond preclinical, Phase 1 and TQT study results and interim Phase 2 data. Inasmuch as RPC1063 will, if approved in RMS, be entering a market in which the first approved oral therapy (Gilenya
®
, which is also an S1PR modulator) will have been available since 2010, the absence of differentiation for RPC1063 as the best S1PR modulator in RMS may adversely affect the ability of RPC1063 to
be approved for commercialization. If approved, the absence of differentiation for RPC1063 as the best S1PR modulator in RMS would adversely affect the ability of RPC1063 to gain market share and otherwise be commercialized successfully. In
addition, at such time as RPC1063 is approved for marketing in RMS, if ever, the patent protection for Gilenya
®
may have lapsed, in which case generic treatments of Gilenya
®
may be available. The competition represented by generic alternatives to or versions of an S1PR modulator, including the expected lower cost of any such generic alternatives, would adversely
affect the ability of RPC1063, if approved, to gain market share and otherwise be commercialized successfully.
28
We believe that the effects of S1P1R modulation may have utility in other immune disorders in
addition to RMS, such as UC, and we have an ongoing Phase 2 study of RPC1063 in UC. Although we believe RPC1063 has the potential to be the best orally administered therapy as well as the first S1PR modulator approved for the treatment of UC,
as clinical development of RPC1063 in UC is conducted and trial results become known it is possible that the data will not support such differentiation, whether as a result of the effectiveness of RPC1063 in UC, the safety profile of RPC1063 or the
relative pace of development and potential timing for regulatory approval, if any, of RPC1063 in UC. To our knowledge, currently there are no other S1P1 modulators in clinical trials for UC. It is possible, particularly as clinical results for the
use of an S1PR modulator in UC become available (including, for example, from our Phase 2 trial of RPC1063 in UC, if successful), that an approved therapy, such as Gilenya
®
, could be used
for UC patients notwithstanding the absence of regulatory approval (so called off-label use). Where applicable, off-label use of generic alternatives to Gilenya
®
may also occur.
Xeljanz
®
(tofacitinib), Pfizers oral JAK tyrosine kinase inhibitor is approved for Rheumatoid Arthritis and currently in phase 2 development for CD and phase 3 development for UC,
completed a Phase 2 study in 2011 and is in four Phase 3 trials. Although Xeljanz
®
is not an S1P1R modulator, its advanced stage of development relative to RPC1063 in UC may provide
Xeljanz
®
with the opportunity to become the first approved oral therapy for UC. KRP203, a non-selective S1PR modulator being developed by Kyorin and Novartis, has completed a Phase 2
exploratory trial for UC under Novartis sponsorship and is in Phase 2 development for CD in Japan under Kyorin sponsorship. If RPC1063 is not the
first-approved
S1PR modulator for UC, the ability of RPC1063 to
be approved for commercialization in UC may be adversely affected. In addition, the absence of such status for RPC1063 as an S1P1R modulator and/or oral therapy in UC, as well as any off-label use of another S1P1R modulator in UC, would adversely
affect the ability of RPC1063, if approved, to gain market share and otherwise be commercialized successfully in UC.
RPC4046 is a
recombinant, humanized, high-affinity, selective, anti-interleukin-13 (IL-13) monoclonal antibody. IL-13 antagonists have demonstrated efficacy in preclinical models of allergic and other immunological disorders, with the first human
proof-of-concept data being recently obtained in a Phase 2 study of Genentechs anti-IL-13 antibody lebrikizumab for the treatment of Asthma. We have an open IND for RPC4046 and plan to initiate a Phase 2 clinical study in an
allergic/immune-mediated disorder, EoE, which is an Orphan Disease for which there is currently no FDA-approved therapy. It is possible that other anti-IL-13 antibodies may also pursue approval in EoE. For example, QAX-576, an intravenously
administered anti-IL-13 antibody currently in development by Novartis for EoE and other indications, has completed an exploratory single dose Phase 2 study in 25 patients with EoE. The absence of status for RPC4046 as the first-approved therapy
in EoE may adversely affect the ability of RPC4046, if approved, to gain market share and otherwise be commercialized successfully in EoE. If RPC4046 is not the first-approved therapy for EoE, the ability of RPC4046 to be approved for
commercialization may be adversely affected. If approved, the presence of other approved therapies, including in particular any other anti-IL-13 antibodies, would adversely affect the ability of RPC4046 to gain market share and otherwise be
commercialized successfully.
Many of our competitors have substantially greater financial, technical and other resources, such as larger
research and development staff and experienced marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. As a
result, these companies may obtain regulatory approval more rapidly than we are able and may be more effective in selling and marketing their products as well. Smaller or early stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these
industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than any drug candidate that we are currently developing or that we may develop. If approved,
our product candidates will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel
compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome
price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA, EMA or other regulatory approval or discovering, developing and commercializing medicines before we do,
which would have a material adverse impact on our business.
We believe that our ability to successfully compete will depend on, among
other things:
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the efficacy and safety of our product candidates, including as relative to marketed products and product candidates in development by third parties;
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the time it takes for our product candidates to complete clinical development and receive marketing approval;
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the ability to maintain a good relationship with regulatory authorities;
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the ability to commercialize and market any of our product candidates that receive regulatory approval;
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the price of our products, including in comparison to branded or generic competitors;
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whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicare;
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the ability to protect intellectual property rights related to our product candidates;
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the ability to manufacture and sell commercial quantities of any of our product candidates that receive regulatory approval; and
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acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare providers.
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If our competitors market products that are more effective, safer or less expensive than our future products, if any, or that reach the market
sooner than our future products, if any, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because our research approach integrates many technologies, it may be
difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may
render our technologies or product candidates obsolete, less competitive or not economical.
We may not be successful in establishing development
and commercialization collaborations, which could adversely affect, and potentially prohibit, our ability to develop our product candidates.
Developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and
marketing approved products are expensive. Accordingly, we may seek to enter into collaborations with companies that have more resources and experience. For example, we may seek a development and commercial partner for RPC1063 after the availability
of Phase 2 results, particularly since the substantial costs of developing an RMS therapy in later-stage clinical trials may otherwise be prohibitive. If we are unable to obtain a partner for RPC1063, we may be unable to advance the development
of RPC1063 through late-stage clinical development and seek approval in any market. In addition, although AbbVie has an option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, if
AbbVie declines such option, we may elect to seek a different development and commercial partner for RPC4046 if we believe such Phase 2 results warrant further development. We do not intend to enter into a collaboration agreement for the
development of RPC1063 unless we retain key decision-making, development and/or commercialization rights, and it may be difficult to find a suitable partner willing to share such rights. In situations where we enter into a development and commercial
collaboration arrangement for a product candidate, we may also seek to establish additional collaborations for development and commercialization in territories outside of those addressed by the first collaboration arrangement for such product
candidate. If any of our product candidates receives marketing approval, we may enter into sales and marketing arrangements with third parties with respect to otherwise unlicensed or unaddressed territories. There are a limited number of potential
partners, and we expect to face competition in seeking appropriate partners. If we are unable to enter into any development and commercial collaborations and/or sales and marketing arrangements on acceptable terms, if at all, we may be unable to
successfully develop and seek regulatory approval for our product candidates and/or effectively market and sell approved products, if any.
We may
not be successful in maintaining development and commercialization collaborations, and any partner may not devote sufficient resources to the development or commercialization of our product candidates or may otherwise fail in development or
commercialization efforts, which could adversely affect our ability to develop certain of our product candidates and our financial condition and operating results.
Even if we are able to establish collaboration arrangements, any such collaboration may not ultimately be successful, which could have a
negative impact on our business, results of operations, financial condition and growth prospects. When we partner with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control
over the future success of that product candidate to the third party. For example, if AbbVie elects to exercise its option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, AbbVie
will have control of any ex-US commercialization in the event RPC4046 is approved. It is possible that a partner may not devote sufficient resources to the development or commercialization of our product candidate or may otherwise fail in
development or commercialization efforts, in which event the development and commercialization of such product candidate could be delayed or terminated and our business could be substantially harmed. In addition, the terms of any collaboration or
other arrangement that we establish may not be favorable to us or may not be perceived as favorable, which may negatively impact the trading price of our common stock. In some cases, we may be responsible for continuing
30
development of a product candidate or research program under a collaboration and the payment we receive from our partner may be insufficient to cover the cost of this development. Moreover,
collaborations and sales and marketing arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain.
We are subject to a number of additional risks associated with our dependence on collaborations with third parties, the occurrence of which
could cause our collaboration arrangements to fail. Conflicts may arise between us and partners, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the
ownership of intellectual property developed during the collaboration. If any such conflicts arise, a partner could act in its own
self-interest,
which may be adverse to our best interests. Any such
disagreement between us and a partner could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product candidates, and in turn prevent us from generating sufficient revenues to
achieve or maintain profitability:
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reductions in the payment of royalties or other payments we believe are due pursuant to the applicable collaboration arrangement;
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actions taken by a partner inside or outside our collaboration which could negatively impact our rights or benefits under our collaboration; or
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unwillingness on the part of a partner to keep us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities.
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AbbVie retains rights to the antibody which is the subject of RPC4046 which could conflict with the development and commercialization of RPC4046.
RPC4046 is a recombinant, humanized, high affinity, selective anti-IL-13 monoclonal antibody. Our rights to RPC4046, which are
the subject of an exclusive development agreement with AbbVie which is limited in scope to conducting a Phase 2 study of RPC4046 in EoE, do not preclude AbbVie from using the anti-IL-13 antibody in certain other products. Whether AbbVie elects to
exercise its option to enter into a global collaboration for RPC4046 with us following the availability of Phase 2 results in EoE, or in the alternative AbbVie does not elect such a collaboration and we receive an exclusive worldwide license to
RPC4046 which will be unlimited as to indications, AbbVie will retain the right to use the anti-IL-13 antibody in certain other products. While we believe that any such product would necessarily be meaningfully different from RPC4046, there can be
no assurance that any such product would not have certain qualities in common with or similar to RPC4046 and thus be potentially competitive with RPC4046, or that adverse events arising from the clinical development of any such product would not
have an impact on the development, commercialization or potential value of RPC4046 due, for example, to such qualities. With respect to the patent portfolio for RPC4046, which is in-licensed from AbbVie, AbbVie maintains rights to prosecute and
maintain patents and patent applications within the portfolio as well as to assert such patents against infringers within and outside the scope of our license, and to defend such patents against claims of invalidity and unenforceability. Although we
have rights to consult with AbbVie on actions taken as well as back-up rights of prosecution and enforcement, another AbbVie product covered by the same patent portfolio, such as a different product using the
anti-IL-13
antibody, could potentially influence AbbVies interests in the exercise of its prosecution, maintenance and enforcement rights in a manner that may favor the interests of such other product as
compared with RPC4046. In addition, while the term of the composition of matter patent for RPC4046 in the US could be extended up to five additional years under the provisions of the
Hatch-Waxman
Act if
RPC4046 achieves regulatory approval, such an extension for RPC4046 is subject to AbbVies consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide
license to RPC4046. If the extension is otherwise available in such context it is possible that AbbVie would instead utilize or choose to reserve the opportunity for an extension of the composition of matter patent for a different product using the
anti-IL-13 antibody, in which case we would not have the benefit of a potential extended patent term for RPC4046.
The regulatory approval processes
of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following
the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain
approval may change during the course of a product candidates clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product
candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
31
Our product candidates could fail to receive regulatory approval for many reasons, including the
following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that a product candidates clinical and other benefits outweigh its safety risks;
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the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA, supplemental NDA (sNDA), BLA or other submission or to obtain regulatory approval in the US or
elsewhere;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
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the approval policies or regulations of the FDA or comparable foreign regulatory authorities may change or differ from one another significantly in a manner rendering our clinical data insufficient for approval.
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This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failure to
obtain regulatory approval to market RPC1063 and/or RPC4046, which would harm our business, results of operations and prospects significantly.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not
include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.
We have not previously submitted an NDA, a BLA, a Marketing Authorization Application (MAA) or any similar drug approval filing to the FDA,
the EMA or any comparable foreign authority for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive
regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market
one or more of our product candidates, our revenues will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights or share in revenues from the exercise
of such rights. If the markets for patient subsets that we are targeting (such as RMS, UC and EoE) are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials
and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side
effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted
indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial
condition and prospects significantly.
RPC1063 is an S1PR modulator which is selective for the GPCR termed S1P1R. Upon initial treatment,
S1PR modulators have been associated with a dose-dependent transient drop in heart rate that attenuates over time. During its
32
development program, Gilenya
®
, a non-selective S1PR modulator, was reported to cause certain cardiovascular side effects, including
abnormal slowing of the heart rate, or bradyarrhythmia, and atrioventricular (AV) blocks after first dose administration. The prescribing information for Gilenya
®
requires that six hours of
cardiac monitoring occur upon first dose administration to observe patients for potential cardiovascular side effects. In a Phase 1 study of RPC1063, the findings we observed are consistent with the biology of S1P1R agonism, including potential
dose-dependent effects on target organ systems, such as cardiovascular and pulmonary effects, with subjects treated with higher doses (such as 1.5 mg and higher) experiencing greater changes on parameters. Although pharmaceutic properties of RPC1063
including low maximum concentration (or C
max
), slow time to maximum concentration (or T
max
) and lower overall
exposure may provide the potential for an improved cardiac conduction profile which may reduce risk of cardiovascular side effects, in our ongoing development of RPC1063 we are also employing a dose titration strategy to further improve patient
outcomes upon first dose administration. Based on the high potency of RPC1063, we are exploring the potential for efficacy at a lower dose in an effort to further improve the cardiovascular safety profile. Despite these features and efforts, as
clinical development of RPC1063 is conducted and trial results become known, it is possible the data will reveal that RPC1063 may have a cardiovascular safety profile which is no better than, and possibly inferior to, Gilenya
®
. Moreover, whether or not RPC1063 has an improved profile, since RPC1063 is an S1PR modulator, physicians may nonetheless associate RPC1063 with adverse cardiovascular side effects. In connection
with any approval of RPC1063, cardiac monitoring may be required upon first dose administration to observe patients for potential cardiovascular side effects. Required cardiac monitoring as well as dose titration will adversely affect the
convenience of prescribing RPC1063 and the initiation of patients on the therapy, if RPC1063 is approved, and may thus adversely affect the adoption and market potential of RPC1063.
Common Gilenya
®
adverse reactions include headache, influenza, diarrhea, back pain,
liver transaminase elevations and cough. In addition to the risks of bradyarrhythmia and AV blocks, prescribing information warnings and precautions for Gilenya
®
include risks of infection,
macular edema, respiratory effects, hepatic effects (elevations in liver enzymes), fetal risk, blood pressure effects and immune system effects following discontinuation of therapy (long lymphocyte recovery time of one-to-two months). Aside
from hepatic effects, we believe these reactions and risks are associated with S1PR modulation. Since RPC1063 is also an S1PR modulator, although selective for S1P1R, these adverse reactions and risks could apply to use of RPC1063. However, we
believe that by virtue of its pharmaceutic properties, RPC1063 has the potential to improve upon the cardiovascular side effect profile and immune system effects following discontinuation of therapy as well as the non-class hepatic effects.
If one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such
products, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings on the label;
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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining
market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.
If serious adverse events or other undesirable side effects are identified during the development of RPC1063 or any other product candidate for one
indication, we may need to abandon our development of RPC1063 or such other product candidate for any other indications.
We are
simultaneously developing RPC1063 for both RMS and UC. When a drug candidate is in development for multiple indications, different patient populations are involved and side effects could be identified in either population. Side effects found during
the development of RPC1063 or any other product candidate for one indication, particularly if severe or having unexpected characteristics, could require us to abandon our development of RPC1063 or any other product candidate at issue for other
potential indications. We cannot assure you that severe or unexpected side effects with respect to RPC1063 or any other product candidate will not develop in current or future clinical trials, which could delay or preclude regulatory approval of
RPC1063 or any other product candidate at issue or limit its commercial use.
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We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon CROs to monitor and manage data for our preclinical and clinical programs. We rely on
these parties for execution of our preclinical and clinical trials, and we control only certain aspects of their activities. We and our CROs also rely upon clinical sites and investigators for the performance of our clinical trials in accordance
with the applicable protocols and applicable legal, regulatory and scientific standards. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol and applicable legal, regulatory
and scientific standards, and our reliance on CROs as well as clinical sites and investigators does not relieve us of our regulatory responsibilities. We, our CROs, as well as the clinical sites and investigators are required to comply with current
good clinical practices (GCPs), which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area (EEA) and comparable foreign regulatory authorities for all of our products in
clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, investigators and clinical sites. If we, any of our CROs or any of the clinical sites or investigators fail to comply with applicable
GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We
cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. We also cannot assure you that our CROs, as well as the clinical sites and
investigators, will perform our clinical trials in accordance with the applicable protocols as well as applicable legal, regulatory and scientific standards, or report the results obtained in a timely and accurate manner. In addition to GCPs, our
clinical trials must be conducted with product produced under cGMP regulations. While we have agreements governing activities of our CROs, we have limited influence over the actual performance of our CROs as well as the performance of clinical sites
and investigators. In addition, significant portions of the clinical studies for our product candidates will be conducted outside of the US, which will make it more difficult for us to monitor CROs as well as clinical sites and investigators and
perform visits of our clinical sites, and will force us to rely heavily on CROs to ensure the proper and timely conduct of our clinical trials in accordance with the applicable protocols and compliance with applicable regulations, including GCPs.
Failure to comply with applicable protocols and regulations in the conduct of the clinical studies for our product candidates may require us to repeat clinical trials, which would delay the regulatory approval process.
Some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the
subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated.
If any of our relationships with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on
commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our preclinical
and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the
failure (including by clinical sites or investigators) to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval
for or successfully commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenues
could be delayed significantly.
Switching or adding additional CROs involves additional cost and requires management time and focus. In
addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with
our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
We rely completely on third parties to manufacture our preclinical and clinical drug supplies and we intend to rely on third parties to produce
commercial supplies of any approved product candidate.
If, for any reason, we were to experience an unexpected loss of supply of
our product candidates or comparator drug used in certain of our clinical trials, whether as a result of manufacturing, supply or storage issues or otherwise, we could experience delays, disruptions, suspensions or terminations of, or be required to
restart or repeat, any pending or ongoing clinical trials. We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture
34
our preclinical and clinical drug supplies and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. The facilities used by our
contract manufacturers or other third-party manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA to the FDA. We do not control the implementation of
the manufacturing process of, and are completely dependent on, our contract manufacturers or other third-party manufacturers for compliance with the regulatory requirements, known as cGMPs, for manufacture of both active drug substances and finished
drug products. If our contract manufacturers or other third-party manufacturers cannot successfully manufacture material that conforms to applicable specifications and the strict regulatory requirements of the FDA or others, they will not be able to
secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers or other third-party manufacturers to maintain adequate quality control, quality assurance
and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative
manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical
trials. There are a limited number of suppliers for raw materials that we use to manufacture our drugs and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce
our product candidates for our clinical trials, and if approved, for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any
agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have access to a sufficient supply of a product candidate to complete the clinical trial, any significant delay
in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a contract manufacturer or other
third-party
manufacturer could
considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for
our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.
We have an open IND for our RPC4046 development program and plan to initiate a Phase 2 trial in EoE. As part of our Development License
and Option Agreement, AbbVie has agreed to manufacture quantities of RPC4046 drug substance and drug product needed for preclinical and clinical studies, including the planned Phase 2 study of RPC4046 in EoE. Should AbbVie elect at its option
to enter into a collaboration with us following the completion of the planned Phase 2 trial of RPC4046 in EoE, AbbVie can elect to manufacture and supply the collaboration with RPC4046 or effect technology transfer to a third-party manufacturer
to supply the collaboration. If AbbVie does not exercise its option to collaborate, the parties will either agree on the terms for AbbVie to supply RPC4046 to us or AbbVie will effect technology transfer to a third-party manufacturer. If technology
transfer occurs in either scenario, and if we or AbbVie are unable to arrange for such a third-party manufacturing source or fail to do so on commercially reasonable terms, or if AbbVie fails to supply RPC4046 on a timely basis, any ability to
develop and commercialize RPC4046 will be adversely affected. Additionally, an inability to effect technology transfer in a timely fashion will impact the pace and potential success of our development efforts as well as our prospects for potential
commercialization.
We expect to continue to depend on contract manufacturers or other third-party manufacturers for the foreseeable
future. We currently obtain our supplies of finished drug product through individual purchase orders. We have not entered into long-term agreements with our current contract manufacturers or with any alternate fill/finish suppliers. Although we
intend to do so prior to any commercial launch in order to ensure that we maintain adequate supplies of finished drug product, we may be unable to enter into such an agreement or do so on commercially reasonable terms, which could have a material
adverse impact upon our business.
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We rely on clinical data and results obtained by third parties that could ultimately prove to be inaccurate
or unreliable.
As part of our strategy to mitigate development risk, we seek to develop product candidates with validated
mechanisms of action and we utilize biomarkers to assess potential clinical efficacy early in the development process. This strategy necessarily relies upon clinical data and other results obtained by third parties that may ultimately prove to be
inaccurate or unreliable. Further, such clinical data and results may, at times, be based on products or product candidates that are significantly different from our product candidates. If the third-party data and results we rely upon prove to be
inaccurate, unreliable or not applicable to our product candidates, we could make inaccurate assumptions and conclusions about our product candidates and our research and development efforts could be materially adversely affected.
Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing obligations and continued regulatory review,
which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory
requirements or experience unanticipated problems with our products.
Any regulatory approvals that we receive for our product
candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly
post-marketing
testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. For example, the prescribing information for Gilenya
®
requires that six hours of cardiac monitoring occur upon first dose administration to observe patients for potential cardiovascular side effects. In connection with any approval of RPC1063,
cardiac monitoring may be required upon first dose administration. Required cardiac monitoring will adversely affect the convenience of prescribing RPC1063 and the initiation of patients on the therapy, if RPC1063 is approved, and may thus adversely
affect the adoption and market potential of RPC1063.
If the FDA or a comparable foreign regulatory authority approves any of our product
candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These
requirements include submissions of safety and other post-marketing information and reports, registration requirements and continued compliance with cGMPs and GCPs for any clinical trials that we conduct post-approval. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
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fines, warning letters or holds on clinical trials;
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refusal by the FDA to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
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The FDAs policies may
change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements
or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We currently have no marketing and sales organization. To the extent any of our product candidates for which we maintain commercial rights is approved
for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell any product candidates, or
generate product revenues.
We currently do not have a marketing or sales organization for the marketing, sales and distribution
of pharmaceutical products. In order to commercialize any product candidates that receive marketing approval, we would have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third
parties to perform these services, and we may not be successful in doing so. In the event of successful development of RPC1063 and/or RPC4046, we may elect to build a targeted specialty sales force which will be expensive and time consuming. Any
failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the
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commercialization of these products. With respect to our product candidates, we may choose to partner with third parties that have direct sales forces and established distribution systems, either
to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. In the instance of RPC4046, should AbbVie elect to enter into a collaboration with us following completion of the planned
Phase 2 trial of RPC4046 in EoE, then we will have co-promotion and commercialization rights with AbbVie in the US with AbbVie having control of commercialization outside the US. If we are unable to enter into collaborations with third parties
for the commercialization of approved products, if any, on acceptable terms or at all, or if any such partner (including AbbVie if it exercises its option to collaboration with us on RPC4046) does not devote sufficient resources to the
commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval. If we are not successful in commercializing our
product candidates, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.
Although we have obtained SPA agreements for the Phase 3 portion of our Phase 2/3 study of RPC1063 for RMS as well as a second planned
Phase 3 study of RPC1063 in RMS, these agreements do not guarantee any particular outcome from regulatory review of these trials of RPC1063.
We have obtained SPA agreements from the FDA for the Phase 3 portion of our Phase 2/3 study of RPC1063 for RMS (called RADIANCE) as
well as a second planned Phase 3 study of RPC1063 in RMS. The FDAs SPA process creates a written agreement between the sponsoring company and the FDA regarding clinical trial design and other clinical trial issues that can be used to
support approval of a product candidate. The SPA is intended to provide the sponsoring company with assurance that if the agreed upon clinical trial protocols are followed and the clinical trial endpoints are achieved, the data may serve as the
primary basis for an efficacy claim in support of an NDA. However, SPA agreements are not a guarantee of an approval of a product candidate or any permissible claims about the product candidate. In particular, SPA agreements are not binding on the
FDA if previously unrecognized public health concerns arise during the performance of the clinical trial, if other new scientific concerns regarding product candidate safety or efficacy arise or if the sponsoring company fails to comply with the
agreed upon clinical trial protocols. SPA agreements do not address all of the variables and details that may go into planning for or conducting a clinical trial, and any change in the protocol for a clinical trial can invalidate the SPA agreement
unless the change is intended to improve the clinical trial at issue and the FDA agrees in writing prior to implementation. A protocol change entails a resubmission to the FDA and triggers a new cycle of FDA review which is not limited to the
change. In the event of a resubmission, there can be no assurance that the FDA will agree with the proposed changes or that delays in the applicable development program will not occur as a result. Moreover, there can be no assurance that the FDA
will ultimately consider either of our SPA agreements to be binding, in which event the FDA could assert that additional data, including data obtained through one or more additional clinical trials, may be required to support a regulatory
submission. In addition, while an SPA agreement addresses the requirements for submission of an NDA, the results of the related clinical trial(s) may not support FDA approval.
Our revenues to date have been generated through our collaboration agreements and we may not receive any additional revenues under such agreements.
To date, our sources of revenue have been the upfront and milestone payments received under now-concluded collaborations
utilizing our proprietary GPCR platform with Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Eli Lilly & Co., as well as a completed collaboration and ongoing technology transfer program with Ono
Pharmaceutical Co., Ltd. We do not expect to receive further payments pursuant to the collaborations with Ortho-McNeil-Janssen Pharmaceuticals and Eli Lilly. Additional payments under the collaboration with Ono Pharmaceuticals are based on
the achievement of various research, development and technology transfer milestones. Future payments from Ono Pharmaceuticals are uncertain because the nature of the research, development and technology transfer activities is inherently uncertain,
and Ono Pharmaceuticals may choose not to pursue activities that would support achievement of the milestones. If we do not receive any further milestone payments from Ono Pharmaceuticals and we are unable to enter into new collaborations utilizing
our proprietary GPCR platform, then our reliance on other potential sources of funding for our operations will be increased. Financing from such other potential sources may not be available to us on acceptable terms, or at all.
Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, healthcare payors,
patients and the medical community.
Even if we obtain regulatory approval for one or more of our product candidates, the product
may not gain market acceptance among physicians, healthcare payors, patients and the medical community, which is critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors,
including:
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the efficacy and safety as demonstrated in clinical trials;
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the timing of market introduction of the product candidate as well as competitive products;
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the clinical indications for which the product candidate is approved;
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acceptance by physicians, the medical community and patients of the product candidate as a safe and effective treatment;
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the convenience of prescribing and initiating patients on the product candidate, which may be adversely affected in the instance of RPC1063 by dose titration as well as cardiac monitoring upon first dose administration;
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the potential and perceived advantages of such product candidate over alternative treatments;
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the cost of treatment in relation to alternative treatments, including any similar generic treatments;
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the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;
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relative convenience and ease of administration;
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the prevalence and severity of adverse side effects; and
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the effectiveness of sales and marketing efforts.
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If our product candidates are approved but
fail to achieve an adequate level of acceptance by physicians, healthcare payors, patients and the medical community, we will not be able to generate significant revenues, and we may not become or remain profitable.
Even if we obtain and maintain approval for any of our product candidates from the FDA, we may never obtain approval for such product candidates outside
of the US, which would limit our market opportunities and adversely affect our business.
Sales of our product candidates outside
of the US will be subject to foreign regulatory requirements governing clinical trials and marketing approval and, to the extent that we retain commercial rights following clinical development, we would plan to seek regulatory approval to
commercialize our product candidates in the US, the EU and additional foreign countries. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing
and marketing of the product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the US, including additional
preclinical studies or clinical trials. In many countries outside the US, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our products
is also subject to approval. We may decide to submit an MAA to the EMA for approval in the EEA. As with the FDA, obtaining approval of an MAA from the EMA is a similarly lengthy and expensive process and the EMA has its own procedures for approval
of product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming
clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the US and the EEA also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries.
Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. Further,
clinical trials conducted in one country may not be accepted by regulatory authorities in other countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval
in one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our product candidates may be withdrawn. If we fail to comply with the regulatory requirements in international markets and
or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected.
Coverage and reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. Recent legislative and
regulatory activity may exert downward pressure on potential pricing and reimbursement for any of our product candidates, if approved, that could materially affect the opportunity to commercialize.
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. To the extent that we retain
commercial rights following clinical development, we would seek approval to market our product candidates in the US, the EU and other selected foreign jurisdictions. Market acceptance and sales of our product
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candidates, if approved, in both domestic and international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our
product candidates and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and
establish payment levels. We cannot be certain that coverage and adequate reimbursement will be available for any of our product candidates, if approved. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the
price paid for, any of our product candidates, if approved. If reimbursement is not available or is available on a limited basis for any of our product candidates, if approved, we may not be able to successfully commercialize any such product
candidate. Reimbursement by a third-party payor may depend upon a number of factors, including, without limitation, the third-party payors determination that use of a product is:
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a covered benefit under its health plan;
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safe, effective and medically necessary;
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appropriate for the specific patient;
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neither experimental nor investigational.
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Obtaining coverage and reimbursement approval for a
product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We may not be able to
provide data sufficient to gain acceptance with respect to coverage and reimbursement or to have pricing set at a satisfactory level. If reimbursement of our future products, if any, is unavailable or limited in scope or amount, or if pricing is set
at unsatisfactory levels such as may result where alternative or generic treatments are available, we may be unable to achieve or sustain profitability.
In some foreign countries, particularly in the EU, the pricing of prescription pharmaceuticals 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 may be required to conduct
additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of any of our product candidates, if approved, is unavailable or limited in scope or amount in a particular
country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.
In the US, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) changed the way Medicare covers and pays for
pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any
therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for
physician-administered
drugs. Any negotiated prices for any of our product candidates, if approved,
covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain outside of the Medicare Part D prescription drug plan. Moreover, while Medicare Part D applies only to drug benefits for
Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment under Medicare Part D may result in a similar reduction in payments from
non-governmental payors.
The US and several other jurisdictions are considering, or have already enacted, a number of legislative and
regulatory proposals to change the healthcare system in ways that could affect our ability to sell any of our product candidates profitably, if approved. Among policy-makers and payors in the US and elsewhere, there is significant interest in
promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the US, the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or
lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or
reduce costs of healthcare may adversely affect:
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the demand for any of our product candidates, if approved;
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the ability to set a price that we believe is fair for any of our product candidates, if approved;
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our ability to generate revenues and achieve or maintain profitability;
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the level of taxes that we are required to pay; and
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the availability of capital.
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In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Affordability Reconciliation Act (collectively, ACA), became law in the US. The goal of ACA is to reduce the cost of healthcare and substantially change the way healthcare is financed by both governmental and private insurers. The ACA
may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of any of our product candidates, if they are approved. Provisions of ACA relevant to the pharmaceutical industry include the following:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government
healthcare programs;
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an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;
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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts on negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D;
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extension of manufacturers Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
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expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain
individuals with income at or below 133% of the Federal Poverty Level beginning in 2014, thereby potentially increasing manufacturers Medicaid rebate liability;
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expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
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new requirements under the federal Open Payments program and its implementing regulations;
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expansion of healthcare fraud and abuse laws, including the federal False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
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a licensure framework for follow-on biologic products; and
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a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research.
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In addition, other legislative changes have been proposed and adopted since ACA was enacted. These changes include aggregate reductions to
Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to
several types of providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare
funding.
Our future success depends on our ability to retain our executive officers and to attract, retain and motivate qualified personnel. If we
are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our industry has experienced a high rate of turnover of management personnel in recent years. Our ability to compete in the highly competitive
biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Faheem
Hasnain, our President and Chief Executive Officer, Graham Cooper, our Chief Financial Officer, Sheila Gujrathi, our Chief Medical Officer, Marcus Boehm, our Chief Technology Officer, Robert Peach, our Chief Scientific Officer, Chrysa Mineo, our
Senior Vice President of Corporate Development, and Christian Waage, our Senior Vice President and General Counsel, whose services are critical to the successful implementation of our product candidate acquisition, development and regulatory
strategies. We are not aware of any present intention of any of these individuals to leave our company. In order to induce valuable employees to continue their employment with us, we have provided stock options that vest over time. The value to
employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment
with us at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could harm our business, financial condition and prospects. Our success
also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
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We may not be able to attract or retain qualified management and scientific personnel in the
future due to the intense competition for a limited number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we compete against for qualified personnel
have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be
more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize product candidates will be limited.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of March 31, 2014, we had 49 full-time employees. As our development and commercialization plans and strategies develop, we expect to
need additional managerial, operational, scientific, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including:
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managing our clinical trials effectively;
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identifying, recruiting, maintaining, motivating and integrating additional employees;
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managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
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improving our managerial, development, operational and finance systems; and
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expanding our facilities.
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As our operations expand, we expect that we will need to manage
additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to
manage any future growth effectively. To that end, we must be able to hire, train and integrate additional management, scientific, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to
accomplish any of them could prevent us from successfully growing our company.
If we engage in an acquisition, reorganization or business
combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.
From time
to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further expand and develop our business. These initiatives may include acquiring businesses, technologies or products or entering
into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue equity securities that would dilute our stockholders;
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incur substantial debt that may place strains on our operations;
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spend substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume substantial actual or contingent liabilities;
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reprioritize our development programs and even cease development and commercialization of our product candidates; or
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merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or shares of the other company on terms that certain of our stockholders may not deem
desirable.
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Although we intend to evaluate and consider acquisitions, reorganizations and business combinations in the
future, we have no agreements or understandings with respect to any acquisition, reorganization or business combination at this time.
Failure to
build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies and our ability to accurately report
our financial condition, results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
As a public company, we operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act
of 2002 (Sarbanes-Oxley Act), and the related rules and regulations of the Securities and
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Exchange Commission (SEC), expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Requirements under the Sarbanes-Oxley Act include establishing
corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial
fraud.
We are continuing to implement upgrades to our system of internal controls over financial reporting and preparing the
documentation necessary to perform and document the evaluation needed to comply with Section 404(a) of the Sarbanes-Oxley Act. We anticipate that we will need to continue building upon our financial infrastructure, enhancing internal
controls and training our financial and accounting staff.
Beginning with our annual report on Form 10-K following the date we are no
longer an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), we will be required to obtain from our independent registered public accounting firm an attestation report on the effectiveness
of our internal control over financial reporting. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more,
(ii) December 31, 2018, (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the
rules of the SEC.
We are required to perform system and process evaluation and testing of our internal controls over financial
reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend
significant management efforts. If we identify, or our independent registered public accounting firm identifies, deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock
could decline and we could be subject to sanctions or investigations by the NASDAQ Stock Market (NASDAQ), the SEC or other regulatory authorities, which would require additional financial and management resources. New laws and regulations as well as
changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act and rules adopted by the SEC and by NASDAQ, would likely result in increased costs to us as we respond to these
requirements.
If we cannot prepare and disclose, in a timely manner, our consolidated financial statements and other required disclosures
or comply with the Sarbanes-Oxley Act or existing or new reporting requirements, or if we cannot prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could
have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws
and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and
biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the
event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal
fines and penalties.
Although we maintain workers compensation insurance to cover us for costs and expenses we may incur due to
injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply
with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result
in substantial fines, penalties or other sanctions.
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Any future relationships with customers and third-party payors may be subject, directly or indirectly, to
applicable anti-kickback laws, fraud and abuse laws, false claims laws, health information privacy and security laws and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages,
reputational harm, administrative burdens and diminished profits and future earnings.
If we obtain FDA approval for any of our
product candidates and begin commercializing those products in the US, our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the
business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to health information privacy and security regulation by the
federal government and by the US states and foreign jurisdictions in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for,
either the referral of an individual, or the purchase or recommendation of an item or service for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties against individuals or entities for knowingly presenting,
or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal
government;
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the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false
statements relating to healthcare matters;
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HIPAA, as amended by the Health Information Technology and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, which imposes certain obligations, including mandatory contractual terms,
on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by
non-governmental
third-party
payors, including private insurers, and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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Efforts to ensure
that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may
apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and
Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to
criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.
If product liability
lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of any of our product candidates, if approved.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk
if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may
include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If
we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to stop development or, if approved, limit commercialization of our product candidates. Even successful defense would
require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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delay or termination of clinical studies;
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injury to our reputation;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of managements time and our resources;
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substantial monetary awards to trial participants or patients;
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decreased demand for our product candidates;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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loss of revenues from product sales; and
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the inability to commercialize any our product candidates, if approved.
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Our inability to
obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the development or commercialization of our product candidates. We currently carry
$10 million in clinical trial liability insurance, which we believe is appropriate for our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an
amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have
no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such
amounts.
We are conducting a substantial portion of the clinical trials for our product candidates outside of the US. If approved, we intend to
market our product candidates abroad. We will thus be subject to the risks of doing business outside of the US.
We are conducting
a substantial portion of our clinical trials outside of the US and, if approved, we intend to market our product candidates outside of the US. We are thus subject to risks associated with doing business outside of the US. With respect to our product
candidates, we may choose to partner with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems outside of the US or in lieu of our own sales force and
distribution systems, which would indirectly expose us to these risks. Our business and financial results in the future could be adversely affected due to a variety of factors associated with conducting development and marketing of our product
candidates, if approved, outside of the US, including:
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efforts to develop an international sales, marketing and distribution organization may increase our expenses, divert our managements attention from the acquisition or development of product candidates or cause us
to forgo profitable licensing opportunities in these geographies;
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changes in a specific countrys or regions political and cultural climate or economic condition;
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unexpected changes in foreign laws and regulatory requirements;
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difficulty of effective enforcement of contractual provisions in local jurisdictions;
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inadequate intellectual property protection in foreign countries;
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trade-protection measures, import or export licensing requirements such as Export Administration Regulations promulgated by the US Department of Commerce and fines, penalties or suspension or revocation of export
privileges;
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regulations under the US Foreign Corrupt Practices Act and similar foreign anti-corruption laws;
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the effects of applicable foreign tax structures and potentially adverse tax consequences; and
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significant adverse changes in foreign currency exchange rates which could make the cost of our clinical trials, or the cost of drug supply or comparator drug supply to the extent conducted or sourced outside of the US,
more expensive.
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Risks Related to Our Intellectual Property
If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete
effectively in our market.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to
protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological
achievements, thus eroding our competitive position in our market.
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The strength of patents in the biotechnology and pharmaceutical field involves complex legal and
scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the US or in other foreign countries. Even if patents have issued, or do successfully issue, from patent applications,
third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications may not
adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patents and patent applications we hold, license or pursue with respect to our product
candidates is threatened, it could threaten our ability to commercialize our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market any of our product candidates under patent
protection, if approved, would be reduced. Since patent applications in the US and most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any patent application
related to our product candidates. Furthermore, an interference proceeding can be provoked by a third party or instituted by the US Patent and Trademark Office (PTO) to determine who was the first to invent any of the subject matter covered by the
patent claims of our applications.
The patent portfolio for RPC1063 contains patents and patent applications directed to compositions of
matter for RPC1063 and multiple chemical scaffolds as well as certain of their metabolites, synthetic intermediates, manufacturing methods, and methods of use. As of March 31, 2013, we owned or had exclusive license (from The Scripps Research
Institute (TSRI)) to six issued US patents and six pending US patent applications as well as corresponding foreign patents and patent applications issued or pending in Canada, Europe, Japan, Australia, Mexico, Eurasia, South Korea, China, New
Zealand, Malaysia, Philippines, Singapore, Brazil, India, Israel, and South Africa. We expect the composition of matter patent for RPC1063 (which is in-licensed from TSRI), if the appropriate maintenance, renewal, annuity or other
governmental fees are paid, to expire in 2029 (worldwide). It is possible, assuming RPC1063 achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the
provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act). Patent term extension may similarly be available in certain foreign countries upon regulatory approval. We expect the other patents and patent
applications in this portfolio, if issued, and if the appropriate maintenance, renewal, annuity, or other governmental fees are paid, to expire from 2030 to 2032.
The patent portfolio for RPC4046, which is in-licensed from AbbVie, contains issued patents and pending patent applications directed to
compositions of matter for RPC4046 and certain of their methods of use. As of March 31, 2013, this in-licensed portfolio consisted of two issued US patents, one pending US patent application, and corresponding foreign pending patent
applications in Europe, Japan, China, Canada, Australia, Mexico, Norway, Korea, Russia, and Costa Rica. We expect the issued composition of matter patent in the US, if the appropriate maintenance, renewal, annuity or other governmental fees are
paid, to expire in 2028. It is possible, assuming RPC4046 achieves regulatory approval, that the term of the composition of matter patent in the US may be extended up to five additional years under the provisions of the Hatch-Waxman Act, although
such an extension is subject to AbbVies consent where AbbVie does not exercise its option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046, and thus the possibility that
AbbVie utilizes or chooses to reserve the opportunity for an extension of that patent in such context for a different drug. We expect the pending foreign patent applications in the portfolio, if issued, and if the appropriate maintenance, renewal,
annuity, or other governmental fees are paid, to expire in 2027. Patent term extension may similarly be available, also subject to AbbVies consent, in certain foreign countries upon regulatory approval.
The patent portfolio for our GLP-1R PAMs program contains pending patent applications directed to certain compositions of matter for
multiple chemical scaffolds as well as one issued patent directed to certain methods of use. As of March 31, 2013, we owned one issued US patent and five pending US patent applications and corresponding foreign patent applications, including
one pending PCT application as well as applications pending in Europe and Japan. We expect the composition of matter patents in the US, if issued from the pending patent applications and if the appropriate maintenance, renewal, annuity or other
governmental fees are paid, to expire from 2031 to 2032. It is possible that the term of the composition of matter patents in the US, if issued, may be extended up to a maximum of five additional years under the provisions of the Hatch-Waxman Act if
a clinical candidate covered by such a patent is selected for development and subsequently receives regulatory approval. We expect the corresponding foreign patent applications in the portfolio, if issued, and if the appropriate maintenance,
renewal, annuity, or other governmental fees are paid, to expire from 2031 to 2032. Patent term extension may similarly be available in certain foreign countries upon regulatory approval.
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The patent portfolio for our proprietary GPCR structure determination portfolio, which is
in-licensed from TSRI, includes patents and patent applications directed primarily to methods and compositions for obtaining high resolution crystals of G-protein coupled receptors. As of December 31, 2013, we had exclusive commercial license
rights from TSRI to two US patents, two pending US patent applications and foreign patent applications in Australia, Canada, China, Eurasia, Europe, Israel, India, Japan, Korea, New Zealand and Singapore related to GPCR structure determination.
We expect the patent and any patent applications in the US or corresponding foreign patent applications which issue, if the appropriate maintenance, renewal, annuity or other governmental fees are paid, to expire from 2028 to 2032.
In addition to the protection afforded by patents, we seek to rely on trade secrets and know-how to develop and maintain our competitive
position. We seek to protect our proprietary data and processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and partners. These agreements are designed
to protect our proprietary information, although we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or
independently develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and
electronic security of our information technology systems. With respect to our proprietary GPCR structure determination technology platform, we consider trade secrets and know-how to be our primary intellectual property. Trade secrets and
know-how can be difficult to protect. In particular, we anticipate that with respect to this GPCR structure determination technology platform, these trade secrets and know-how will over time be disseminated within the industry through
independent development, the publication of journal articles describing methodology for crystallization of membrane proteins, and the movement of personnel skilled in the art from academic to industry scientific positions. 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 competitor from using that technology or information to compete with us, which could harm our competitive position. Further, the
laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the US. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the US
and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially
adversely affect our business, results of operations and financial condition.
Third-party claims of intellectual property infringement may prevent
or delay our drug discovery and development efforts.
Our commercial success depends in part on our avoiding infringement of the
patents and proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including interference and reexamination
proceedings before the PTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous US and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are
developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement of the patent rights of others.
Third parties may assert that we are employing their proprietary technology without authorization. As a result of searching patent literature
in support of patent protection and otherwise evaluating the patent landscape, we are aware of third-party patents, and third-party patent applications which may issue, with coverage that could be asserted with respect to mechanisms of action and
uses or formulations of RPC4046, which if successful could materially affect any commercialization of RPC4046 contemplated by us, if RPC4046 is approved. Similarly, we are also aware of a third-party patent, and third-party patent applications which
may issue, with respect to certain dosing regimens for S1P1R modulators. Such patent contains broad claims to administering an S1P receptor agonist (including for treatment of Multiple Sclerosis) at a dosage lower than the standard daily dosage, and
then increasing the dosage to the standard daily dosage (including to ameliorate a negative chronotropic effect of the S1PR agonist). While we do not believe that any claims of such patent that could otherwise materially adversely affect
commercialization of RPC1063 (if approved) are valid and enforceable, we may be incorrect in this belief. In addition, other patents may issue from third-party patent applications with respect to certain dosing regimens with coverage broader than
any product candidate being developed by a party seeking such a patent, which could adversely affect our ability to commercialize RPC1063 if RPC1063 is approved, and if it is included within such coverage together with its dosing regimen. We are
also aware of pending third-party patent applications with claims to broad generic structural formulas, which claims if issued in their broadest form could adversely affect commercialization of RPC1063, if RPC1063 is approved. In addition, we are
aware of a portfolio of patents and pending third party patent applications with respect to certain GPCR structure-based drug discovery and design technology. While we do not believe that any of the currently issued patents in such portfolio
affect the manner in which we are utilizing our proprietary GPCR
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structure-based drug discovery and design technology, if a patent were to issue from any pending application in such portfolio with coverage affecting the manner in which we utilize such
technology, our ability to utilize such technology or to use the results of any such utilization could be adversely affected. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of
manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents
that our product candidates may infringe. Third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patent were held by a court of competent jurisdiction to cover the
manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patent may be able to block our ability to develop and commercialize such product
candidate unless we obtain a license under the applicable patent or limit or modify our manufacturing process to avoid the coverage of the patent, or until such patent expires or is finally determined to be invalid or unenforceable. Similarly, if
any third-party patent were held by a court of competent jurisdiction to cover aspects of the formulation of any of our product candidates or any method of use of any of our product candidates, including any therapy or patient selection methods, the
holder of any such patent may be able to block our ability to develop and commercialize such product candidate unless we obtain a license under the applicable patent or limit or modify the formulation or use, or until such patent expires or is
finally determined to be invalid or unenforceable. Where a license to a third-party patent is needed, such a license may not be available on commercially reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop
and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a
successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement (which may include situations in which we had knowledge of an issued patent but
nonetheless proceeded with activity which infringed such patent), obtain one or more licenses from third parties, limit our uses, pay royalties or redesign our infringing product candidates, which may be impossible or require substantial time and
monetary expenditure. We cannot predict whether any required license would be available on commercially reasonable terms, if at all. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our
research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In such an event, we would be unable to further
develop and commercialize any of our product candidates at issue, which could harm our business significantly.
Patent protection and patent
prosecution for some of our product candidates is dependent on, and the ability to assert patents and defend them against claims of invalidity is maintained by, third parties.
While we normally seek and gain the right to prosecute fully the patents relating to our product candidates, there may be times when patents
that relate to our product candidates are controlled by our licensors. The patent portfolio for our proprietary GPCR structure determination technology and a portion of the patent portfolio for RPC1063 (including a composition of matter patent
for RPC1063) are each in-licensed from TSRI. Although TSRI prosecutes and maintains the patent portfolio, we have the right to consult with TSRI on any action taken. With respect to the patent portfolio for RPC4046, which is in-licensed from AbbVie,
AbbVie maintains rights to prosecute and maintain patents and patent applications within the portfolio as well as to assert such patents against infringers within and outside the scope of our license and to defend such patents against claims of
invalidity and unenforceability, although we have rights to consult with AbbVie on actions taken as well as back-up rights of prosecution and enforcement. If TSRI, AbbVie or any future licensor fails to appropriately prosecute and maintain patent
protection for patents covering any of our product candidates, or if patents covering any of our product candidates are asserted against infringers or defended against claims of invalidity or unenforceability in a manner which adversely affects such
coverage, our ability to develop and commercialize any such product candidate may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use,
we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or one of our licensors is not valid or is unenforceable, or may refuse
to stop the other party in such infringement proceeding from using the technology at issue on the grounds that our patents do
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not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable or
interpreted narrowly, and could put any of our patent applications at risk of not yielding an issued patent.
Interference proceedings
provoked by third parties or brought by the PTO or any foreign patent authority may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could
require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, if any license is
offered at all. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees.
We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in
countries where the laws may not protect those rights as fully as in the US. 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 this type of litigation. In addition, there could 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 substantial adverse effect on the price of our common stock.
We may not be able to protect
our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates
throughout the world would be prohibitively expensive. 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 but enforcement is not as strong as in the US. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property
rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain
countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the
infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention
from other aspects of our business.
If we breach any of the agreements under which we license the use, development and commercialization rights to
our product candidates or GPCR structure determination technology from third parties, we could lose license rights that are important to our business.
The patent portfolio for our proprietary GPCR structure determination technology and a portion of the patent portfolio for RPC1063
(including a composition of matter patent for RPC1063) are each in-licensed from TSRI. The patent portfolio for RPC4046 is in-licensed from AbbVie. Under our existing license agreements, we are subject to various obligations, including diligence
obligations such as development and commercialization obligations, as well as potential royalty payments and other obligations. If we fail to comply with any of these obligations or otherwise breach our license agreements, our licensing partners may
have the right to terminate the applicable license in whole or in part. Generally, the loss of any one of our current licenses, or any other license we may acquire in the future, could materially harm our business, prospects, financial condition and
results of operations.
In particular, the loss of the license from TSRI to a portion of the patent portfolio for RPC1063, inasmuch as it
includes a composition of matter patent for RPC1063, would materially adversely affect our ability to proceed with any development or potential commercialization of RPC1063. In addition, the loss of the license from AbbVie for RPC4046 would likely
result in the termination of our efforts with respect to RPC4046.
Intellectual property rights do not necessarily address all potential threats to
our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because
intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we own or have licensed;
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We or our licensors or partners might not have been the first to make the inventions covered by an issued patent or pending patent application that we own or have exclusively licensed;
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We or our licensors or partners might not have been the first to file patent applications covering an invention;
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Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
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Pending patent applications that we own or have licensed may not lead to issued patents;
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Issued patents that we own or have licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
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Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our
major commercial markets;
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We may not develop or in-license additional proprietary technologies that are patentable; and
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The patents of others may have an adverse effect on our business.
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Should any of these events
occur, they could significantly harm our business, results of operations and prospects.
Obtaining and maintaining patent protection depends on
compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance
with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents
and/or applications will be due to be paid to the PTO and various governmental patent agencies outside of the US in several stages over the lifetime of the patents and/or applications. We employ reputable law firms and other professionals and rely
on such third parties to effect payment of these fees with respect to the patents and patent applications that we own, and we rely upon our licensors to effect payment of these fees with respect to the patents and patent applications that we
license. The PTO and various non-US governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other
professionals to help us comply with respect to the patents and patent applications that we own, and we rely upon our licensors to effect compliance with respect to the patents and patent applications that we license. In many cases, an inadvertent
lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial
or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents.
In 2011, the Leahy-Smith America Invents Act (Leahy-Smith Act) was signed into law. The
Leahy-Smith Act includes a number of significant changes to US patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The PTO is currently developing regulations and
procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not become effective until March 2013,
18 months after its enactment. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets of former or other employers.
Many of our employees and consultants, including our senior management and our scientific founders, have been employed or
retained by other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees and consultants, including each member of our senior management and each of our scientific founders, executed
proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment or retention. Although we try to ensure that our employees and consultants 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 or consultants have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employees or consultants former or
other employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management or scientific founders, but in the future 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. Even if we are successful in defending against such claims, litigation could result in
substantial costs and be a distraction to management.
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Intellectual property disputes could cause us to spend substantial resources and distract our personnel
from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual
property claims may cause us to incur significant expenses, and could distract our technical and/or management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could
substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such
litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and
continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
If we do
not obtain protection under the Hatch-Waxman Act and similar legislation outside of the US by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, if any, one or more US patents may be
eligible for limited patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review
process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover,
the applicable time period or the scope of patent protection afforded could be less than we request.
We expect the composition of a
matter patent for RPC1063 in the US, if the appropriate maintenance, renewal, annuity or other governmental fees are paid and it withstands any challenge, would expire in 2029. It is possible, assuming RPC1063 achieves regulatory approval in the US
and a timely application is made, that the term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the Hatch-Waxman Act. We expect the composition of matter patent for RPC4046 in the US if
the appropriate maintenance, renewal, annuity or other governmental fees are paid and it withstands any challenge, to expire in 2028. It is possible, assuming RPC4046 achieves regulatory approval in the US and a timely application is made, that the
term of the composition of matter patent in the US may be extended up to a maximum of five additional years under the Hatch-Waxman Act, although such an extension for RPC4046 is subject to AbbVies consent where AbbVie does not exercise its
option to enter into a global collaboration for RPC4046 with us and we instead receive an exclusive worldwide license to RPC4046, and thus the possibility in such context that AbbVie utilizes such extension for a different drug.
If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during
which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.
Risks Related to Ownership of our Common Stock
The
price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is
likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this Risk Factors section and elsewhere in this
Quarterly Report, these factors include:
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actual or anticipated adverse results or delays in our clinical trials;
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positive outcomes, or faster development results than expected, by parties developing product candidates that are competitive with our product candidates, as well as approval of any such competitive product candidates;
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unanticipated serious safety concerns related to the use of any of our product candidates;
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our failure to secure collaboration agreements for our product candidates or actual or perceived unfavorable terms of such agreements;
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adverse regulatory decisions;
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changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;
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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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our dependence on third parties, including CROs as well as manufacturers;
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our failure to successfully commercialize any of our product candidates, if approved;
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additions or departures of key scientific or management personnel;
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failure to meet or exceed any financial guidance or development timelines that we may provide to the public;
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actual or anticipated variations in quarterly operating results;
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failure to meet or exceed the estimates and projections of the investment community;
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overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar
companies;
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conditions or trends in the biotechnology and biopharmaceutical industries;
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announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by us or our competitors;
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our ability to maintain an adequate rate of growth and manage such growth;
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issuances of debt or equity securities;
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significant lawsuits, including patent or stockholder litigation;
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sales of our common stock by us or our stockholders in the future;
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trading volume of our common stock;
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publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;
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ineffectiveness of our internal controls;
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general political and economic conditions;
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effects of natural or man-made catastrophic events; and
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other events or factors, many of which are beyond our control.
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In addition, the stock market
in general, and The NASDAQ Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad
market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in
these Risk Factors, could have a dramatic and material adverse impact on the market price of our common stock.
We have broad discretion
in the use of our cash and may not use it effectively.
Our management has broad discretion in the use of our cash and might not
use it in ways that ultimately increase the value of your investment. If we do not invest or use our cash in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile, and in the past companies that have experienced volatility in the market price of their
stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our managements attention from other
business concerns, which could seriously harm our business.
Our principal
stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of April 7, 2014, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates
beneficially owned approximately 40.9% of our outstanding stock. Therefore, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder
approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage
unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
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We are an emerging growth company as defined in the JOBS Act and have availed, and intend to
continue to avail, ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an emerging growth company as defined in the JOBS Act, and we have taken, and intend to continue to take, advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may continue taking advantage of these reporting exemptions until we are no longer an emerging growth
company. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more, (ii) December 31, 2018,
(iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur could depress
the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.
Certain holders of shares of our common stock are entitled to rights with respect to the registration of their shares under the Securities
Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders
could have a material adverse effect on the trading price of our common stock.
Future sales and issuances of our common stock or rights to purchase
common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell
common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. Such sales may result in material dilution to our existing stockholders, and new investors could
gain rights, preferences and privileges senior to those of holders of our common stock.
Pursuant to our equity incentive plan(s), our
board of directors or compensation committee, and in certain instances (involving non-executive new hires) our chief executive officer and chief financial officer, are authorized to grant
equity-based
incentive awards to our employees, directors and consultants. The number of shares of our common stock available for future grant under our 2013 Stock Plan as of March 31, 2014, was 975,077. The number of shares of our common stock reserved for
issuance under our 2013 Plan will be increased (i) from time to time by the number of shares of our common stock forfeited upon the expiration, cancellation, forfeiture, cash settlement or other termination of awards under our 2008 Stock Plan,
and (ii) on January 1 of each year through January 1, 2023, by the lesser of (x) a number of additional shares of our common stock representing four percent of our
then-outstanding
shares
of common stock and (y) another amount that our board of directors determines. The number of shares of our common stock available for future grant under our ESPP as of December 31, 2014 was 343,496. The number of shares of our common stock
reserved for issuance under our ESPP will be increased on January 1 of each year by the lesser of (x) a number of additional shares of our common stock representing one percent of our then-outstanding shares of common stock and
(y) another amount that our board of directors determines. Future option grants and issuances of common stock under our 2013 Stock Plan or ESPP may have an adverse effect on the market price of our common stock.
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Some provisions of our charter documents and Delaware law may have anti-takeover effects that could
discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more
difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management. These provisions:
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divide our board of directors into three classes, each serving staggered, three-year terms;
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authorize the board of directors to issue, without further action by the stockholders, up to 10,000,000 shares of undesignated preferred stock;
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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
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specify that special meetings of our stockholders can be called only by the board of directors, the chairman of the board, or the chief executive officer;
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establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors;
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provide that directors may be removed only for cause;
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establish the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain derivative actions or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any
action asserting a claim against us arising pursuant to the Delaware General Corporation Law, or any action asserting a claim governed by the internal affairs doctrine;
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require the affirmative vote of holders of at least 66
2
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3
% of the total votes eligible to be cast in the election of directors
to amend, alter, change or repeal our bylaws; and
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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.
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These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in
a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of
incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that
some investors are willing to pay for our common stock.
We do not anticipate paying cash dividends and, accordingly, stockholders must rely on
stock appreciation for any return on their investment.
We do not anticipate paying cash dividends in the future. Additionally,
our credit and security agreement with MidCap contains covenants that restrict our ability to pay dividends. As a result, only appreciation of the market price of our common stock, which may never occur, will provide a return to our stockholders.
Investors seeking cash dividends should not invest in our common stock.