Item 1. Business
Overview
Progenics Pharmaceuticals, Inc. is a Delaware corporation that was incorporated on December 1, 1986. Progenics Pharmaceuticals, Inc. (and its subsidiaries collectively the “Company,” “Progenics”, “we”, or “us”) is an oncology company focused on the development and commercialization of innovative targeted medicines and artificial intelligence to find, fight and follow cancer. Highlights of our recent progress include the enrollment completion of our pivotal phase 3 trial for PyL™ and the positive topline results. Our pipeline includes therapeutic agents designed to precisely target cancer (AZEDRA, 1095 and PSMA TTC), as well as a prostate-specific membrane antigen (“PSMA”) targeted imaging agents for prostate cancer (PyL and 1404).
Highlights of Our Recent Progress:
Corporate
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In January 2019, we appointed Asha Das, M.D. to the newly created role of Chief Medical Officer. Dr. Das brings 15 years of drug development experience, including leading activities related to the approval and launch of Avastin® in multiple indications at Genentech, as well as a decade of clinical practice and academic expertise in neurology and neuro-oncology.
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In accordance with the results of the Velan Consent Solicitation, effective November 8, 2019, the following five directors were elected to the Board to fill the five resulting vacancies on the Board: Gérard Ber, Eric J. Ende, Ann MacDougall, Heinz Mäusli and David W. Mims (collectively, the “New Directors”). The New Directors were elected to serve as directors of the Company until the Company’s 2020 annual meeting of shareholders and until their respective successors are duly elected and qualified. The Board appointed Ms. Ann MacDougall as Interim Chair of the Board.
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On November 11, 2019, Mark. R. Baker tendered his resignation as Chief Executive Officer and as a member of the Board of the Company, which became effective immediately. The Board appointed David W. Mims as Interim Chief Executive Officer.
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On February 20, 2020, we announced the signing of an amended and restated definitive agreement for the proposed merger of Progenics with Lantheus Holdings. The amended agreement reflects the renegotiation of certain of the terms of our original agreement for the proposed merger entered into on October 1, 2019. The combined company would be led by Lantheus Holdings’ Chief Executive Officer, Mary Anne Heino. Ms. Heino will be supported by Chief Financial Officer, Robert J. Marshall Jr., and Chief Operations Officer, John Bolla. The definitive agreement provides that, following the closing, Dr. Gérard Ber and Mr. Heinz Mäusli, currently members of Progenics’ Board of Directors (the “Board”), will be added as members of the Board of Directors of Lantheus Holdings. At the effective time of the merger, each share of Progenics common stock issued and outstanding immediately prior to such time (other than excluded shares and dissenting shares) will be converted into the right to receive (i) 0.31 of a share of Lantheus Holdings common stock and (ii) one non-transferrable contingent value right (“CVR”) per share of Progenics common stock, which will represent the right to receive up to two contingent payments, subject to a cap, upon the achievement of certain milestones subject to the terms of the Contingent Value Rights Agreement (the “CVR Agreement”) to be entered into between Lantheus Holdings and a rights agent reasonable acceptable to Progenics at or immediately prior to the effective time of the merger. The transaction is expected to close early in the second quarter of 2020, subject to approval by Lantheus Holdings and Progenics stockholders, regulatory approvals, and certain other customary closing conditions.
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AZEDRA®
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AZEDRA. We presented data to the ICD-10 Coordination and Maintenance Committee to garner a code associated with AZEDRA which supports our efforts to secure New Technology Add-On Payment (NTAP). The ICD-10 Coordination and Maintenance Committee is comprised of representatives from the Centers for Medicare and Medicaid Services (CMS). In addition, our pass-through C code was approved and is in place, and our permanent A code was awarded in January 2020. In October 2019, we initiated a global managed access program to provide AZEDRA outside of the U.S. AZEDRA (iobenguane I 131) 555 MBq/mL injection for intravenous use. AZEDRA, which is a registered trademark, is a radiotherapeutic that is indicated for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy. AZEDRA is the first and only FDA-approved therapy for this indication. AZEDRA’s approved U.S. label and full U.S. prescribing information are available at www.AZEDRA.com.
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AZEDRA Manufacturing. In February 2019, we acquired the AZEDRA manufacturing assets for $8.0 million cash consideration and entered into a sublease agreement for the radiopharmaceutical manufacturing facility located in Somerset, New Jersey. The Somerset site serves as the manufacturing facility for AZEDRA and will also provide manufacturing support for our development stage radiopharmaceuticals, including 1095. The production of AZEDRA uses a proprietary Ultratrace® process which concentrates the MIBG targeted radiolytic activity by eliminating non-therapeutic “cold” MIBG molecules, giving AZEDRA a uniquely high specific activity.
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AZEDRA Life Cycle Management. We received comments from the U.S. Food and Drug Administration (“FDA”) on our proposed life cycle management program to evaluate AZEDRA in patients with other neuroendocrine tumors (NETs). We are currently on clinical hold until we reach agreement with the FDA on a regulatory path forward. If we reach agreement with the FDA, we anticipate our efforts in this area to commence later this year.
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Pipeline Advancement:
PyL (18F-DCFPyL)
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In December 2018, we entered into an exclusive agreement to develop and commercialize PyL in Europe. PyL is Progenics’ PSMA-targeted small molecule PET/CT imaging agent designed to visualize prostate cancer currently in Phase 3 development. Under the terms of the collaboration, Curium was granted an exclusive license to develop and commercialize PyL in Europe. Curium will be responsible for the development, regulatory approvals and commercialization of PyL in the covered territory. Progenics is entitled to royalties on net sales of PyL.
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We completed enrollment in a pivotal multi-center, open label Phase 3 trial evaluating the diagnostic performance and clinical impact of PyL in men with biochemical recurrence of prostate cancer ahead of schedule and reported positive topline results. In December 2019, the CONDOR trial achieved its primary endpoint, with a correct localization rate (CLR) of 84.8% to 87.0% among the three blinded independent readers (the lower bound of the 95% confidence intervals ranging from 77.8% to 80.4%). CLR is based on positive predictive value, defined as the percentage of patients with a one-to-one correspondence between localization of at least one lesion identified on PyL PET/CT and a composite truth standard comprised of histopathology, conventional imaging and/or changes in PSA levels following radiation therapy.
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1095
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We advanced our 1095 program and initiated a Phase 2 trial in the second quarter of 2019. 1095 is a small molecule radiotherapeutic designed to selectively bind to the extracellular domain of PSMA. The multicenter, randomized, controlled trial will evaluate the efficacy and safety of 1095 in combination with enzalutamide in patients with metastatic castration-resistant prostate cancer (mCRPC) who are PSMA-avid, chemotherapy naïve for CRPC, and progressed on abiraterone in the U.S. and Canada. The import alert on our clinical supply manufacturer, Centre for Probe Development & Commercialization’s (“CPDC”), was lifted in December 2019 and clinical sites and patient enrollment in the U.S. have been initiated.
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PSMA AI
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We entered into a transfer agreement with FUJIFILM Toyama Chemical Co, Ltd. (“FUJIFILM”) for the rights to the Company’s aBSI product in Japan for use under the name BONENAVI®. Under the terms of the agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data, and all Japanese patents associated with the aBSI product from Progenics for use in Japan. In exchange, Progenics received $4.0 million in an upfront payment and will receive service fees for aBSI and other AI products over three years in Japan. BONENAVI has been licensed to FUJIFILM for use in Japan since 2011.
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We announced our collaboration with the VA Greater Los Angeles Healthcare System on Progenics’ AI research program in July 2019. The collaborative AI research program aims to apply machine learning to medical imaging modalities, enabling standardized, information-driven healthcare practices in prostate cancer. The project is a collaborative effort to validate cutting-edge machine learning tools for improving treatment management of Veterans with prostate cancer. We presented the first data at the Genitourinary Cancers Symposium hosted by the American Society of Clinical Oncology (“ASCO GU”) in February 2020 on our deep learning algorithm that can predict whether a patient has metastatic disease using data only from the PET images of the primary prostate tumor.
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1404
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We entered into an exclusive agreement under which ROTOP Pharmaka GmbH (“ROTOP”), a Germany-based developer of radiopharmaceuticals for nuclear medicine diagnostics, agreed to develop and commercialize 1404 in Europe. 1404 is Progenics’ PSMA-targeted small molecule SPECT/CT imaging agent labeled with technetium-99m that is designed to visualize prostate cancer. Under the terms of the agreement, ROTOP will receive an exclusive license to and will be responsible for the development, regulatory approvals and commercialization of 1404 in the covered European territory. In exchange, Progenics is eligible for double-digit, tiered royalties based on future sales of 1404 in Europe.
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Strategic partnerships:
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RELISTOR® (methylnaltrexone bromide) is licensed to Salix Pharmaceuticals, Inc., a wholly-owned subsidiary of Bausch Health Companies Inc. (“Bausch”, which is the predecessor of Valeant Pharmaceuticals International, Inc.). RELISTOR subcutaneous injection and RELISTOR Tablets are approved by the FDA for the treatment of opioid-induced constipation in adults with chronic non-cancer pain. For the year ended December 31, 2019, we recognized $10.0 million sales milestone under the RELISTOR License Agreement for the achievement of U.S. net sales of RELISTOR in excess of $100.0 million.
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Bayer AG (“Bayer”) has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, in combination with Bayer’s alpha-emitting radionuclides. Bayer is developing PSMA TTC, a thorium-227 labeled PSMA-targeted antibody therapeutic. Bayer initiated a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer. In May 2019, Bayer dosed the first patient in the Phase 1 trial which triggered a $2.0 million milestone payment, recorded as part of the license and other revenue.
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Curium has exclusive rights to develop, manufacture and commercialize PyL in Europe. Under the terms of the collaboration, Curium is responsible for the development, regulatory approvals and commercialization of PyL in Europe, and Progenics is entitled to royalties on net sales of PyL. Curium is in discussions with European Medicines Agency (“EMA”) regarding the development path in Europe.
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ROTOP has exclusive rights to develop, manufacture and commercialize 1404 in Europe. Under the terms of the collaboration, ROTOP is responsible for the development, regulatory approvals and commercialization of 1404 in Europe. Under this agreement, Progenics is entitled to double-digit, tiered royalties on future net sales of 1404 in Europe. ROTOP is in discussions with EMA regarding the development path in Europe.
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FUJIFILM had rights to the Company’s aBSI product in Japan for use under the name BONENAVI under a prior agreement. Under the terms of a recently signed transfer agreement, FUJIFILM acquired, by a combination of purchase and license, the Japanese software, source code, supporting data and all Japanese patents associated with the aBSI product from us for their use of aBSI in Japan. In exchange, Progenics received a $4.0 million upfront payment and is entitled to service fees for the next three years.
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CytoDyn Inc. (“CytoDyn”) acquired leronlimab (PRO 140); the acquisition included a milestone and royalty payment obligations to us. Leronlimab is an investigational humanized IgG4 mAb that blocks CCR5, a cellular receptor that is important in HIV infection, tumor metastases, and other diseases including NASH. CytoDyn announced it plans to seek FDA approval for leronlimab in combination therapy for HIV infection and plans to complete the filing of a Biologics License Application (“BLA”) in the first quarter of 2020 for that indication.
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PSMA-617:
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Company Asserts Ownership of PSMA-617 Intellectual Property including Composition of Matter
We have commenced a lawsuit disputing the ownership of certain worldwide composition of matter patent filings related to PSMA-617, a PSMA-targeted radiopharmaceutical compound under development by Novartis AG for the treatment of prostate cancer. See Item 3. Legal Proceedings.
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Product / Candidate
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Description
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Status
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Market
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Rights
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Ultra-Orphan Theranostic
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AZEDRA (iobenguane I 131)
555 MBq/mL injection
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Unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma
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Approved
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U.S
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Progenics
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Prostate Cancer Theranostics
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PyL (18F-DCFPyL)
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PSMA-targeted PET/CT imaging agent for prostate cancer
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Positive Phase 3 topline results
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Worldwide
(ex. EU, AU, & NZ)
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Progenics
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PyL (18F-DCFPyL)
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PSMA-targeted PET/CT imaging agent for prostate cancer
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Discussions with EMA
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Europe
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Curium
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1095 (I 131 1095)
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PSMA-targeted small molecule therapeutic for treatment of metastatic prostate cancer
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Phase 2
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Worldwide
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Progenics
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PSMA TTC (BAY 2315497)
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PSMA-targeted antibody conjugate therapeutic for treatment of metastatic prostate cancer
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Phase 1
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Worldwide
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Bayer
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1404
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Technetium-99m PSMA-targeted SPECT/CT imaging agent for prostate cancer
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Discussions with EMA
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Europe
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ROTOP
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Digital Technology
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PSMA AI
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Imaging analysis technology that uses artificial intelligence and machine learning to quantify and automate the reading of PSMA targeted imaging
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Investigational Use Only
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Worldwide
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Progenics
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Automated Bone Scan Index (aBSI)
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Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning
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Approved in the U.S. and E.U.
510(k) cleared in the U.S.
CE marked (E.U. countries)
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Worldwide (ex. Japan)
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Progenics
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Automated Bone Scan Index (BONENAVI)
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Automated reading and quantification of bone scans of prostate cancer patients using artificial intelligence and deep learning
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Approved
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Japan
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FUJIFILM
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Other Programs
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RELISTOR Subcutaneous Injection
(methylnaltrexone bromide)
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OIC in adults with chronic non-cancer pain or advanced-illness adult patients
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Approved
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Worldwide
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Bausch
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RELISTOR Tablets
(methylnaltrexone bromide)
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OIC in adults with chronic non-cancer pain
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Approved
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U.S.
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Bausch
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Leronlimab (PRO 140)
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HIV Infection
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Rolling BLA Submission to FDA
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U.S.
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CytoDyn
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Ultra-Orphan Theranostic:
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AZEDRA® (iobenguane I 131) is a radiotherapeutic, approved for the treatment of adult and pediatric patients 12 years and older with iobenguane scan positive, unresectable, locally advanced or metastatic pheochromocytoma or paraganglioma who require systemic anticancer therapy. AZEDRA is the first and only FDA-approved therapy for this indication. We anticipate opportunities for growth of AZEDRA beyond its existing label through the development of new indications.
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Prostate Cancer Theranostics:
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PyL™ (also known as 18F-DCFPyL) is a fluorinated PSMA-targeted PET imaging agent that enables visualization of both bone and soft tissue metastases, with potential high clinical utility in the detection of recurrent and/or metastatic prostate cancer, as well as staging of high risk disease. We announced positive topline data in the pivotal Phase 3 trial evaluating the diagnostic performance and clinical impact of PyL in men with biochemical recurrence of prostate cancer. Curium has licensed exclusive rights to develop and commercialize PyL in Europe.
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1095 (also known as I-131-1095) is a PSMA-targeted iodine-131 labeled small molecule that is designed to deliver a dose of beta radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues. We are conducting a Phase 2 clinical trial in combination with enzalutamide in chemotherapy-naïve patients with metastatic castration-resistant prostate cancer (mCRPC) who are PSMA-avid, chemotherapy naïve for CRPC, and progressed on abiraterone, in the U.S. and Canada.
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PSMA TTC is a thorium-227 labeled PSMA-targeted antibody therapeutic. PSMA TTC is designed to deliver a dose of alpha radiation directly to prostate cancer cells with minimal impact on the surrounding healthy tissues. Bayer has exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology in combination with Bayer’s alpha-emitting radionuclides. Bayer is conducting a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer.
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1404 is a technetium-99m labeled small molecule which binds to PSMA and is used as a SPECT/CT imaging agent to diagnose and detect localized prostate cancer as well as soft tissue and bone metastases. ROTOP has exclusive rights to develop and commercialize 1404 in Europe.
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Digital Technology:
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PSMA AI is an imaging analysis technology that uses artificial intelligence and machine learning to quantify and automate the reading of PSMA-targeted imaging. We recently completed a performance study of our automated segmentation algorithms with PyL/CT images from our PyL research access initiative. The study demonstrated the efficiency and effectiveness of our fully automated segmentation algorithm of the 49 bones and 12 soft tissue regions of the whole body from PyL-PSMA PET/CT images. The deep learning algorithms demonstrated a Sørensen–Dice score of 0.90 or higher in segmenting anatomical structures in the low dose CT portion of a PyL PET/CT. This work provides automated generation of lesion quantification, localization and staging, therefore leading to highly contextualized assessments of disease burden.
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Automated Bone Scan Index (“aBSI”) calculates the disease burden of prostate cancer by quantifying the hotspots on bone scans and automatically calculating the bone scan index value, representing the disease burden of prostate cancer shown on the bone scan. This quantifiable and reproducible calculation of the bone scan index value is intended to aid in the diagnosis and treatment of men with prostate cancer and may have utility in monitoring the course of the disease. The Japanese rights to the stand-alone aBSI have been transferred and sold to FUJIFILM under the name BONENAVI®. The cloud based aBSI was cleared by the FDA for clinical use in the U.S. on August 5, 2019.
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Other Programs:
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RELISTOR® is a treatment for opioid-induced constipation (“OIC”) that addresses its underlying mechanism of OIC and decreases the constipating side effects induced by opioid pain medications such as morphine and codeine without diminishing their ability to relieve pain. RELISTOR is approved in two forms: a subcutaneous injection (12 mg and 8 mg) and an oral tablet (450 mg once daily). Any references herein to RELISTOR do not imply that any other form or possible use of the drug has received approval. RELISTOR subcutaneous injection is being sold in the U.S., European Union (“E.U.”), and Canada, and RELISTOR tablets are being sold in the U.S. RELISTOR’s approved U.S. label and full U.S. prescribing information is available at www.RELISTOR.com. Other approved labels for RELISTOR apply in markets outside of the United States. Our recognition of royalty income for financial reporting purposes is explained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements included elsewhere in this document.
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Leronlimab (PRO 140) is an investigational humanized IgG4 mAb that blocks CCR5, a cellular receptor that is important in HIV infection, tumor metastases, and other diseases including NASH. It is owned by CytoDyn and, pursuant to our agreement with CytoDyn, we have the right to receive certain milestone and royalty payments. CytoDyn announced it plans to seek FDA approval for Leronlimab in combination therapy for HIV infection and plans to complete the filing of a BLA in the first quarter of 2020 for that indication.
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We may consider opportunities to out-license our development and clinical programs. We may also in-license or acquire additional oncology compounds and/or programs.
Clinical Trial Activities
For the purposes of this report, Phase 1 clinical trials evaluate safety, dosing, pharmacokinetics, and mechanisms of action; Phase 2 clinical trials evaluate safety, dosing and efficacy; and Phase 3 clinical trials evaluate larger patient populations for safety and efficacy.
Our practice is and has been to announce commencement and results of all our significant clinical trials in press releases, medical and scientific meetings, and other venues. The following is a summary of current clinical trial activities involving our principal product candidates.
PyL. PyL is a clinical-stage fluorinated PSMA-targeted PET imaging agent for prostate cancer. PyL has shown potential for use in detecting metastatic and recurrent prostate cancer, as well as staging of high risk disease. We have an exclusive worldwide license (excluding Australia and New Zealand) to develop and commercialize PyL in PET imaging applications.
In October 2018, we announced results of a Phase 2/3 OSPREY trial that assessed the diagnostic performance of PyL to detect prostate cancer in pelvic lymph nodes in patients with high risk locally advanced prostate cancer (Cohort A, N=268) and distant metastases in patients with metastatic or recurrent prostate cancer (Cohort B, N=117). In the trial, the diagnostic performance of PyL in detecting disease in pelvic lymph nodes (Cohort A) showed specificity of 96-99% and sensitivity of 31-42%. The positive predictive value and negative predictive value of pelvic lymph node detection were 78-91% and 81-84%, respectively. In the metastatic or recurrent prostate cancer setting (Cohort B), PyL exhibited sensitivity of 93-99% and PPV of 81-88% in detecting metastatic lesions. Specificity and negative predictive value were not endpoints specified in the protocol for Cohort B as all men in Cohort B were suspected to have disease. Overall, PyL demonstrated high sensitivity in reliably detecting distant metastatic prostate cancer lesions and high specificity in confirming the absence of pelvic lymph node disease. The associated strong positive predictive values and negative predictive value of PyL imaging in these disease settings indicate its potential high clinical utility.
PyL was safe and well-tolerated by all dosed subjects. A total of 81 treatment-emergent adverse events (“TEAEs”) were reported in 51 (13.2%) subjects with the most common being fatigue (1.3%), dysgeusia (2.6%), and headache (2.3%). A total of five subjects (1.3%) experienced TEAE(s) that were ≥ Grade 3 in severity; all were Grade 3 and no subjects experienced Grade 4 or 5 adverse events. A total of seven serious adverse events (“SAEs”) have been reported within the protocol-specified period in subjects who received PyL. All of the SAEs were assessed as unrelated to the study drug.
In December 2019, we announced the results from a prospective, multicenter, open label pivotal Phase 3 CONDOR trial evaluating the diagnostic performance and clinical impact of PyL in men with biochemical recurrence of prostate cancer and uninformative baseline imaging based on conventional modalities. The study enrolled 208 patients at 14 sites in the United States and Canada. The CONDOR trial achieved its primary endpoint, with a correct localization rate (CLR) of 84.8% to 87.0% among the three blinded independent readers (the lower bound of the 95% confidence intervals ranging from 77.8% to 80.4%). CLR is based on positive predictive value, defined as the percentage of patients with a one-to-one correspondence between localization of at least one lesion identified on PyL PET/CT and a composite truth standard comprised of histopathology, conventional imaging and/or changes in PSA levels following radiation therapy.
Safety results showed PyL was well tolerated and consistent with the Phase 2/3 OSPREY trial results. There was one serious adverse event of hypersensitivity reported in one patient as related to the study drug. The most frequent adverse event reported was headache, which was reported in four patients (1.9% of the trial population).
In addition to our sponsored studies and clinical trial collaborations, the diagnostic performance and clinical utility of PyL are also being explored in investigator sponsored studies at various academic institutions.
1404. We conducted five Phase 1 trials with 1404 in healthy volunteers as well as men with prostate cancer, to establish proof-of-concept and dosimetry, and to assess a simplified kit preparation as compared to multi-step preparation. We then conducted a Phase 2 trial in the U.S. and Europe to assess the safety and ability of 1404 to detect prostate cancer within the prostate gland. Analysis of 1404 SPECT/CT images from this study showed that uptake of 1404 in the lobes of the prostate gland correlated significantly with Gleason score (p<0.0001). No deaths, serious adverse events, or adverse events leading to discontinuations occurred during the study. Of the 105 subjects who received a 1404 injection, four subjects reported a total of ten TEAEs with one related to 1404 (infusion site extravasation). No discernible trends in hematology, clinical chemistries, vital signs, or physical findings were observed during the study.
Based on results from these studies, a multi-center, open-label Phase 3 trial was initiated in December 2015 to evaluate the (i) specificity of 1404 to detect clinically insignificant prostate cancer and (ii) sensitivity of 1404 to detect clinically significant disease in patients with newly-diagnosed or low-grade prostate cancer, whose biopsy indicates a histopathologic Gleason grade of ≤3+4 severity and/or were candidates for active surveillance. In December 2017, we completed enrollment (N=471) in the Phase 3 trial. Median PSA levels for patients dosed in trial was 5.58 ng/mL (range 0.69 – 16.03). In the study, 1404 detected clinically meaningful prostate cancer with specificity ranging among the three readers from 71-75% (95% confidence interval CI of 64% to 80%). The co-primary endpoint of sensitivity was not met and ranged amongst the three readers from 47-51% (95% CI of 41% to 56%). The trial protocol required the lower limit of the two-sided 95% CI for both specificity and sensitivity to exceed 60%. The most frequent treatment related events included headache (2.3%), dizziness (1.1%) and fatigue (0.8%). In November 2018, based on the 1404 data and an assessment of the PSMA-targeted imaging agent commercial landscape, we decided to focus our efforts on our PyL PSMA-targeted PET/CT imaging agent and not to further invest in 1404.
1095. In May 2019, we announced the initiation of a multicenter, randomized, controlled Phase 2 trial evaluating the efficacy and safety of 1095 in combination with enzalutamide compared to enzalutamide alone in patients with metastatic castration-resistant prostate cancer (mCRPC) who are PSMA-avid, chemotherapy naïve for CRPC, and progressed on abiraterone. In this trial, PSMA-avidity is determined by utilizing PyL, the Company’s PET imaging agent in clinical development designed to visualize prostate cancer. 1095 radiotherapy represents a new mechanism of action that may overcome resistance developed to novel androgen axis drugs (NAADs), such as abiraterone and enzalutamide. In addition, recent preclinical research reported that enzalutamide can sensitize cells to radiotherapy induced cell death, suggesting that 1095 in combination with enzalutamide has the potential to be an effective treatment paradigm for patients with mCRPC who are resistant to NAADs.
As of January 30, 2020, 9 patients have been dosed with I-131-1095+enzalutamide and 2 patients with enzalutamide alone. No dose limiting toxicity (DLT) was observed. There were 22 AEs that were related or possibly related to 1095. There were 8 serious adverse events and none of them were determined to be related or possibly related to the study drug. The most frequent adverse events reported were thrombocytopenia and fatigue. Overall, 1095 has been safe and well tolerated and the independent data monitoring committee has recommended the study continue without modifications.
The trial is expected to randomize approximately 120 patients at 40 sites in the U.S. and Canada. The study’s primary endpoint is prostate specific antigen (PSA) response rate according to Prostate Cancer Clinical Trials Working Group 3 (PCWG3) criteria defined as a confirmed 50% or greater decline from baseline. Key secondary endpoints evaluate radiographic response based on Response Evaluation Criteria In Solid Tumors (RECIST) for soft tissue or PCWG3 for bone, progression free survival (PFS), and overall survival (OS). Patients will be followed for one year after their first treatment for all efficacy endpoints. Survival and safety data will be collected for an additional year.
License Agreements and Other Arrangements
Molecular Insight Pharmaceuticals, Inc. License Agreements
In January 2013, we acquired Molecular Insight Pharmaceuticals, Inc. (“MIP”) by purchasing all of its outstanding capital stock for 4.5 million shares of our common stock in a private transaction. Under the agreement, we also agreed to pay to the former stockholders potential milestones, in cash or our stock at our option, of up to $23.0 million contingent upon achieving specified commercialization events (of which $8.0 million for the first commercial sale of AZEDRA has already been paid in 2019) and up to $70.0 million contingent upon achieving specified sales targets relating to the acquired company’s products. The timing of any such payments, if any, remains uncertain.
In addition to utilizing our own proprietary technology, we have a number of agreements with owners of intellectual property which we use or believe may be useful in the research, development and commercialization of product candidates, including:
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A 2012 co-exclusive license agreement with the University of Zurich and the Paul Scherrer Institute for worldwide sublicensable rights to certain intellectual property related to production methodologies relevant to 1404. Under this agreement, we maintain related patent rights and are obligated to pay low single-digit royalties on products using the licensed technology, license maintenance fees creditable against royalties, an annual fee for an option to expand the license’s field of use, and clinical and regulatory milestone payments aggregating to approximately $1.5 million. The agreement may be terminated by the licensors upon certain material defaults by, and automatically terminates upon certain bankruptcy events relating to MIP and may be terminated by us on prior written notice.
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The 2003 exclusive license agreements with The University of Western Ontario for worldwide sublicensable rights to certain intellectual property relates to production methodologies and alternative approaches for preparing AZEDRA. This alternative technology has not been implemented. Under the 2003 agreement, we maintain related patent rights and are obligated to pay low single-digit royalties on products using the licensed technology, minimum annual royalties creditable against royalties and clinical and regulatory milestone payments aggregating to approximately $0.3 million.
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We have also entered into a number of in-license and out-license agreements, such as:
In-License Agreement
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An August 2015 agreement with Johns Hopkins University (“JHU”), granting us exclusive worldwide rights (with the exception of Australia and New Zealand) for PyL. Under this agreement, we are obligated to pay milestone payments, low single-digit royalties, patent costs and minimum annual royalties which are creditable against royalties, aggregating to approximately $2.9 million.
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Out-License Agreements
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An April 2016 agreement with Bayer, granting Bayer exclusive worldwide rights to develop and commercialize products using our PSMA antibody technology, in combination with Bayer’s alpha-emitting radionuclides. Bayer is developing PSMA TTC, a thorium-227 labeled PSMA-targeted antibody therapeutic. Bayer initiated a Phase 1 trial of PSMA TTC in patients with metastatic castration-resistant prostate cancer. Pursuant to the agreement, we received an upfront payment of $4.0 million and milestone payments totaling $5.0 million and could receive up to an additional $44.0 million in potential clinical and development milestones. We are also entitled to single-digit royalties on net sales, and potential net sales milestone payments up to an aggregate of $130.0 million.
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A December 2018 agreement with Curium, granting Curium exclusive sublicense to develop, manufacture and commercialize PyL in Europe. Curium will be responsible for the development, regulatory approvals and commercialization of PyL in Europe. Curium is in discussions with EMA regarding the development path in Europe. Under this agreement, we are entitled to double-digit royalties on net sales of PyL.
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RELISTOR License Agreement
RELISTOR® is a registered trademark and refers to methylnaltrexone – the active ingredient of RELISTOR – as it has been and is being developed and commercialized by or in collaboration with Salix Pharmaceuticals, Inc., which is a wholly-owned subsidiary of Bausch Health Companies Inc. (“Bausch”, which is the predecessor of Valeant Pharmaceuticals International, Inc.), under a license agreement (the “RELISTOR License Agreement”). Under the RELISTOR License Agreement, Bausch is responsible for developing and commercializing RELISTOR worldwide, including completing clinical development necessary to support regulatory marketing approvals for potential new indications and formulations, and marketing and selling the product. Bausch is marketing RELISTOR directly through its specialty sales force in the U.S., and outside the U.S. directly through distribution and marketing partners. Under the RELISTOR License Agreement, we recognized a development milestone payment of $40.0 million upon U.S. marketing approval for subcutaneous RELISTOR in non-cancer pain patients in 2014, a development milestone payment of $50.0 million for the U.S. marketing approval of an oral formulation of RELISTOR in July 2016 and a $10.0 million sales milestone for achieving RELISTOR U.S. net sales in excess of $100.0 million in 2019. We are also eligible to receive up to $190.0 million of one-time sales milestone payments upon achievement of specified U.S. net sales targets, including:
U.S. Net Sales Levels in any Single Calendar Year
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Payment
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(In thousands)
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In excess of $150 million
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$
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15,000
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In excess of $200 million
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20,000
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In excess of $300 million
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30,000
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In excess of $750 million
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50,000
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In excess of $1 billion
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75,000
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$
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190,000
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Each sales milestone payment is payable one time only, regardless of the number of times the condition is satisfied, and all six payments could be made within the same calendar year. We are also eligible to receive royalties from Bausch and its affiliates based on the following royalty scale: 15% on worldwide net sales up to $100.0 million, 17% on the next $400.0 million in worldwide net sales, and 19% on worldwide net sales over $500.0 million each calendar year, and 60% of any upfront, milestone, reimbursement or other revenue (net of costs of goods sold, as defined, and territory-specific research and development expense reimbursement) Bausch receives from sublicensees outside the U.S.
The RELISTOR License Agreement may be terminated by either party upon an uncured material breach or specified bankruptcy events. In addition, Bausch may terminate the RELISTOR License Agreement for unresolved safety or efficacy issues or at its discretion upon specified prior notice at any time, subject to our one-time right to postpone such termination for a specified period of time if we have not successfully transitioned the development and commercialization of the drug despite good faith and diligent efforts. See Item 1A. Risk Factors.
We have licensed to Bausch our exclusive rights to develop and commercialize methylnaltrexone, the active ingredient of RELISTOR, which we in-licensed from the University of Chicago (“UC”). Our agreement with UC provides for an exclusive license to intellectual property in exchange for development and potential commercialization obligations, low single-digit royalties on commercial sales of resulting products and single-digit percentages of milestone and sublicensing revenues, and shared patent policing responsibilities. Under the UC agreement, as amended in connection with our RELISTOR collaborations, all of our royalty payment obligations expired at the end of 2017 in the U.S. and 2018 outside the U.S. on the approved indications.
Bausch has also entered into license and distribution agreements to expand its sales channels outside of the U.S. for RELISTOR.
CytoDyn Agreement
We sold Leronlimab (PRO 140) to CytoDyn in 2012, which sale included milestone and royalty payment obligations to us. Leronlimab is an investigational humanized IgG4 mAb that blocks CCR5, a cellular receptor that is important in HIV infection, tumor metastases, and other diseases including NASH. CytoDyn has announced its plans to seek FDA approval for Leronlimab in combination therapy for HIV infection and plans to complete the filing of a BLA in the first quarter of 2020 for that indication.
Under our 2012 agreement with CytoDyn, CytoDyn is responsible for all development, manufacturing and commercialization efforts. Pursuant to such agreement, we have received $5.0 million in upfront and milestone payments, together with rights to receive an additional $5.0 million upon the first U.S. or E.U. approval for the sale of the drug, and a 5% royalty on the net sales of approved product(s).
Patents and Proprietary Technology
Protection of our intellectual property rights is important to our business. We seek U.S. patent protection for many of our inventions, and generally file patent applications in Canada, Japan, European countries that are party to the European Patent Convention, and other countries on a selective basis in order to protect inventions we consider to be important to the development of business in those areas. Generally, patents issued in the U.S. are effective for either (i) 20 years from the earliest asserted filing date, if the application was filed on or after June 8, 1995, or (ii) the longer of 17 years from the date of issue or 20 years from the earliest asserted filing date, if the application was filed prior to that date.
In certain instances, the U.S. patent term can be extended up to a maximum of five years to recapture a portion of the term during which FDA regulatory review was being conducted. The duration of foreign patents varies in accordance with the provisions of applicable local law, although most countries provide for patent terms of 20 years from the earliest asserted filing date and allow patent extensions similar to those permitted in the U.S.
Patents may not enable us to preclude competitors from commercializing drugs in direct competition with our products, and consequently may not provide us with any meaningful competitive advantage. See Item 1A. Risk Factors. We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in our product areas. We require our employees, consultants and corporate partners who have access to our proprietary information to sign confidentiality agreements.
Information with respect to our current patent portfolio is set forth below.
The original patents surrounding the AZEDRA program were licensed from the University of Western Ontario (“UWO”). The patent family directed to processes for making polymer precursors, as well as processes for making the final product, expired in 2018 in the U.S. and Canada. The related UWO agreement terminated with the expiration of the patents. Other licensed patent families from UWO under a second agreement relate to alternative approaches for preparing AZEDRA, which if implemented, would expire in 2024 worldwide. We own pending applications worldwide directed to manufacturing improvements and the resulting compositions which, if issued, would expire in 2035.
Owned and in-licensed patents relating to 1404 have expiration ranges of 2020 to 2029; we view as most significant the composition-of-matter patent on the compound, as well as technetium-99 labeled forms, which expire in 2029 worldwide.
The PyL patent family was licensed from Johns Hopkins University. Patent protection for the composition-of-matter patents on the compound, radiolabeled forms of the compound, as well as methods of use, expire in 2030 in the U.S. Corresponding patent family members are pending or issued worldwide, all expiring in 2029. Process improvement patent applications are pending worldwide which, if issued, would expire in 2037.
Company-owned patents relating to 1095 have expiration ranges of 2027 to 2031 in the U.S. We view as most significant the composition-of-matter patent on this compound, as well as radiolabeled forms, which expires in 2027 in the U.S., as well as Europe. Additional U.S. patents are directed to stable compositions and radiolabeling processes which expire in 2030 and 2031, respectively.
We own patents relating to automated detection of bone cancer metastases. The patents on this technology expire in 2028 outside of the United States. The U.S. patent under reexamination was issued with an expiration of 2032. Patent applications are pending relating to automated medical image analysis.
The intellectual property directed to PSMA antibody comprises co-owned and in-licensed patents. Composition-of-matter patents have expirations of 2022 and 2023 in the U.S. Corresponding foreign counterpart patents will expire 2022. We view all of these patents as significant.
With regard to our RELISTOR-related intellectual property, the composition-of-matter patent for the active ingredient of RELISTOR, methylnaltrexone, has expired. University of Chicago, as well as we and our collaborators, have extended the methylnaltrexone patent estate with additional patents and pending patent applications covering various inventions relating to the product. Bausch has listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”) eight U.S. patents relating to subcutaneous RELISTOR, which have expiration dates ranging from 2024 to 2030, and nine U.S. patents relating to RELISTOR tablet, which have expiration dates ranging from 2029 to 2031. Four Canadian patents (two expiring in 2024, one in 2027 and one in 2029) have been listed with Health Canada relating to subcutaneous RELISTOR.
We are aware of intellectual property rights held by third parties that relate to products or technologies we are developing. For example, we are aware of others investigating and developing technologies, imaging agents and drug candidates directed toward PSMA or related compounds as well as in the case of methylnaltrexone, others are developing peripheral opioid antagonists, and of patents and applications held or filed by others in those areas. The validity of issued patents, patentability of claimed inventions in pending applications and applicability of any of them to our programs are uncertain and subject to change, and patent rights asserted against us could adversely affect our ability to commercialize or collaborate with others on specific products.
Research, development, and commercialization of a biopharmaceutical product often require choosing between alternative development and optimization routes at various stages in the development process. Preferred routes depend upon current – and may be affected by subsequent – discoveries and test results and cannot be identified with certainty at the outset. There are numerous third-party patents in fields in which we work, and we may need to obtain license under patents of others in order to pursue a preferred development route of one or more of our product candidates. The need to obtain a license would decrease the ultimate value and profitability of an affected product. If we cannot negotiate such a license, we might have to pursue a less desirable development route or terminate the entire program altogether.
Seasonality
As is typical in the pharmaceutical industry, our business may experience modest seasonality due to patient co-pays and co-insurance being reset at the beginning of the calendar year and patients meeting their deductibles over the course of the calendar year. As a result, demand for RELISTOR and associated revenue may be lower in the beginning of the year.
Government Regulation
We and our product candidates are subject to comprehensive regulation by the FDA and comparable authorities in other countries. Pharmaceutical regulation currently is a topic of substantial interest in lawmaking and regulatory bodies in the U.S. and internationally, and numerous proposals exist for changes in FDA and non-U.S. regulation of pre-clinical and clinical testing, approval, safety, effectiveness, manufacturing, storage, recordkeeping, labeling, marketing, export, advertising, promotion and other aspects of biologics, small molecule drugs and medical devices, many of which, if adopted, could significantly alter our business and the current regulatory structure described below. See Item 1A. Risk Factors.
FDA Regulation
FDA approval, which involves review of scientific, clinical and commercial data, manufacturing processes and facilities, is required before a product candidate may be marketed in the U.S. This process is costly, time consuming and subject to unanticipated delays, and a drug candidate may fail to progress at any point.
Other than AZEDRA and RELISTOR, none of our product candidates have received marketing approval from the FDA or any other regulatory authority. The process required by the FDA before product candidates may be approved for marketing in the U.S. generally involves:
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pre-clinical laboratory and animal tests;
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submission to and favorable review by the FDA of an investigational new drug application before clinical trials may begin;
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adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for its intended indication (animal and other nonclinical studies also are typically conducted during each phase of human clinical trials);
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submission to the FDA of a marketing application; and
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FDA review of the marketing application in order to determine, among other things, whether the product is safe and effective for its intended uses.
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Pre-clinical tests include laboratory evaluation of product chemistry and animal studies to gain preliminary information about a compound’s pharmacology and toxicology and to identify safety problems that would preclude testing in humans. Since product candidates must generally be manufactured according to current Good Manufacturing Practices (“cGMP”), pre-clinical safety tests must be conducted by laboratories that comply with FDA good laboratory practices regulations. Pre-clinical testing is preceded by initial research related to specific molecular targets, synthesis of new chemical entities, assay development and screening for identification and optimization of lead compound(s).
Results of pre-clinical tests are submitted to the FDA as part of an IND, which must become effective before clinical trials may commence. The IND submission must include, among other things, a description of the sponsor’s investigational plan; protocols for each planned study; chemistry, manufacturing and control information; pharmacology and toxicology information and a summary of previous human experience with the investigational drug. Unless the FDA objects to, makes comments or raises questions concerning an IND, it becomes effective 30 days following submission, and initial clinical studies may begin. Companies often obtain affirmative FDA approval, however, before beginning such studies.
Clinical trials involve the administration of the investigational new drug to healthy volunteers or to individuals under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with the FDA’s Good Clinical Practice requirements under protocols submitted to the FDA that detail, among other things, the objectives of the trial, parameters used to monitor safety and effectiveness criteria to be evaluated. Each clinical trial must be conducted under the auspices of an Institutional Review Board, which considers, among other things, ethical factors, safety of human subjects, possible liability of the institution and informed consent disclosure which must be made to participants in the trial.
Clinical trials are typically conducted in three sequential phases, which may overlap. During Phase 1, when the drug is initially administered to human subjects, the product is tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase 2 involves studies in a limited population to evaluate preliminarily the efficacy of the product for specific, targeted indications, determine dosage tolerance and optimal dosage and identify possible adverse effects and safety risks.
When a product candidate is found in Phase 2 evaluation to have an effect and an acceptable safety profile, Phase 3 trials are undertaken in order to further evaluate clinical efficacy and test for safety within an expanded population. Safety studies are conducted in accordance with the FDA’s International Conference on Harmonization Guidelines. Phase 2 results do not guarantee a similar outcome in Phase 3 trials. The FDA may suspend clinical trials at any point in this process if it concludes that clinical subjects are being exposed to an unacceptable health risk.
An NDA is an application to the FDA to market a new drug. A BLA is an application to market a biological product. The new drug or biological product may not be marketed in the U.S. until the FDA has approved the NDA or issued a biologics license. The NDA must contain, among other things, information on chemistry, manufacturing and controls; non-clinical pharmacology and toxicology; human pharmacokinetics and bioavailability; and clinical data. The BLA must contain, among other things, data derived from nonclinical laboratory and clinical studies which demonstrate that the product meets prescribed standards of safety, purity and potency, and a full description of manufacturing methods. Supplemental NDAs are submitted to obtain regulatory approval for additional indications for a previously approved drug and are reviewed by the FDA in a similar manner.
The results of the pre-clinical studies and clinical studies, the chemistry and manufacturing data, and the proposed labeling, among other things, are submitted to the FDA in the form of an NDA or BLA. The FDA may refuse to accept the application for filing if certain administrative and content criteria are not satisfied, and even after accepting the application for review, the FDA may require additional testing or information before approval of the application, in either case based upon changes in applicable law or FDA policy during the period of product development and FDA regulatory review. The applicant’s analysis of the results of clinical studies is subject to review and interpretation by the FDA, which may differ from the applicant’s analysis, and in any event, the FDA must deny an NDA or BLA if applicable regulatory requirements are not ultimately satisfied. If regulatory approval of a product is granted, such approval may be made subject to various conditions, including post-marketing testing and surveillance to monitor the safety of the product, or may entail limitations on the indicated uses for which it may be marketed. Product approvals may also be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.
Orphan Drug, Fast Track, Breakthrough Therapy Designations, and Priority Review
Other FDA regulations and policies relating to drug approval have implications for certain of our current or future product candidates, particularly AZEDRA. Designation as an Orphan Drug is available under U.S., E.U., and other laws for drug candidates intended to treat rare diseases or conditions, and which if approved are granted a period of market exclusivity, subject to various conditions. Orphan Drug designation does not shorten or otherwise convey any advantage in the regulatory approval process. Under the Orphan Drug Act, the FDA may designate a product as an Orphan Drug if it is intended to treat a rare disease or condition, generally defined as a patient population of fewer than 200,000 in the U.S. AZEDRA is designated as an Orphan Drug.
In the U.S., Orphan Drug designation entitles a party to certain financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to Orphan Drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity.
In cases where the extent and scope of patent protection for a product is limited, the exclusivity period resulting from Orphan Drug designation may be important in helping products maintain a competitive position. Even if a product obtains Orphan Drug exclusivity, however, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may be approved for the same condition. Even after an Orphan Drug is approved, the FDA may subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.
The FDA is also authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These mechanisms for expedited review include fast track designation, breakthrough therapy designation and priority review designation. AZEDRA has received fast track, breakthrough therapy and priority review designations.
The FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.
Finally, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case-by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.
Both before and after approval is obtained, a product, its manufacturer and the sponsor of the marketing application for the product are subject to comprehensive regulatory oversight. Violations of existing or newly-adopted regulatory requirements at any stage, including the pre-clinical and clinical testing process, the approval process, or thereafter, may result in various adverse consequences, including FDA delay in approving or refusal to approve a product, withdrawal of an approved product from the market or the imposition of criminal penalties against the manufacturer or sponsor. Later discovery of previously unknown problems may result in restrictions on the product, manufacturer or sponsor, including withdrawal of the product from the market.
Regulation Outside the U.S.
Whether or not FDA approval has been obtained, approval of a pharmaceutical product by comparable government regulatory authorities abroad must be obtained prior to marketing the product there. The approval procedure varies from country to country, and the time required may be longer or shorter than that required for FDA approval. The requirements for regulatory approval by governmental agencies in other countries prior to commercialization of products there can be rigorous, costly and uncertain, and approvals may not be granted on a timely basis or at all.
In E.U. countries, Canada, Australia, and Japan, regulatory requirements and approval processes are similar in principle to those in the U.S. Regulatory approval in Japan requires that clinical trials of new drugs be conducted in Japanese patients. Depending on the type of drug for which approval is sought, there are currently two potential tracks for marketing approval in E.U. countries: mutual recognition and the centralized procedure. These review mechanisms may ultimately lead to approval in all E.U. countries, but each method grants all participating countries some decision-making authority in product approval. The centralized procedure, which is mandatory for biotechnology derived products, results in a recommendation in all member states, while the E.U. mutual recognition process involves country-by-country approval.
In other countries, regulatory requirements may require additional pre-clinical or clinical testing regardless of whether FDA or European approval has been obtained. This is the case in Japan, where trials are required to involve patient populations which we and our other collaborators have not examined in detail. If a product is manufactured in the U.S., it is also subject to FDA and other U.S. export provisions. In most countries outside the U.S., coverage, pricing and reimbursement approvals are also required, which may affect the profitability of the affected product.
Other Regulation
In addition to regulations enforced by the FDA, we are also subject to regulation under the U.S. Occupational Safety and Health Act, Environmental Protection Act, Toxic Substances Control Act, Resource Conservation and Recovery Act, and various other current and potential future U.S. federal, state or local regulations. We believe that our operations comply in all material respects with applicable environmental laws and regulations. Our compliance with these regulations during the past year did not have and is not expected to have a material effect upon our capital expenditures, cash flows, earnings or competitive position.
In addition, our research is dependent on maintenance of licenses from various authorities permitting the acquisition, use and storage of quantities of radioactive isotopes that are critical for its manufacture and testing of research products. Biopharmaceutical research and development generally involves the controlled use of hazardous materials, chemicals, viruses, and various radioactive compounds. Even strict compliance with safety procedures for storing, handling, using and disposing of such materials prescribed by applicable regulations cannot completely eliminate the risk of accidental contaminations or injury from these materials, which may result in liability for resulting legal and regulatory violations as well as damages.
Manufacturing
The manufacture of radiopharmaceuticals is complex and requires significant capital expenditures. We have to date engaged third-party contract manufacturing organizations (“CMOs”) to manufacture active pharmaceutical ingredient (“API”) and finished drug products for clinical trial supplies of all of our product candidates, including AZEDRA, PyL and 1095. We acquired the AZEDRA manufacturing assets and entered into a sublease agreement for the radiopharmaceutical manufacturing facility located in Somerset, New Jersey. The Somerset site serves as the manufacturing facility for AZEDRA and will also provide manufacturing support for our development stage radiopharmaceuticals, including 1095. We continue to depend significantly on the availability of high quality CMO services for necessary redundancy and additional capacity. If we are unable to arrange for satisfactory CMO services, we would need to undertake such responsibilities on our own, resulting in our having to incur additional expenses and potentially delaying the development of our product candidates. See Item 1A. Risk Factors.
Under the RELISTOR License Agreement, Bausch is responsible for the manufacture and supply, at its expense, of all API and finished and packaged products for its RELISTOR commercialization efforts, including contracting with CMOs for supply of RELISTOR API and subcutaneous and oral finished drug product.
Commercial Organization
We have built an experienced radiopharmaceutical team of 12 employees to commercialize AZEDRA in the U.S.
Competition
Competition in the biopharmaceutical industry is intense and characterized by ongoing research and development and technological change. We face competition from many for-profit companies and major universities and research institutions in the U.S. and abroad. We face competition from companies marketing existing products or developing new products for diseases targeted by our technologies. Many of our competitors have substantially greater resources, experience in conducting pre-clinical studies and clinical trials and obtaining regulatory approvals for their products, operating experience, research and development and marketing capabilities and production capabilities than we do. Our products and product candidates under development may not compete successfully with existing products or products under development by other companies, universities and other institutions. Drug manufacturers that are first in the market with a therapeutic for a specific indication generally obtain and maintain a significant competitive advantage over later entrants and therefore, the speed with which industry participants move to develop products, complete clinical trials, approve processes and commercialize products is an important competitive factor.
RELISTOR was the first FDA-approved product for any indication involving OIC. We are, however, aware of other approved and marketed products, as well as candidates in pre-clinical or clinical development, that target the side effects of opioid pain therapy. Our principal competitors in the field of OIC include Nektar Therapeutics, in collaboration with AstraZeneca PLC; Cubist Pharmaceuticals, a subsidiary of Merck & Co., Inc.; and Mallinckrodt plc, in collaboration with Takeda Pharmaceutical Company Limited; and BioDelivery Sciences International Inc. Other prescription, as well as over-the-counter, laxatives are also used as first line for OIC.
As to our oncology pipeline, radiation and surgery are two traditional forms of treatment for prostate cancer. If the disease spreads, hormone (androgen) suppression therapy and chemotherapy are often used to slow the cancer’s progression, but this form of treatment can eventually become ineffective. We are aware of several competitors who are developing or have received approval for treatments for castration-resistant prostate cancer. Our principal competitors in the field of mCRPC include Johnson & Johnson subsidiary Janssen Biotech, Inc.; Novartis AG and Pfizer, Inc. in collaboration with Astellas Pharma US, Inc.; and Bayer HealthCare Pharmaceuticals Inc.; and Telix Pharmaceuticals. Our principal competitors in the field of prostate cancer imaging agents include Aytu Bioscience Inc., Bracco Diagnostics, Inc., Novartis AG and Telix Pharmaceuticals.
Other than AZEDRA, there are currently no approved anticancer treatments in the U.S. for malignant, recurrent, and/or unresectable pheochromocytoma and paraganglioma.
A significant amount of research in the biopharmaceutical field is carried out at academic and government institutions. An element of our research and development strategy has been to in-license technology and product candidates from academic and government institutions. These institutions are sensitive to the commercial value of their findings and pursue patent protection and negotiate licensing arrangements to collect royalties for use of technology they develop. They may also market competitive commercial products on their own or in collaboration with competitors and compete with us in recruiting highly qualified scientific personnel, which may result in increased costs or decreased availability of technology or product candidates from these institutions to other industry participants.
Competition with respect to our technologies and products is based on, among other things, product efficacy, safety, reliability, method of administration, availability, price and clinical benefit relative to cost; timing and scope of regulatory approval; sales, marketing and manufacturing capabilities; collaborator capabilities; insurance and other reimbursement coverage; and patent protection. Competitive position in our industry also depends on a participant’s ability to attract and retain qualified personnel, obtain patent protection or otherwise develop proprietary products or processes, and secure sufficient capital resources for the typically substantial period between technological conception and commercial sales.
Product Liability
The testing, manufacturing and marketing of our product candidates and products involves an inherent risk of product liability attributable to unwanted and potentially serious health effects. To the extent we elect to test, manufacture or market product candidates and products independently, we bear the risk of product liability directly. We maintain product liability insurance coverage in amounts and pursuant to terms and conditions customary for our industry, scale, and the nature of our activities. Where local statutory requirements exceed the limits of our existing insurance or local policies of insurance are required, we maintain additional clinical trial liability insurance to meet these requirements. This insurance is subject to deductibles and coverage limitations. The availability and cost of maintaining insurance may change over time. See Item 1A. Risk Factors.
Human Resources
At December 31, 2019, we had 105 full-time employees, 23 of whom hold Ph.D./PharmD degrees and three of whom hold M.D. degrees. At that date, 72 employees were engaged in research and development, medical, regulatory affairs, and manufacturing related activities and 33 were engaged in finance, legal, administration, commercial, and business development. We consider our relations with our employees to be good. None of our employees is covered by a collective bargaining agreement.
Available Information
We file annual, quarterly and current reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including Progenics. The SEC’s website can be found at https://www.sec.gov. We also make available on or through our website, free of charge, copies of these reports on https://www.progenics.com.
Additional information concerning our business may be available in press releases or other public announcements and quarterly and current reports and documents filed with the SEC. Information on or accessed through our website is not incorporated by reference into, nor does it form a part of, this report or any other document that we file with the SEC.
Item 1A. Risk Factors
Risks Related to the Pending Merger with Lantheus Holdings
Because the exchange ratio is fixed and will not be adjusted in the event of any changes in either Lantheus Holdings’ or our stock price, and because of the uncertainty of the fair market value of, and the ultimate realization on, the CVR, our stockholders cannot be sure of the value of the merger consideration they will receive in the merger.
Upon completion of the merger, each share of our common stock outstanding immediately prior to the completion of the merger (other than shares of our common stock owned by Lantheus Holdings, us or any respective wholly-owned subsidiaries) will be converted into the right to receive (1) 0.31 of a share of Lantheus Holdings common stock without interest and (2) one non-transferrable contingent value right representing the right to receive subject to the CVR cap, such stockholder’s pro rata share of aggregate cash payments equal to 40% of U.S. net sales generated by PyL Product (as such term is defined in the CVR Agreement) in calendar years 2022 and 2023 in excess of $100 million and $150 million, respectively, as set forth in the CVR Agreement. The exchange ratio will not be adjusted for changes in the market price of either Lantheus Holdings common stock or our common stock between the date the merger agreement was signed and completion of the merger. As a result, changes in the price of Lantheus Holdings common stock prior to the completion of the merger will affect the value of the Lantheus Holdings common stock that our stockholders will receive upon completion of the merger.
The market price of shares of Lantheus Holdings common stock has fluctuated since the date of the announcement of the merger agreement and may continue to change through the date of our special meeting and the date the merger is completed. The actual market value of the Lantheus Holdings common stock received by holders of our common stock may result in an implied value of the merger consideration outside this range. There is also uncertainty regarding the fair market value of the CVRs and whether any payment will ultimately be realized on the CVRs.
Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Lantheus Holdings’ and our respective businesses, operations and prospects, risks inherent in their respective businesses, changes in market assessments of the likelihood that the merger will be completed and/or the value that may be generated by the merger, and changes with respect to expectations regarding the timing of the merger and regulatory considerations. At the time of our special meeting, our stockholders will not know with certainty the value of the shares of Lantheus Holdings common stock that they will receive upon completion of the merger.
If the closing of the proposed merger occurs, our shareholders may not receive any payment on CVRs received as partial consideration for the merger, and the CVRs will not be transferable or registered or listed for trading.
As described above, under the terms of the amended and restated merger agreement, upon completion of the merger, each share of our common stock outstanding immediately prior to the completion of the merger (other than shares of our common stock owned by Lantheus Holdings, us or any respective wholly-owned subsidiaries) will be converted into the right to receive (1) 0.31 of a share of Lantheus Holdings common stock without interest and (2) one non-transferrable CVR. Subject to the terms and conditions of the CVR Agreement, each CVR will entitle its holder to receive a pro rata portion of up to two contingent cash payments as follows:
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For the one-year period ending December 31, 2022, Lantheus Holdings will pay an amount equal to 40% of Net Sales relating to PyL Product (as each such term is defined in the CVR Agreement) that exceeds $100 million.
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For the one-year period ending December 31, 2023, Lantheus Holdings will pay an amount equal to 40% of Net Sales relating to PyL Product that exceeds $150 million.
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In addition, payments under the CVRs are subject to an aggregate cap. The sum of (i) the aggregate amount of payments paid or payable pursuant to the CVR agreement (including any interest on such amounts paid or payable to the rights agent or any CVR holder) and (ii) the amount of any other cash or the fair market value of any property (other than Lantheus Holdings common stock or the CVRs) paid or payable to Progenics stockholders as consideration pursuant to the merger agreement will not (A) exceed 19.9% of the aggregate amount of consideration paid or payable to Progenics stockholders in the merger or (B) constitute an amount the payment of which, in the opinion of nationally recognized tax counsel, would more likely than not prevent the merger from satisfying the requirement of Section 368(a)(2)(E)(ii) of the U.S. Internal Revenue Code.
The CVRs are nontransferable, meaning that they may not be sold, assigned, transferred, pledged, encumbered or in any other manner transferred or disposed of either in whole or in part, other than in certain limited circumstances. The CVRs will not be registered as securities and they will not be listed or traded on any stock exchange in the United States or elsewhere. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in Lantheus Holdings, Merger Sub, Progenics or any of their respective affiliates. Accordingly, the right of any holders of the CVRs to receive any future payment on or derive any value from the CVRs will be contingent solely upon the achievement of the foregoing events within the specified time periods and other terms and conditions of the CVR Agreement, and if these events are not achieved for any reason with such time periods and other terms and conditions, no payments will be made under the CVRs and the CVRs will expire without value.
Lantheus Holdings’ obligation to obtain FDA approval for PyL and commercialize it in a manner that maximizes net sales is based on “diligent efforts,” which allows for consideration of a variety of factors to determine the efforts Lantheus Holdings is required to take; accordingly, under certain circumstances, Lantheus Holdings may not be required to take certain actions to achieve these goals, which would have an adverse effect on the value, if any, of the CVRs.
From and after the effective time of the merger, Lantheus Holdings has agreed to use “diligent efforts” to obtain FDA approval for and commercially launch the PyL Product as soon as practicable and thereafter commercialize the PyL Product in a manner that maximizes net sales. However, the definition of “diligent efforts” in the CVR Agreement allows for the consideration of a variety of factors in determining the efforts Lantheus Holdings is required to use to achieve these goals, and it does not require Lantheus Holdings to take all possible actions to achieve them. Under the CVR Agreement, the definition of “diligent efforts” requires Lantheus Holdings to use a level of effort, expertise and resources consistent with those efforts, expertise and resources normally used by persons in the medical diagnostics business similar in size and resources to Lantheus Holdings and its affiliates with respect to developing, seeking regulatory approval for and commercializing a product or product candidate that is of similar market potential at a similar stage in its development or product life to the PyL Product .
The U.S. federal income tax treatment of the CVRs is uncertain.
There is no legal authority directly addressing the U.S. federal income tax treatment of the CVRs or the treatment of payments that may be received pursuant to the CVRs. Accordingly, the amount, timing and character of any gain, income or loss with respect to the CVRs are uncertain. Due to the legal and factual uncertainties regarding the tax treatment of the CVRs, U.S. holders are urged to consult their own tax advisors to determine the timing and characterization of income, gain or loss resulting from the receipt of the CVRs and payments pursuant to, sale or other disposition (in certain limited circumstances) of, and the expiration of, the CVRs.
The merger is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on us or, if not obtained, could prevent completion of the merger.
Before the merger may be completed, any approvals, consents or clearances required in connection with the merger must have been obtained, in each case, under applicable law. Completion of the merger is conditioned upon, among other things, the expiration or termination of the waiting period (and any extension thereof) applicable to the merger under the HSR Act, which, as noted above, has been obtained by grant of early termination of the HSR Act waiting period on October 25, 2019. Notwithstanding the grant of early termination, at any time before or after the merger is completed, the Antitrust Division, the FTC, or U.S. state attorneys general could take action under the antitrust laws in opposition to the merger, including seeking to enjoin completion of the merger, condition completion of the merger upon the divestiture of assets, or impose restrictions on post-merger operations. Any such requirements or restrictions may prevent or delay completion of the merger or may reduce the anticipated benefits of the merger.
The merger is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger could have material adverse effects on our business.
The completion of the merger is subject to a number of conditions in addition to the termination or expiration of any applicable waiting period (and any extension thereof) under the HSR Act, including, among other conditions: (i) approval of the merger agreement proposal by our stockholders at our special meeting; (ii) approval of the stock issuance proposal by Lantheus Holdings stockholders at the Lantheus Holdings special meeting; (iii) approval for the listing on the Nasdaq Global Market of the shares of Lantheus Holdings common stock to be issued in the merger and such other shares to be reserved for issuance in connection with the merger; (iv) the absence of any law enacted or order issued by a governmental authority of competent jurisdiction having the effect of making the merger illegal or otherwise prohibiting completion of the merger; (v) the accuracy of the representations and warranties made in the merger agreement by the other party, subject to the applicable materiality standards set forth in the merger agreement; (vi) the absence of any fact, circumstance, condition, development, change, event, occurrence or effect that has had or would reasonably be expected to have, individually or in the aggregate with all other facts, circumstances, conditions, developments, changes, events, occurrences or effects, a material adverse effect on us since the date of the merger agreement; (vii) performance or compliance in all material respects by us with all the agreements and covenants required to be performed by such party under the merger agreement on or prior to the closing date; and (viii) the effectiveness of the registration statement on Form S-4 relating to the merger and no stop order suspending the effectiveness of the registration statement and no proceedings for such purpose initiated or threatened by the SEC.
In addition, the merger agreement contains certain termination rights for both Lantheus Holdings and us, including, among other things, (i) if the merger has not been completed by July 1, 2020, (ii) if the required approval of Lantheus Holdings stockholders or the our stockholders is not obtained, (iii) if the other party willfully breaches its non-solicitation obligations in the merger agreement, (v) if the other party materially breaches its representations, warranties or covenants which breach or failure to perform would result in a failure to satisfy any condition to completion of the merger related to the accuracy of its representations and warranties or the performance of its covenants and agreements, and fails to cure such breach, (vi) if any law or order prohibiting the merger or the stock issuance has become final and non-appealable, or (vii) if the board of directors of the other party changes its recommendation in connection with the merger. If the merger is not completed, our ongoing business may be materially adversely affected and, without realizing any of the benefits that we could have realized had the merger been completed, we will be subject to a number of risks, including the following:
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we may experience negative reactions from the financial markets, including negative impacts on trading prices of Lantheus Holdings common stock and our common stock, and from their respective customers, vendors, regulators and employees;
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we may be required to pay Lantheus Holdings a termination fee of $18.34 million if the merger agreement is terminated under certain circumstances, and Lantheus Holdings may be required to pay Progenics a termination fee of $18.34 million if the merger agreement is terminated under certain other circumstances (for more information, see the merger agreement incorporated by reference as an exhibit in this Form 10-K);
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if the merger agreement is terminated and the Lantheus Holdings Board or our Board seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms agreed to in the merger agreement;
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we will be required to pay certain transaction expenses and other costs incurred in connection with the merger, whether or not the merger is completed, including regulatory filings and legal, accounting, financial advisory, consulting and other advisory expenses, employee benefit-related expenses and filing and printing fees, and, in certain circumstances, certain fees and expenses of Lantheus Holdings in connection with the Lantheus Holdings expense reimbursement (see the merger agreement incorporated by reference as an exhibit in this Form 10-K); and
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matters relating to the merger (including arranging integration planning) will require substantial commitments of time and resources by our management and the expenditure of significant funds in the form of fees and expenses, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company.
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In addition, if the merger is not completed, we could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the merger agreement. If any such risk materializes, it could adversely impact our ongoing business. Similarly, delays in the completion of the merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the merger and cause them not to realize some or all of the benefits that they expect to achieve if the merger is successfully completed within its expected timeframe. We cannot assure you that the conditions to the closing of the merger will be satisfied or waived or that the merger will be completed.
In addition, we anticipate it being necessary to obtain additional financing in order to meet our cash requirements if the merger is not consummated. However, there can be no assurances that we will be able to obtain additional capital on acceptable terms and in the amounts necessary to fully fund our current operating expenses or reduced operating expenses reflecting delays or reductions in the scope of our product development programs beyond 2020. These and other circumstances raise substantial doubt about our ability to continue as a going concern if the merger is not consummated. Our independent registered public accounting firm has issued an opinion on our financial statements as of and for the period ended December 31, 2019 included in this Form 10-K, that states that there is substantial doubt about our ability to continue as a going concern and that the financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Uncertainties associated with the merger may cause a loss of management personnel and other key employees, and we may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future business and operations of the combined company.
We are dependent on the experience and industry knowledge of their respective management personnel and other key employees to execute their business plans. The combined company’s success after the completion of the merger will depend in part upon our ability to attract, motivate and retain key management personnel and other key employees. Prior to completion of the merger, our current and prospective employees may experience uncertainty about their roles within the combined company following the completion of the merger, which may have an adverse effect on our ability to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that the combined company will be able to attract, motivate or retain our management personnel and other key employees to the same extent that we have previously been able to attract or retain our own employees.
On February 28, 2020, Mr. Fabbio provided notice to the Progenics Board of his intention to resign as Progenics' Chief Financial Officer, effective March 27, 2020. Mr. Fabbio has agreed to continue providing services to Progenics as a consultant following the effective date of his resignation until the earlier of the effective date of the merger and May 15, 2020 unless terminated by either party as set forth therein.
The merger agreement limits our ability to pursue alternatives to the merger and may discourage other companies from trying to acquire us.
The merger agreement contains a no solicitation covenant that restricts our ability to (i) initiate or solicit or knowingly facilitate, knowingly induce or knowingly encourage any inquiry or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, a takeover proposal, (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, furnish to any person any information or data with respect to, or cooperate in any way that would otherwise reasonably be expected to lead to, any proposal or offer that constitutes, or would reasonably be expected to lead to, any takeover proposal, (iii) submit to our stockholders for their approval or adoption any takeover proposal, or (iv) agree or publicly announce an intention to take any of the foregoing actions. In the event that we receive a bona fide written takeover proposal, we must promptly communicate the receipt of such proposal and provide copies of all written materials provided, including the terms and conditions of such proposal, to Lantheus Holdings. If, in response to such proposals and subject to certain conditions, we intend to effect a change in recommendation of our Board, we must engage in good faith negotiations with Lantheus Holdings to amend the merger agreement in response to such competing takeover proposal before our Board may make a change in recommendation. The merger agreement further provides that in the event of a termination of the merger agreement under certain specified circumstances, including a termination following a change in recommendation by our Board or a willful breach of the no solicitation provision applicable to it, we may be required to pay the other party a termination fee equal to $18.34 million. For more information, see the merger agreement incorporated by reference as an exhibit in this Form 10-K.
These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of our business from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per-share value than the currently proposed merger consideration. These provisions might also result in a potential third-party acquirer proposing to pay a lower price in a takeover proposal than it might otherwise have proposed to pay because of the added expense of the termination fee and other fees and expenses that may become payable in certain circumstances.
The shares of Lantheus Holdings common stock to be received by Progenics stockholders upon completion of the merger will have different rights from shares of Progenics common stock.
Upon completion of the merger, our stockholders will no longer be stockholders of Progenics, but will instead become stockholders of Lantheus Holdings, and their rights as Lantheus Holdings stockholders will be governed by the terms of Lantheus Holdings’ amended and restated certificate of incorporation (the “Lantheus Holdings certificate of incorporation”), as it may be amended from time to time, and Lantheus Holdings’ amended and restated bylaws (the “Lantheus Holdings bylaws”), as they may be amended from time to time. The terms of the Lantheus Holdings certificate of incorporation and the Lantheus Holdings bylaws are in some respects materially different than the terms of our amended and restated certificate of incorporation, as they may be amended from time to time, and our by-laws, as they may be amended from time to time. For more information, see the merger agreement incorporated by reference as an exhibit in this Form 10-K.
We may be a target of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, then that injunction may delay or prevent the merger from being completed, or from being completed within the expected timeframe, which may adversely affect our business, financial position and results of operation. As of the date of filing of this report, we are aware of five pending securities class action lawsuits or derivative lawsuits that have been filed in connection with the merger. One of those lawsuits against Progenics also names Lantheus Holdings or one of its affiliates as a defendant:
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Johnson v. Progenics Pharmaceuticals, Inc., et al., Case No. 19-cv-02183
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Pill v. Progenics Pharmaceuticals, Inc., 19-cv-02268 (D. Del.)
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Wang v. Progenics Pharmaceuticals, Inc., Case No. 1:19-cv-10936 (S.D.N.Y.)
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Hess v. Progenics Pharmaceuticals, Inc., 19-cv-11683 (S.D.N.Y.); and
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Bernstein IRA v Progenics Pharmaceutical Inc., Case No. 19-cv-21200 (D.N.J.)
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These cases all principally allege that Progenics and/or various of its officers failed to disclose material information in the Form S-4 filed with the SEC describing the proposed Lantheus Holdings transaction. No plaintiff has yet moved to enjoin the transaction.
In addition, by letter dated October 14, 2019, we received a shareholder demand from the Fireman's Retirement System of St. Louis (the “FRS Demand”) under Section 220 of the DGCL to inspect its books and records concerning, among other things, the opposition to the Velan Consent Solicitation and the negotiation and execution of the original merger agreement, and asserting that the Board may have breached its fiduciary obligations. Progenics and FRS executed a confidentiality agreement and negotiated the scope of the production of books and records in response to the FRS Demand, which we have provided. For more information, see the merger agreement incorporated by reference as an exhibit in this Form 10-K.
We are subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect our business and operations.
In connection with the pendency of the merger, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a result of the merger, which could negatively affect our current or the combined company’s future, revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the merger is completed. Under the terms of the merger agreement, we are subject to certain restrictions on the conduct of our business prior to completing the merger, which could adversely affect our ability to execute certain of our business strategies. Such limitations could adversely affect our business and operations prior to the completion of the merger. Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the merger.
General Risks Related to our Business
Drug development is a long and inherently uncertain process with a high risk of failure at every stage of development.
Drug development is a highly uncertain scientific and medical endeavor, and failure can unexpectedly occur at any stage of clinical development. Typically, there is a high rate of attrition for product candidates in preclinical and clinical trials due to scientific feasibility, safety, efficacy, changing standards of medical care and other variables. The risk of failure increases for our product candidates that are based on new technologies, as well as technologies with which we have limited prior experience. Pre-clinical studies and clinical trials are long, expensive and highly uncertain processes that can take many years. It will take us several years to complete all pre-clinical work and clinical trials and the time required for completing, testing and obtaining approvals is uncertain. The start or end of a clinical trial is often delayed or halted due to changing regulatory requirements, manufacturing challenges, required clinical trial administrative actions, slower than anticipated patient enrollment, changing standards of care, availability or prevalence of use of a comparator drug or required prior therapy, clinical outcomes, or financial constraints. The FDA and other U.S. and foreign regulatory agencies have substantial discretion, at any phase of development, to terminate clinical trials, require additional clinical development or other testing, delay, condition or withhold registration and marketing approval and mandate product withdrawals, including recalls. Additionally, we may also amend, suspend or terminate clinical trials at any time if we believe that the participating patients are being exposed to unacceptable health risks. Results attained in early human clinical trials may not be indicative of results in later clinical trials. In addition, some of our investigational or experimental drugs are at an early stage of development, and successful commercialization of early stage product candidates requires significant research, development, testing and approvals by regulators, and additional investment. Our failure to demonstrate adequately the safety and efficacy of a product under development would delay or prevent marketing approval, which could adversely affect our operating results and credibility. The failure of one or more of our product candidates could have a material adverse effect on our business, financial condition and results of operations.
The future of our business and operations depends on the success of our development and commercialization programs.
Our business and operations entail a variety of serious risks and uncertainties and are inherently risky. The development programs on which we focus involve novel approaches to human therapeutics and diagnostics. Our product candidates are in clinical development, and in some respects, involve technologies with which we have limited prior experience. We are subject to the risks of failure inherent in the development and commercialization of product candidates based on new technologies. There is little precedent for the successful commercialization of products based on our technologies, and there are a number of technological challenges that we must overcome to complete most of our development efforts. We may not be able to successfully further develop any of our product candidates. We must successfully complete clinical trials and obtain regulatory approvals for potential commercial products. Once approved, if at all, commercial product sales are subject to general and industry-specific local and international economic, regulatory, technological and policy developments and trends. Delays, higher costs or other weaknesses in the manufacturing process at our Somerset, New Jersey manufacturing facility or any of our CMOs could hinder the development and commercialization of our product pipeline. The oncology space in which we operate presents numerous significant risks and uncertainties that may be expected to increase to the extent it becomes more competitive or less favored in the commercial healthcare marketplace.
Failure to realize the anticipated benefits of any strategic acquisition and/or licensing transaction could adversely affect our business, operations and financial condition.
A part of our business strategy has been to identify and advance a pipeline of product candidates by identifying product candidates, technologies and businesses for acquisition and in-licensing that we believe are a strategic fit with our existing business. For example, we recently acquired the AZEDRA manufacturing assets and entered into a sublease agreement for the radiopharmaceutical manufacturing facility. The ultimate success of any strategic transactions entails numerous operational and financial risks, including:
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higher than expected development and integration costs;
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difficulty in combining the technologies, operations and personnel of acquired businesses with our technologies, operations and personnel;
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inherent risks and uncertainties related to our ability to operate newly acquired assets in a manner that achieves our business objectives;
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exposure to unknown liabilities;
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difficulty or inability to form a unified corporate culture across multiple office sites both nationally and internationally;
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inability to retain key employees of acquired businesses;
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disruption of our business and diversion of our management’s time and attention; and
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difficulty or inability to secure financing to fund development activities for such acquired or in-licensed product candidates, technologies or businesses.
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We have limited resources to integrate acquired and in-licensed product candidates, technologies and businesses into our current infrastructure, and we may fail to realize the anticipated benefits of any strategic transactions. Any such failure could have an adverse effect on our business, operations and financial condition.
If we do not obtain regulatory approval for our product candidates on a timely basis, or at all, or if the terms of any approval impose significant restrictions or limitations on use, our business, results of operations and financial condition will be adversely affected. Setbacks in clinical development programs could have a material adverse effect on our business.
Regulatory approvals are necessary to market product candidates and require demonstration of a product’s safety and efficacy through extensive pre-clinical and clinical trials. We may not obtain regulatory approval for product candidates on a timely basis, or at all, and the terms of any approval (which in some countries includes pricing and reimbursement approval) may impose significant restrictions, limitations on use or other commercially unattractive conditions. The process of obtaining FDA and foreign regulatory approvals often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. We have had only limited experience in filing and pursuing applications and other submissions necessary to gain marketing approvals. Products under development may never obtain marketing approval from the FDA or other regulatory authorities necessary for commercialization.
We or our regulators may also amend, suspend or terminate clinical trials if we or they believe that the participating patients are being exposed to unacceptable health risks, and after reviewing trial results, we may abandon projects which we previously believed to be promising for commercial or other reasons unrelated to patient risks. During this process, we may find, for example, that results of pre-clinical studies are inconclusive or not indicative of results in human clinical trials, clinical investigators or contract research organizations do not comply with protocols or applicable regulatory requirements, or that product candidates do not have the desired efficacy or have undesirable side effects or other characteristics that preclude marketing approval or limit their potential commercial use if approved. In such circumstances, the entire development program for that product candidate could be adversely affected, resulting in delays in trials or regulatory filings for further marketing approval and a possible need to reconfigure our clinical trial programs to conduct additional trials or abandon the program involved. Conducting additional clinical trials or making significant revisions to a clinical development plan would lead to delays in regulatory filings. If clinical trials indicate, or regulatory bodies are concerned about, actual or possible serious problems with the safety or efficacy of a product candidate, we may stop or significantly slow development or commercialization of affected products. As a result of such concerns, the development programs for our product candidates may be significantly delayed or terminated altogether.
If the results of any of our clinical trials are not satisfactory or we encounter problems and/or delays enrolling patients, clinical trial supply issues, setbacks in developing drug formulations, including raw material supply, manufacturing, stability or other difficulties, or issues complying with protocols or applicable regulatory requirements, the entire development program for our product candidates could be adversely affected in a material manner.
We must design and conduct successful clinical trials for our product candidates to obtain regulatory approval. We rely on third parties for conduct of clinical trials, which reduces our control over their timing, conduct and expense and may expose us to conflicts of interest. Clinical trial results may be unfavorable or inconclusive, and often take longer and cost more than expected.
We have limited internal resources with conducting clinical trials, and we rely on or obtain the assistance of others to design, conduct, supervise, or monitor some or all aspects of some of our clinical trials. In relying on these third parties, we have less control over the timing and other aspects of clinical trials than if we conducted them entirely on our own. Problems with the timeliness or quality of the work of a contract research organization or clinical data management organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials and contractual restrictions may make such a change difficult or impossible. These third parties may also have relationships with other entities, some of which may be our competitors. In all events, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. The FDA and other foreign regulatory authorities require us to comply with good clinical practices for conducting and recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements.
To obtain regulatory approval of our product candidates, we must demonstrate through preclinical studies and clinical trials that they are safe and effective. Adverse or inconclusive clinical trial results concerning any of our product candidates that regulators find deficient in scope, design or one or more other material respects, could require additional trials, resulting in increased costs, significant delays in submissions of approval applications, approvals in narrower indications than originally sought, or denials of approval, none of which we can predict. As a result, any projections that we publicly announce of commencement and duration of clinical trials are not certain. We have experienced clinical trial delays in the past as a result of slower than anticipated enrollment and such delays may recur. Delays can be caused by, among other things, deaths or other adverse medical events; regulatory or patent issues; interim or final results of ongoing clinical trials; failure to enroll clinical sites as expected; competition for enrollment from other clinical trials; scheduling conflicts with participating clinicians and institutions; disagreements, disputes or other matters arising from collaborations; our inability to obtain necessary funding; or manufacturing problems.
A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, or coronavirus, may materially and adversely affect our business and our financial results.
The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States and several European countries. The spread of COVID-19 has affected segments of the global economy and may affect our operations by causing a period of business disruption, including the potential interruption of our clinical trial activities and delays or disruptions in the supply of our products and product candidates. In addition, there could be a potential effect of COVID-19 to the business at FDA or other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates.
The continued spread of COVID-19 globally could also adversely impact our clinical trial operations, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. COVID-19, or another infectious disease, could also negatively affect our manufacturing operations, which could result in delays or disruptions in the supply of our product candidates.
We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business and our results of operation and financial condition.
Risks Related to Our Commercialized Products RELISTOR and AZEDRA
We have been and expect to continue to be dependent on Bausch to develop and commercialize RELISTOR, exposing us to significant risks.
We rely on Bausch to pursue and complete further development and obtain regulatory approvals for RELISTOR worldwide. At present, our revenue is almost exclusively derived from royalty and milestone payments from our RELISTOR collaboration with Bausch, which can result in significant fluctuation in our revenue from period to period, and our past revenue is therefore not necessarily indicative of our future revenue. We are and will be dependent upon Bausch and any other business partners with which we may collaborate in the future to perform and fund development, including clinical testing of RELISTOR, making related regulatory filings and manufacturing and marketing products, including for new indications and in new formulations, in their respective territories. Revenue from the sale of RELISTOR depends entirely upon the efforts of Bausch and its sublicensees, which have significant discretion in determining the efforts and resources they apply to sales of RELISTOR. Bausch may not be effective in obtaining approvals for new indications or formulations, marketing existing or future products or arranging for necessary sublicense or distribution relationships. Our business relationships with Bausch and other partners may not be scientifically, clinically or commercially successful. For example, Bausch has a variety of marketed products and its own corporate objectives, which may not be consistent with our best interests, and may change its strategic focus or pursue alternative technologies in a manner that results in reduced or delayed revenue to us. Bausch may also have commercial and financial interests that are not fully aligned with ours in a given territory or territories - which may make it more difficult for us to fully realize the value of RELISTOR. We may have future disagreements with Bausch, which has significantly greater financial and managerial resources which it could draw upon in the event of a dispute. Such disagreements could lead to lengthy and expensive litigation or other dispute-resolution proceedings as well as extensive financial and operational consequences to us and have a material adverse effect on our business, results of operations and financial condition. In addition, independent actions may be taken by Bausch concerning product development, marketing strategies, manufacturing and supply issues, and rights relating to intellectual property.
Under our agreements with Bausch relating to RELISTOR, we rely on Bausch to, among other things, effectively commercialize the product and manage pricing, sales and marketing practices and inventory levels in the distribution channel. Assessing and reporting on these and other activities and metrics in connection with RELISTOR has been difficult as a result of financial reporting and internal control issues that have surfaced both at Bausch and its predecessor licensee, Salix. Our already limited visibility into the internal operations of Bausch and reliance on Bausch to accurately report information concerning the commercialization of RELISTOR has been further obscured by certain events at Bausch. As a result of certain incorrectly recognized revenues, both Bausch’s Form 10-K for 2015 and its Form 10-Q for the first quarter of 2016 were filed late, resulting in Bausch receiving notices of default from certain of its noteholders, in each instance. We remain exposed to Bausch’s credit risk and the possibility of default under the RELISTOR License Agreement in the event that Bausch were to terminate the agreement at its discretion.
We are also dependent on Bausch for compliance with regulatory requirements as they apply to RELISTOR.
The RELISTOR commercialization program continues to be subject to risk.
Future developments in the commercialization of RELISTOR may result in Bausch or any other business partner with which we may collaborate in the future taking independent actions concerning product development, marketing strategies or other matters, including termination of its efforts to develop and commercialize the drug.
Under our license agreement with Bausch, Bausch is responsible for obtaining supplies of RELISTOR, including contracting with contract manufacturing organizations for supply of RELISTOR active pharmaceutical ingredient and subcutaneous and oral finished drug product. These arrangements may not be on terms that are advantageous and, as a result of our royalty and other interests in RELISTOR’s commercial success, will subject us to risks that the counterparties may not perform optimally in terms of quality or reliability.
Bausch’s ability to optimally commercialize either oral or subcutaneous RELISTOR in a given jurisdiction may be impacted by applicable labeling and other regulatory requirements. If clinical trials indicate, or regulatory bodies are concerned about, actual or possible serious problems with the safety or efficacy of RELISTOR, Bausch may stop or significantly slow further development or commercialization of RELISTOR. In such an event, we could be faced with either further developing and commercializing the drug on our own or with one or more substitute collaborators, either of which paths would subject us to the development, commercialization, collaboration and/or financing risks discussed in these risk factors.
We are also aware of other approved and marketed products, as well as product candidates in pre-clinical or clinical development that are intended to target the side effects of opioid pain therapy and are direct competitors to RELISTOR. For instance, there are three approved products that target opioid-induced constipation: MOVANTIK® (naloxegol), AMITIZA® (lubiprostone), and Symproic® (naldemedine) which could compete with RELISTOR. The competitors who have developed these products and product candidates may have superior resources that allow them to implement more effective approaches to sales and marketing. There is no guarantee that RELISTOR will be able to compete commercially with these products. Additionally, there has been growing public concern regarding the use of opioid drugs. Any efforts by the FDA or other governmental authorities to restrict or limit the use of opioids may negatively impact the market for RELISTOR. In addition, there is a substantial risk that the revenue targets for receiving additional RELISTOR milestone payments will not be met. As a result, there is no assurance that we will realize the potential revenue represented by future RELISTOR milestone payments.
Any such significant action adverse to the further development and commercialization of RELISTOR could have a material adverse impact on our business and on the price of our stock.
Our patents are subject to generic challenge, and the validity, enforceability and commercial value of these patents are highly uncertain.
Our ability to obtain and defend our patents impacts the commercial value of our products and product candidates. Third parties have challenged and are likely to continue challenging the patents that have been issued or licensed to us. Patent protection involves complex legal and factual questions and, therefore, enforceability is uncertain. Our patents may be challenged, invalidated, held to be unenforceable, or circumvented, which could negatively impact their commercial value. For example, we (along with Bausch and Wyeth LLC) have received notifications of a Paragraph IV certification for RELISTOR (methylnaltrexone bromide) subcutaneous injection and for RELISTOR (methylnaltrexone bromide) Tablets, for certain patents that are listed in the FDA Orange Book. The certifications resulted from filings by entities such as Mylan Pharmaceuticals Inc., Actavis LLC and Par Sterile Products, LLC of Abbreviated New Drug Applications (“ANDAs”) with the FDA, challenging such patents for RELISTOR subcutaneous injection and seeking to obtain approval to market a generic version of RELISTOR subcutaneous injection and filings by Actavis Laboratories FL, Inc. seeking to obtain approval to market a generic version of RELISTOR Tablets before some or all of these patents expire. Furthermore, patent applications filed outside the United States may be challenged by other parties, for example, by filing third-party observations that argue against patentability or an opposition. Such opposition proceedings are increasingly common in the EU and are costly to defend. For example, we received notices of opposition to three European patents relating to methylnaltrexone.
Although we and Bausch are cooperating to defend against both the ANDA challenges and the European oppositions and intend to continue to vigorously enforce RELISTOR intellectual property rights, such litigation is inherently subject to significant risks and uncertainties, and there can be no assurance that the outcome of these litigations will be favorable to us or Bausch. An unfavorable outcome in these cases could result in the rapid genericization of RELISTOR products or could result in the shortening of available patent life. Any such outcome could have a material impact on our financial performance and stock price.
Pursuant to the RELISTOR license agreement between us and Bausch, Bausch has the first right to enforce the intellectual property rights at issue and is responsible for the costs of such enforcement. At the same time, we may incur substantial further costs in supporting the effort to uphold the validity of patents or to prevent infringement. Patent disputes are frequent, costly and can preclude, delay or increase the cost of commercialization of products. We have previously been and are currently involved in patent litigation, and we expect to be subject to patent litigation in the future. For more information related to our patent litigation and legal proceedings, see Item 3. Legal Proceedings.
Our AZEDRA commercialization program is subject to significant risk.
It is very difficult to estimate the commercial potential of recently approved products, due to factors such as safety and efficacy compared to other available treatments (including potential generic drug alternatives with similar efficacy profiles), changing standards of care, third party payer reimbursement, patient and physician preferences, readiness of a clinical site to administer a new product and the availability of competitive alternatives that may emerge either during the approval process or after commercial introduction. Frequently, products that have shown promising results in clinical trials suffer significant setbacks even after they are approved for commercial sale.
On July 30, 2018, we received FDA approval of our NDA for AZEDRA. There is no guarantee that AZEDRA will be a commercial success. Further, future uses of AZEDRA commercially may reveal that AZEDRA is ineffective, unacceptably toxic, has other undesirable side effects, is difficult to manufacture on a commercial scale, is not cost-effective or economically viable, infringes on proprietary rights of another party or is otherwise not fit for further use.
AZEDRA, designated as an Orphan Drug is intended to treat a rare disease with a small patient population. While we have received FDA approval, we are still in discussions with payors regarding pricing for AZEDRA. If pricing for AZEDRA is not accepted in the market at an appropriate level it may not generate enough revenue to make it economically viable. There have been recent examples of the market reacting poorly to the high cost of certain drugs. If the market reacts similarly to AZEDRA, it could result in negative publicity and reputational harm to us. Further, the Trump administration has indicated support for possible new measures related to drug pricing, which could increase the pricing pressures related to AZEDRA and further limit its economic viability.
We have little experience as a company in commercializing products and, prior to the FDA approval and launch of AZEDRA, had no existing commercial infrastructure. Given this lack of experience, there is a heightened risk as to whether we will be able to successfully commercialize AZEDRA. If AZEDRA is determined to be unsafe or ineffective in humans, not economically viable or we are unable to successfully commercialize it, our business will be materially adversely affected.
We may not be able to maintain Orphan Drug exclusivity for AZEDRA and, even if we do, that exclusivity may not prevent the FDA, from approving competing products.
Under the Orphan Drug Act, the FDA may designate a product as an Orphan Drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. AZEDRA currently has the Orphan Drug designation in the United States.
In the United States, Orphan Drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has Orphan Drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to Orphan Drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity.
We may not be able to maintain Orphan Drug exclusivity for AZEDRA. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. Even after an Orphan Drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. A loss of the Orphan Drug exclusivity for AZEDRA may have an adverse impact on our ability to adequately commercialize AZEDRA.
Failure to obtain marketing approval in foreign jurisdictions would prevent AZEDRA from being marketed abroad.
Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside of the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. In order to market and sell AZEDRA in the European Union and many other foreign jurisdictions, we or our potential third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside of the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside of the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We or our potential third-party collaborators may not obtain approvals from regulatory authorities outside of the United States on a timely basis, if at all. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize AZEDRA in any market outside of the United States.
Risks Related to Our Product Candidates
Even if our product candidates obtain marketing approval, our ability to generate revenue will be diminished if our products are not accepted in the marketplace, or if we select pricing strategies for our products that are less competitive than those of our competitors, or fail to obtain acceptable prices or an adequate level of reimbursement for products from third-party payers or government agencies.
The commercial success of our products will depend upon their acceptance by the medical community and third-party payers as clinically useful, cost effective and safe. Market acceptance of approved products, is affected by a wide range of factors, including the timing of regulatory approvals, product launches and the presence of generic, over-the-counter or other competitors; the pricing of the product and relative prices of competing products; product development efforts for new indications; the availability of reimbursement for the product; our ability to obtain sufficient commercial quantities of the product; success in arranging for necessary sublicense or distribution relationships; and general and industry-specific local and international economic pressures. If health care providers believe that patients can be managed adequately with alternative, currently available therapies, they may not prescribe our products, especially if the alternative therapies are viewed as more effective, as having a better safety or tolerability profile, as being more convenient to the patient or health care providers or as being less expensive. Third-party insurance coverage may not be available to patients for any products we develop. For pharmaceuticals administered in an institutional setting, the ability of the institution to be adequately reimbursed from government and health administration authorities, private health insurers and other third-party payers could also play a significant role in demand for our products. Significant uncertainty exists as to the reimbursement status of newly-approved pharmaceuticals. Government and other third-party payers increasingly are attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for indications for which the FDA has not granted labeling approval. In most foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the U.S., we expect that there will continue to be a number of federal and state proposals to implement similar government control and that the emphasis on managed care in the U.S. will continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that we can receive for any products in the future and adversely affect our ability to successfully commercialize our products. If any of our product candidates do not achieve market acceptance, we will likely lose our entire investment in that product candidate.
We are subject to extensive and ongoing regulation, which can be costly and time consuming, may interfere with marketing approval for our product candidates, and can subject us to unanticipated limitations, restrictions, delays and fines.
Our business, products and product candidates are subject to comprehensive regulation by the FDA and comparable authorities in other countries, and include the Sunshine Act under the Patient Protection and Affordable Care Act (“PPACA”). These agencies and other entities regulate the pre-clinical and clinical testing, safety, effectiveness, approval, manufacture, labeling, marketing, export, storage, recordkeeping, advertising, promotion and other aspects of our products and product candidates. We cannot guarantee that approvals of product candidates, processes or facilities will be granted on a timely basis, or at all. If we experience delays or failures in obtaining approvals, commercialization of our product candidates will be slowed or stopped. In addition to these uncertainties, there have been several attempts and public announcements by members of the U.S. Congress, President Trump and the Trump administration to repeal the PPACA and replace it with a curtailed system of tax credits and dissolve an expansion of the Medicaid program. For example, Tax Cuts and Jobs Act of 2017 was enacted in 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, and became effective January 1, 2019. There is considerable uncertainty regarding the future of the current PPACA framework, and any changes will likely take time to unfold. As such, we cannot predict what effect the PPACA or other healthcare reform initiatives that may be adopted in the future will have on our business.
Even if we obtain regulatory approval for a product candidate, the approval may include significant limitations on indicated uses for which the product could be marketed or other significant marketing restrictions.
If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be subject to forced removal of a product from the market, product seizure, civil and criminal penalties and other adverse consequences.
Our products may face regulatory, legal or commercial challenges even after approval.
Even if a product receives regulatory approval:
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It might not obtain labeling claims necessary to make the product commercially viable (in general, labeling claims define the medical conditions for which a drug product may be marketed, and are therefore very important to the commercial success of a product), or may be required to carry Boxed or other warnings that adversely affect its commercial success.
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Approval may be limited to uses of the product for treatment or prevention of diseases or conditions that are relatively less financially advantageous to us than approval of greater or different scope or subject to an FDA imposed Risk Evaluation and Mitigation Strategy (“REMS”) that imposes limits on the distribution or use of the product. While we may develop a product candidate with the intention of addressing a large, unmet medical need, the FDA or other foreign regulatory authorities may only approve the use of the drug for indications affecting a relatively small number of patients, thus greatly reducing the market size and our potential revenues.
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Side effects identified after the product is on the market might hurt sales or result in mandatory safety labeling changes, additional pre-clinical testing or clinical trials, imposition of a REMS, product recalls or withdrawals from the market, reputational harm to us, and lawsuits (including class-action suits).
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Efficacy or safety concerns regarding a marketed product, or manufacturing or other problems, may lead to a recall, withdrawal of marketing approval, marketing restrictions, reformulation of the product, additional pre-clinical testing or clinical trials, changes in labeling, imposition of a REMS, warnings and contraindications, the need for additional marketing applications, declining sales or other adverse events. These potential consequences may occur whether or not the concerns originate from subsequent testing or other activities by us, governmental regulators, other entities or organizations or otherwise, and whether or not they are scientifically justified. If products lose previously received marketing and other approvals, our business, results of operations and financial condition would be materially adversely affected.
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In certain foreign jurisdictions, it cannot be marketed until pricing and reimbursement for the product is also approved.
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We will be subject to ongoing FDA obligations and continuous regulatory review, and might be required to undertake post-marketing trials to verify the product’s efficacy or safety or other regulatory obligations.
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Our relationships with customers and third-party payers are or may become subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, program exclusion, contractual damages, reputational harm and diminished profits and future earnings.
Health care providers, physicians and third-party payers play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payers and customers will or already do require us and them to comply with broadly applicable fraud and abuse and other health care laws and regulations, including both federal and state anti-kickback and false claims laws, that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products that obtain marketing approval. Efforts to ensure that business arrangements comply with applicable health care laws and regulations 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 such operations are found to be in violation of any of these laws or other applicable governmental regulations, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of related operations. If physicians or other providers or entities involved with our products are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs, which may adversely affect us.
If we or our partners are unable to obtain sufficient quantities of the raw and bulk materials needed to make our products or product candidates, development of our products or product candidates or commercialization of our approved products could be slowed or stopped.
We or our partners may not be able to obtain the materials necessary to make a particular product or product candidate in adequate volume and quality. If any materials needed to make a product or product candidate is insufficient in quantity or quality, if a supplier fails to deliver in a timely fashion or at all or if these relationships terminate, we or our partners may not be able to fulfill manufacturing obligations for our products or product candidates, either on our own or through third-party suppliers. A delay or disruption of supplies of our products or product candidates would have a material adverse effect on our business as a whole. Our existing arrangements with suppliers may result in the supply of insufficient quantities of our product candidates needed to accomplish our clinical development programs or commercialization, and we may not have the right and in any event, do not currently have the capability to manufacture these products if our suppliers are unable or unwilling to do so. We currently arrange for supplies of critical raw materials used in production of our product candidates from single sources. We do not have long-term contracts with any of these suppliers. Any delay or disruption in the availability of raw materials would slow or stop product development and commercialization of the relevant product.
Manufacturing resources could limit or adversely affect our ability to commercialize products.
We or our partners may engage third parties to manufacture our product candidates. We or our partners may not be able to obtain adequate supplies from third-party manufacturers in a timely fashion for development or commercialization purposes, and commercial quantities of products may not be available from CMOs at acceptable costs. For example, until December 2019, the CPDC was subject to an Import Alert by the FDA, which restricted the CPDC’s ability to ship products to the U.S. Although the CPDC has since been cleared by the FDA to ship products to the U.S., there can be no guarantee that the CPDC, or any other third-party manufacturer that we may partner with in the future, will not be subject to similar restrictions in the future.
In order to commercialize our product candidates successfully, we need to be able to manufacture or arrange for the manufacture of products in commercial quantities, in compliance with regulatory requirements, at acceptable costs and in a timely manner. Manufacture of our product candidates, can be complex, difficult to accomplish even in small quantities, difficult to scale-up for large-scale production and subject to delays, inefficiencies and low yields of quality products. The manufacture of radiopharmaceuticals is relatively complex and requires significant capital expenditures. Although we recently acquired the assets comprising the AZEDRA radiopharmaceutical manufacturing facility, we continue to rely on CMOs for our product candidates. The cost of manufacturing our product candidates may make them prohibitively expensive. If adequate supplies of any of our product candidates or related materials are not available on a timely basis or at all, our clinical trials or commercialization of our product candidates could be seriously delayed, since these materials are time consuming to manufacture and cannot be readily obtained from third-party sources. We continue to be dependent on a limited number of highly specialized manufacturing and development partners, including single source manufacturers for certain of our product candidates. If we were to lose one or more of these key relationships, it could materially adversely affect our business. Establishing new manufacturing relationships, or creating our own manufacturing capability, would require significant time, capital and management effort, and the transfer of product-related technology and know-how from one manufacturer to another is an inherently complex and uncertain process.
Failure of any manufacturer of our various product candidates to comply with applicable regulatory requirements could subject us to penalties and have a material adverse effect on supplies of our product candidates.
Third-party manufacturers are required to comply with cGMP or similar regulatory requirements outside of the U.S. If manufacturers of our product candidates cannot successfully manufacture material that conforms to the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they may not be able to supply us with our product candidates. If these facilities are not approved for commercial manufacture, we may need to find alternative manufacturing facilities, which could result in delays of several years in obtaining approval for a product candidate. We do not control the manufacturing operations and are completely dependent on our third-party manufacturing partners or contractors for compliance with the applicable regulatory requirements for the manufacture of some of our product candidates. Manufacturers are subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMP and similar regulatory requirements. Failure of any manufacturer of any of our product candidates to comply with applicable cGMP or other regulatory requirements could result in sanctions being imposed on our collaborators or us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates and have a material adverse impact on our business, financial condition and results of operations.
The validity, enforceability and commercial value of our patents and other intellectual property rights are highly uncertain.
We own or license a number of issued patents. We must obtain, maintain and enforce patent and other rights to protect our intellectual property. The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There are many laws, regulations and judicial decisions that dictate and otherwise influence the manner in which patent applications are filed and prosecuted and in which patents are granted and enforced, all of which are subject to change from time to time. There is no clear policy involving the breadth of claims allowed, or the degree of protection afforded, under patents in this area. In addition, we are aware of others who have patent applications or patents containing claims similar to or overlapping those in our patents and patent applications. Accordingly, patent applications owned by or licensed to us may not result in patents being issued. Even if we own or license a relevant issued patent, we may not be able to preclude competitors from commercializing drugs that may compete directly with one or more of our products or product candidates, in which event such rights may not provide us with any meaningful competitive advantage. In the absence or upon successful challenge of patent protection, drugs may be subject to generic competition, which could adversely affect pricing and sales volumes of the affected products.
It is generally difficult to determine the relative strength or scope of a biotechnology or pharmaceutical patent position in absolute terms at any given time. The issuance of a patent is not conclusive as to its validity or enforceability, which can be challenged in litigation or via administrative proceedings. The license agreements from which we derive or out-license intellectual property provide for various royalty, milestone and other payment, commercialization, sublicensing, patent prosecution and enforcement, insurance, indemnification and other obligations and rights, and are subject to certain reservations of rights. While we generally have the right to defend and enforce patents licensed to or by us, either in the first instance or if the licensor or licensee chooses not to do so, we must usually bear the cost of doing so.
Patents have a limited life and expire by law.
In addition to uncertainties as to scope, validity, enforceability and changes in law, patents by law have limited lives. Upon expiration of patent protection, our drug candidates and/or products may be subject to generic competition, which could adversely affect pricing and sales volumes of the affected products.
The original patents surrounding the AZEDRA program were licensed from the University of Western Ontario (“UWO”). The patent family directed to processes for making polymer precursors, as well as processes for making the final product, expired in 2018 in the U.S. and Canada. Other licensed patent families from UWO relate to alternative approaches for preparing AZEDRA, which if implemented would expire in 2024, worldwide. Progenics owns pending applications worldwide directed to manufacturing improvements and the resulting compositions which, if issued, would expire in 2035.
Owned and in-licensed patents relating to the 1404 product candidate have expiration ranges of 2020 to 2029; we view as most significant the composition-of-matter patent on the compound, as well as technetium-99 labeled forms, which expires in 2029 worldwide.
Patent protection for the composition-of-matter patent on PyL compound, radiolabeled form of the compound, as well as methods of use expire in 2030 in the United States. Corresponding patent family members are pending or issued worldwide, all with expirations of 2029. Process improvement patent applications are pending worldwide which, if issued, would expire in 2037.
Company-owned patents relating to MIP-1095 have expiration ranges of 2027 to 2031 in the U.S. We view as most significant the composition-of-matter patent on this compound, as well as radiolabeled forms, which expires in 2027 in the U.S., as well as Europe. Additional U.S. patents are directed to stable compositions and radiolabeling processes which expire in 2030 and 2031, respectively.
We own patents relating to automated detection of bone cancer metastases through. The patents on this technology expire in 2028 outside of the United States. The U.S. patent under reexamination was reissued with an expiration of 2032. Applications are pending relating to automated medical image analysis.
With respect to PSMA antibody, currently issued composition-of-matter patents comprising co-owned and in-licensed patents have expirations of 2022 and 2023 in the U.S. Corresponding foreign counterpart patents will expire 2022. We view all of these patents as significant.
We depend on intellectual property licensed from third parties and unpatented technology, trade secrets and confidential information. If we lose any of these rights, including by failing to achieve milestone requirements or to satisfy other conditions, our business, results of operations and financial condition could be harmed.
Many of our product candidates incorporate intellectual property licensed from third parties. For example, PyL utilizes technology licensed to us from Johns Hopkins University. We could lose the right to patents and other intellectual property licensed to us if the related license agreement is terminated due to a breach by us or otherwise. Our ability to commercialize products incorporating licensed intellectual property would be impaired if the related license agreements were terminated. In addition, we are required to make substantial cash payments, achieve milestones and satisfy other conditions, including filing for and obtaining marketing approvals and introducing products, to maintain rights under our intellectual property licenses. Due to the nature of these agreements and the uncertainties of development, we may not be able to achieve milestones or satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses. If we do not comply with our license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore being unable to commercialize, related products.
We also rely on unpatented technology, trade secrets and confidential information. Third parties may independently develop substantially equivalent information and techniques or otherwise gain access to our technology or disclose our technology, and we may be unable to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. These agreements may, however, not provide effective protection in the event of unauthorized use or disclosure of confidential information. Any loss of trade secret protection or other unpatented technology rights could harm our business, results of operations and financial condition.
If we do not achieve milestones or satisfy conditions regarding some of our product candidates, we may not maintain our rights under related licenses.
We are required to make substantial cash payments, achieve milestones and satisfy other conditions, including filing for and obtaining marketing approvals and introducing products, to maintain rights under certain intellectual property licenses. Due to the nature of these agreements and the uncertainties of research and development, we may not be able to achieve milestones or satisfy conditions to which we have contractually committed, and as a result may be unable to maintain our rights under these licenses. If we do not comply with our license agreements, the licensors may terminate them, which could result in our losing our rights to, and therefore being unable to commercialize, related products.
If we infringe third-party patent or other intellectual property rights, we may need to alter or terminate a product development program.
There may be patent or other intellectual property rights belonging to others that require us to alter our products, pay licensing fees or cease certain activities. If our products infringe patent or other intellectual property rights of others, the owners of those rights could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any action brought against us, and any license required under any rights that we infringe may not be available on acceptable terms or at all. We are aware of intellectual property rights held by third parties that relate to products or technologies we are developing. For example, we are aware of other groups investigating PSMA or related compounds and monoclonal antibodies directed at PSMA, PSMA-targeted imaging agents and therapeutics, and methylnaltrexone and other peripheral opioid antagonists, and of patents held, and patent applications filed, by these groups in those areas. While the validity of these issued patents, the patentability of these pending patent applications and the applicability of any of them to our products and programs are uncertain, if asserted against us, any related patent or other intellectual property rights could adversely affect our ability to commercialize our products.
Research, development and commercialization of a biopharmaceutical product often require choosing between alternative development and optimization routes at various stages in the development process. Preferred routes may depend on subsequent discoveries and test results and cannot be predicted with certainty at the outset. There are numerous third-party patents in our field, and we may need to obtain a license under a patent in order to pursue the preferred development route of one or more of our products or product candidates. The need to obtain a license would decrease the ultimate profitability of the applicable product. If we cannot negotiate a license, we might have to pursue a less desirable development route or terminate the program altogether.
We have been and expect to continue to be dependent on collaborators for the development, manufacturing and sales of certain products and product candidates, which expose us to the risk of reliance on these collaborators.
In conducting our operations, we currently depend, and expect to continue to depend, on numerous collaborators. Key among these new collaborations, are those with Bayer to develop and commercialize products using our PSMA antibody technology and with Fuji for the development and commercialization of 1404 and bone BSI in Japan. In addition, certain clinical trials for our product candidates may be conducted by government-sponsored agencies, and consequently will be dependent on governmental participation and funding. These arrangements expose us to the same considerations we face when contracting with third parties for our own trials.
If any of our collaborators breach or terminate its agreement with us or otherwise fail to conduct successfully and in a timely manner the collaborative activities for which they are responsible, the preclinical or clinical development or commercialization of the affected product candidate or research program could be delayed or terminated. We generally do not control the amount and timing of resources that our collaborators devote to our programs or product candidates. We also do not know whether current or future collaboration partners, if any, might pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including our competitors, as a means for developing treatments for the diseases or conditions targeted by our collaborative arrangements. Our collaborators are also subject to similar development, regulatory, manufacturing, cyber-security and competitive risks as us, which may further impede their ability to successfully perform the collaborative activities for which they are responsible. Setbacks of these types to our collaborators could have a material adverse effect on our business, results of operations and financial condition.
We are dependent upon third parties for a variety of functions. These arrangements may not provide us with the benefits we expect.
We rely on third parties to perform a variety of functions. We are party to numerous agreements which place substantial responsibility on clinical research organizations, consultants and other service providers for the development of our product candidates. We also rely on medical and academic institutions to perform aspects of our clinical trials of product candidates. In addition, an element of our research and development strategy has been to in-license technology and product candidates from academic and government institutions in order to minimize or eliminate investments in early research. We may not be able to enter new arrangements without undue delays or expenditures, and these arrangements may not allow us to compete successfully. Moreover, if third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct clinical trials in accordance with regulatory requirements or applicable protocols, our product candidates may not be approved for marketing and commercialization or such approval may be delayed. If that occurs, we or our collaborators will not be able, or may be delayed in our efforts, to commercialize our product candidates.
Business and Operational Risks
We lack sales and marketing experience.
We have not historically had established sales, marketing or distribution infrastructure but have begun to build out this capability in connection with the launch of AZEDRA in the U.S. We may not be successful in developing an effective commercial infrastructure or in achieving sufficient market acceptance for AZEDRA or other products. We do plan to market and sell products through distribution, co-marketing, co-promotion or licensing arrangements with third parties for territories outside the U.S. We may consider contracting with a third-party professional pharmaceutical detailing and sales organization to perform marketing functions for one or more products. To the extent that we enter into distribution, co-marketing, co-promotion, detailing or licensing arrangements for the marketing and sale of product candidates, any revenues we receive will depend primarily on the efforts of third parties. We will not control the amount and timing of marketing resources these third parties devote to our products.
We are involved in various legal proceedings that are uncertain, costly and time-consuming and could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.
From time to time we are involved in legal proceedings and disputes and may be involved in litigation in the future. These proceedings are complex and extended and occupy the resources of our management and employees. These proceedings are also costly to prosecute and defend and may involve substantial awards or damages payable by us if not found in our favor. We may also be required to pay substantial amounts or grant certain rights on unfavorable terms in order to settle such proceedings. Defending against or settling such claims and any unfavorable legal decisions, settlements or orders could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline. For more information regarding legal proceedings, see Item 3 of Part I, and Note 8 in the notes to the consolidated financial statements in Part IV of this Form 10-K.
In particular, the pharmaceutical and medical device industries historically have generated substantial litigation concerning the manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related to our products will be routinely challenged, and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell products, or could be required to pay monetary damages or royalties to license proprietary rights from third parties.
In addition, in the U.S., it has become increasingly common for patent infringement actions to prompt claims that antitrust laws have been violated during the prosecution of the patent or during litigation involving the defense of that patent. Such claims by direct and indirect purchasers and other payers are typically filed as class actions. The relief sought may include treble damages and restitution claims. Similarly, antitrust claims may be brought by government entities or private parties following settlement of patent litigation, alleging that such settlements are anti-competitive and in violation of antitrust laws. In the U.S. and Europe, regulatory authorities have continued to challenge as anti-competitive so-called “reverse payment” settlements between branded and generic drug manufacturers. We may also be subject to other antitrust litigation involving competition claims unrelated to patent infringement and prosecution. A successful antitrust claim by a private party or government entity against us could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.
We are exposed to product liability claims, and in the future may not be able to obtain insurance against claims at a reasonable cost or at all.
Our business exposes us to product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We may not be able to avoid product liability exposure. If a product liability claim is successfully brought against us, our financial position may be adversely affected. Product liability insurance for the biopharmaceutical industry is generally expensive, when available at all, and may not be available to us at a reasonable cost in the future. Our current insurance coverage and indemnification arrangements may not be adequate to cover claims brought against us, and are in any event subject to the insuring or indemnifying entity discharging its obligations to us.
We, our CMOs and our distributors handle hazardous materials and must comply with environmental laws and regulations, which can be expensive and restrict how we our CMOs or our distributors do business. If we our CMOs or our distributors are involved in a hazardous waste spill or other accident, we our CMOs or our distributors could be liable for damages, penalties or other forms of censure.
Research and development work and manufacturing processes with our pipeline products involve the use of hazardous, controlled and/or radioactive materials. We, our CMOs and our distributors are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials. In particular we, our CMOs and our distributors are subject to regulation by the U.S. Environmental Protection Agency, U.S. Department of Transportation, Occupational Safety and Health Administration and comparable state regulatory agencies. Despite procedures that we, our CMOs and our distributors implement for handling and disposing of these materials, the risk of accidental contamination or injury cannot be eliminated. In the event of a hazardous waste spill or other accident, we, our CMOs and our distributors could be liable for damages, penalties or other forms of censure. There may be significant costs to comply with applicable environmental laws and regulations in the future, and such costs may be incurred by us directly or passed through to us by our CMOs and our distributors. In the event of the damages, penalties, censures or higher costs outlined above, the efficiency and cost of our research, development and commercialization pipeline may be adversely impacted.
If we lose key personnel on whom we depend, our business could suffer.
We are dependent upon our key management, commercial and scientific personnel, the loss of whom could require us to identify and engage qualified replacements, and could cause our management and operations to suffer in the interim. For example, on November 11, 2019, Mark. R. Baker tendered his resignation as our Chief Executive Officer and as a member of our Board, which was effective immediately. In November 2019, David Mims began serving as our Interim Chief Executive Officer. In addition, on February 28, 2020, Patrick Fabbio provided notice to the Board of his intention to resign as the Company’s Chief Financial Officer, effective March 27, 2020. While we intend to find a permanent replacement for the Chief Executive Officer (“CEO”) role, we cannot assure you that we will be able to secure such replacement in a timely manner. Even though we are confident in the interim leadership of Mr. Mims, any disruption resulting from Mr. Baker’s departure, or any further changes to our key management, commercial and scientific personnel, may be disruptive or cause uncertainty in our business, and may adversely impact our results of operations and financial condition.
Additionally, competition for qualified employees among companies in the biopharmaceutical industry is intense. Future success in our industry depends in significant part on the ability to attract, retain and motivate highly skilled employees, which we may not be successful in doing.
Health care reform measures could adversely affect our operating results and our ability to obtain marketing approval of and to commercialize our product candidates.
In the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the health care system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. For example, the Trump administration has indicated support for possible new measures related to drug pricing. New government legislation or regulations related to pricing or government or third-party payer decisions not to approve pricing for, or provide adequate coverage and reimbursements of, our products, hold the potential to severely limit market opportunities of such products. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. In the U.S., federal legislation has changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of legislation have decreased coverage and reimbursement. Though such legislation applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. More recent legislation is intended to broaden access to health insurance, further reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, and impose new taxes and fees on the health industry and additional health policy reforms. New laws impose significant annual fees on companies that manufacture or import branded prescription drug products, and contain substantial new compliance provisions, which in each case may affect our business practices with health care practitioners. Subject to federal and state agencies issuing regulations or guidance, it appears likely that new laws will continue to pressure pharmaceutical pricing, especially under the Medicare program, and may also increase regulatory burdens and operating costs. We cannot be sure whether additional legislative changes will be enacted, whether the FDA regulations, guidance or interpretations will be changed or what the impact of such changes on the marketing approvals of our product candidates, if any, may be.
Our future depends on the proper management of our current and future business operations, including the associated expenses.
Our business strategy requires us to manage our business to provide for the continued development and potential commercialization of our proprietary and partnered product candidates. Our strategy also calls for us to undertake increased research and development activities and to manage an increasing number of relationships with partners and other third parties, while simultaneously managing the capital necessary to support this strategy. If we are unable to manage effectively our current operations and any growth we may experience, our business, financial condition and results of operations may be adversely affected. If we are unable to effectively manage our expenses, we may find it necessary to reduce our personnel-related costs through reductions in our workforce, which could harm our operations, employee morale and impair our ability to retain and recruit talent. Furthermore, if adequate funds are not available, we may be required to obtain funds through arrangements with partners or other sources that may require us to relinquish rights to certain of our technologies, products or future economic rights that we would not otherwise relinquish or require us to enter into other financing arrangements on unfavorable terms.
Risks associated with our operations outside of the United States could adversely affect our business.
Although we currently conduct most of our business in the U.S., we also conduct business internationally, which exposes us to additional risks, including risks associated with foreign legal requirements, economic and political conditions and fluctuations in foreign currency exchange rates. We expect that we will continue to conduct business internationally. These business operations subject us to a number of risks and uncertainties, including but not limited to:
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changes in international regulatory and compliance requirements that could restrict our ability to develop, market and sell our products;
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political and economic instability;
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the impact of any trade or international regulatory policy changes brought about by the new U.S. federal administration;
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diminished protection of intellectual property in some countries outside of the U.S.;
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trade protection measures and import or export licensing requirements;
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difficulty in staffing and managing international operations;
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differing labor regulations and business practices;
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heightened risk of a failure of our overseas employees to comply with U.S. and foreign laws, including export regulations, the FCPA and trade regulations;
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potentially negative consequences from changes in or interpretations of tax laws;
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changes in international medical reimbursement policies and programs;
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financial risks such as longer payment cycles, difficulty collecting accounts receivable and exposure to fluctuations in foreign currency exchange rates;
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regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ and service providers’ activities that may fall within the purview of the FCPA or similar foreign laws such as the U.K. Bribery Act; and
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the impact of public health epidemics on our business and employees and the global economy, such as the coronavirus, where we directly source materials used for PyL and in our AZEDRA and MIP-1095 manufacturing process; and
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regulatory and compliance risks that relate to data practices and privacy, including those resulting from the EU adopted General Data Protection Regulation, which became effective on May 25, 2018 and imposes monetary penalties for non-compliance.
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Any of these factors may, individually or as a group, have a material adverse effect on our business and results of operations. These or other similar risks could adversely affect our revenue and profitability.
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of our future products. If there is not sufficient reimbursement for our future products, it is less likely that such products will be widely used.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare or Medicaid data used to calculate these rates. Net prices for drugs may be reduced by mandatory discounts or rebates required by government health care programs. Such legislation, or similar regulatory changes or relaxation of laws that restrict imports of drugs from other countries, could reduce the net price we receive for any future marketed drugs. As a result, our future drugs might not ultimately be considered cost-effective.
We cannot be certain that reimbursement will be available for AZEDRA or any other drug candidates that we develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, any future drugs. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize AZEDRA or any other drug candidates that we develop.
In general, other factors that could affect the demand for, and sales and profitability of our future products include, but are not limited to:
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the timing of regulatory approval, if any, of competitive drugs;
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our or any other of our partners' pricing decisions, as applicable, including a decision to increase or decrease the price of a drug, and the pricing decisions of our competitors;
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the seasonality of patient demand due to health insurance programs;
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government and third-party payor reimbursement and coverage decisions that affect the utilization of our future drugs and competing drugs;
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negative safety or efficacy data from new clinical studies conducted either in the U.S. or internationally by any party could cause the sales of our future drugs to decrease or a future drug to be recalled;
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the degree of patent protection afforded our future drugs by patents granted to or licensed by us and by the outcome of litigation involving our or any of our licensor's patents;
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the outcome of litigation involving patents of other companies concerning our future drugs or processes related to production and formulation of those drugs or uses of those drugs; the increasing use and development of alternate therapies;
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the rate of market penetration by competing drugs; and
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the termination of, or change in, existing arrangements with our partners.
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Any of these factors could have a material adverse effect on the sales of any drug candidates that we may commercialize in the future.
A significant disruption in our information technology systems or a cyber-security breach could compromise our clinical/patient data or other data, trade secrets and confidential information and adversely affect our business, results of operations and/or financial condition.
We, our current and future contract research organizations, CMOs, licensees and partners are increasingly dependent on critical, complex and interdependent information technology systems to operate our businesses. Like other companies in our industry, we rely on such systems for many aspects of our business. Our systems process transmit and store information related to research and development, the regulatory approval process, manufacturing, as well as the sale and distribution of our products and product candidates. Our information technology systems, and those of our partners, also manage data such as our financials, intellectual property rights, regulatory information, and other sensitive data relating to our business. Our systems additionally contain confidential personal data and sensitive health information relating to our patients and consumers. Given that we rely on third parties for business purposes such as conducting clinical trials, we are exposed to third-party risk that such sensitive information will be compromised. Although we implement data privacy and safety measures to secure the confidential information that is exchanged between us and third parties, the size and complexity of our information technology systems make them potentially vulnerable to breakdown, malicious cyber-attacks, intrusion, viruses and data security breaches by computer hackers, foreign governments, foreign companies or competitors, or by employee error or malfeasance. Such events may permit unauthorized persons to access, misappropriate and/or destroy sensitive data and result in the impairment or disruption of important business processes, loss or misuse of trade secrets, confidential information or other proprietary intellectual property or public exposure of personal information (including sensitive personal information) of employees, business partners, clinical trial patients, customers and others. Any compromise of our data security could also result in a violation of applicable privacy and other laws and a loss of confidence in our data security measures. If such an event were to occur, our business, results of operations, financial condition and reputation could be adversely affected.
Although we have not experienced a material security breach or cyber-attack, our information technology systems are subject to frequent attacks. While we have implemented protective measures, a significant breakdown, disruption, security breach or cyber-attack may nonetheless occur within our information technology systems. Any of the foregoing could have a material adverse effect on our business, prospects, reputation, operating results and financial condition, including as a result of our being required to make significant investments to fix, fortify or replace our technology systems and/or being subject to lawsuits, fines, penalties or other government action. There can be no assurance that our efforts to protect our data and information technology systems will prevent breakdowns or breaches in our systems, or those of third parties with which we do business.
If our facility or those of our vendors incur damage or power is lost for a significant length of time, our business will suffer.
We store some of our preclinical and clinical data at our facilities as well as those of our vendors. Any significant degradation or failure of our or our vendors’ computer systems could cause us to inaccurately calculate or lose our data.
In addition, our stability samples are stored at our vendors’ facilities. If their facilities incur physical damage or have an extended power failure, it could result in a loss of these samples. Loss of our clinical data or stability samples could result in significant delays in our drug development process and could harm our business and operations.
Competitive Risks
Competing products in development may adversely affect acceptance of our future products.
We are aware of a number of products and product candidates which compete or may potentially compete with our future products. Any of these approved products or product candidates, or others which may be developed in the future, may achieve a significant competitive advantage relative to our future products and, in any event, the existing or future marketing and sales capabilities of these competitors may impair our or our collaborators’ ability to compete effectively in the market.
We are also aware of competitors, who are developing alternative treatments for disease targets to which our research and development programs are directed, any of which – or others which may be developed in the future – may achieve a significant competitive advantage relative to any future product we may develop.
Marketplace acceptance depends in part on competition in our industry, which is intense, and competing products in development may adversely affect acceptance of our products.
The extent to which any of our future products achieves market acceptance will depend on competitive factors. Competition in the biopharmaceutical industry is intense and characterized by ongoing research and development and technological change. We face competition from many for-profit companies and major universities and research institutions in the U.S. and abroad. We face competition from companies marketing existing products or developing new products for diseases and conditions targeted by our technologies. We are aware of a number of products and product candidates which compete or may potentially compete with PSMA-targeted imaging agents and therapeutics, or our other product candidates. We are aware of several competitors, such as Johnson & Johnson subsidiary Janssen Biotech, Inc.; Novartis AG; Pfizer, Inc. in collaboration with Astellas Pharma US, Inc.; Aytu Bioscience, Inc.; Bracco Diagnostics, Inc.; Bayer HealthCare Pharmaceuticals Inc. and Telix Pharmaceuticals, which have received approval for or are developing treatments or diagnostics for prostate cancer. Any of these competing approved products or product candidates, or others which may be developed in the future, may achieve a significant competitive advantage relative to 1404, AZEDRA, PyL, 1095, or other product candidates.
Competition with respect to our technologies and product candidates is based on, among other things, product efficacy, safety, reliability, method of administration, availability, price and clinical benefit relative to cost; timing and scope of regulatory approval; sales, marketing and manufacturing capabilities; collaborator capabilities; insurance and other reimbursement coverage; and patent protection. Competitive disadvantages in any of these factors could materially harm our business and financial condition. Many of our competitors have substantially greater research and development capabilities and experience and greater manufacturing, marketing, financial and managerial resources than we do. These competitors may develop products that are superior to those we are developing and render our products or technologies non-competitive or obsolete. Our product candidates under development may not compete successfully with existing products or product candidates under development by other companies, universities and other institutions. Drug manufacturers that are first in the market with a therapeutic for a specific indication generally obtain and maintain a significant competitive advantage over later entrants and therefore, the speed with which industry participants move to develop products, complete clinical trials, approve processes and commercialize products is an important competitive factor. If our product candidates receive marketing approval but cannot compete effectively in the marketplace, our operating results and financial position would suffer.
Financial Risks
We have outstanding debt and failure by us or our royalty subsidiary to fulfill our obligations under the applicable loan agreements may cause the repayment obligations to accelerate.
In November 2016, our subsidiary, MNTX Royalties, entered into a loan agreement (the “Royalty-Backed Loan”) with HealthCare Royalty Partners III, L.P. (“HCRP”) pursuant to which MNTX Royalties borrowed $50 million and had the ability, subject to mutual agreement with HCRP, to borrow an additional $50 million up to twelve months after the initial closing date of the loan. The loan will be repaid from the royalty payments from the commercial sales of RELISTOR products owed under our agreement with Bausch.
The obligations of MNTX Royalties under the loan agreement to repay the Royalty-Backed Loan may be accelerated upon the occurrence of certain events of default, including but not limited to, if:
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MNTX Royalties fails to pay any principal or interest (except as permitted) within three Business days of when such payment is due and payable or otherwise made in accordance with the terms of the Royalty-Backed Loan;
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MNTX Royalties fails to pay when due any indebtedness of $15 thousand or more;
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any representation or warranty made by MNTX Royalties in the loan agreement or any other transaction document proves to be incorrect or misleading in any material respect when made, and such failure is uncured on or before the 30th day following notice thereof;
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MNTX Royalties fails to perform or observe any covenant or agreement contained in the loan agreement or any other transaction document;
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any uninsured judgment, decree, or order in an amount in excess of $25 thousand is rendered against MNTX Royalties and enforcement proceedings have commenced upon such judgment, decree, or order or such judgment, decree, or order has not been stayed or bonded pending appeal, vacated, or discharged, within 30 days from entry;
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any of a set of defined insolvency events occurs;
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we default under the agreement pursuant to which we contributed the royalty and related rights under the RELISTOR license to MNTX Royalties, and such default is continuing;
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any of the loan transaction documents cease to be in full force and effect or valid and enforceable;
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MNTX Royalties fails to perform or observe any covenant or agreement contained in any material contract and such failure is not cured or waived within any applicable grace period;
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the agreement with Bausch is terminated or cancelled and is not replaced within 270 days after such termination or cancellation; and
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any security interest purported to be created by the loan agreement or the related agreement ceases to be in full force and effect, or any rights, powers, and privileges purported to be created and granted under the loan agreement or such security agreement ceases to be in full force and effect.
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In connection with the Royalty-Backed Loan, MNTX Royalties granted a first priority lien and security interest (subject only to certain defined permitted liens) in all of its assets and all real, intangible and personal property, including all of its right, title, and interest in and to the royalty payments under our agreement with Bausch. Under the terms of the loan agreement, HCRP has no recourse for non-payment of the Royalty-Backed Loan to us, or to any of our assets other than the RELISTOR royalty rights held by MNTX Royalties. However, we do have certain obligations that run to the benefit of HCRP with respect to the representations, warranties and covenants it makes under the agreement pursuant to which we contributed the royalty and related rights under the RELISTOR License to MNTX Royalties. A breach of these obligations could lead to recourse against us with respect to any losses suffered by HCRP as a result of such breach.
Additionally, the merger agreement contains certain covenants and agreements, which includes, among other others, if requested by Lantheus Holdings, a requirement that we cause our subsidiaries to, take all reasonably necessary actions to (i) facilitate the termination on the closing date of all commitments in respect of the credit facility under the Royalty-Backed Loan, (ii) repay in full on the closing date of the merger all outstanding obligations in respect of the indebtedness under such credit facility, and (iii) release any liens securing such indebtedness and guarantees in connection with such credit facility on the closing date of the merger, in each case pursuant to the delivery to Lantheus Holdings at least three business days prior to the closing of the merger of an executed payoff letter with respect to the credit facility from the applicable agent on behalf of the persons to whom such indebtedness is owed, except that our obligations in this paragraph will be subject to Lantheus Holdings or Merger Sub providing or causing to be provided all funds required to effect all such repayments at or prior to the effective time of the merger. All covenants and agreements are subject to certain exceptions and qualifications as described in the merger agreement, which is filed as an exhibit to this Form 10-K. See above “Risk Factors—Risks Related to the Pending Merger with Lantheus Holdings” for further discussion of risks associated with the pending merger.
Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, and limit our ability to react to changes in the economy or our industry.
As of December 31, 2019, our outstanding non-recourse long term debt amounted to $39.0 million. This level could have adverse consequences for us, including:
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heightening our vulnerability to downturns in our business or our industry or the general economy and restricting us from making improvements or acquisitions, or exploring business opportunities; and
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limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who have greater capital resources.
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Developing product candidates and launching approved products requires us to obtain additional financing from time to time. Our access to capital funding is uncertain.
We incur significant costs to develop our product candidates and launch approved products such as AZEDRA. We do not have committed external sources of funding for these projects. We fund our operations, to a significant extent, with the proceeds from capital-raising. We may do so via equity securities issuances in public offerings, through our three-year facility with an investment bank pursuant to which we have sold our stock in at-the-market (“ATM”) transactions for net proceeds of approximately $34.7 million and may sell from time to time up to an additional $75.0 million of our stock, or through debt financing. We may also fund operations through collaboration, license, further royalty financings, private placement or other agreements with one or more pharmaceutical or other companies, or the receipt of milestone and other payments for out-licensed products. To the extent we raise additional capital by issuing equity securities, existing stockholders could experience substantial dilution, and if we issue securities other than common stock, new investors could have rights superior to existing stockholders. Any further debt financing that we may obtain may involve operating covenants that restrict our business and significant repayment obligations. To the extent we raise additional funds through new collaboration and licensing arrangements, we may be required to relinquish some rights to technologies or product candidates, or grant licenses on terms that are not favorable to us.
We cannot predict with certainty when we will need additional funds, how much we will need, the form a financing may take or whether additional funds will be available at all. The variability of conditions in global financial and credit markets may exacerbate the difficulty of timing capital raising or other financing, as a result of which we may seek to consummate such transactions substantially in advance of immediate need. Our need for future funding will depend on numerous factors, including the advancement of existing product development projects, the commercialization of AZEDRA and the availability of new projects; the achievement of events, most of which are out of our control and depend entirely on the efforts of others, triggering milestone payments to us; the progress and success of clinical trials and pre-clinical activities (including studies and manufacturing) involving product candidates, whether conducted by collaborators or us; the progress of research programs carried out by us; changes in the breadth of our research and development programs; the progress of research and development efforts of collaborators; our ability to acquire or license necessary, useful or otherwise attractive technologies; competing technological and market developments; the costs and timing of obtaining, enforcing and defending patent and other intellectual property rights; the costs and timing of regulatory filings and approvals; our ability to manage our growth or contraction; and unforeseen litigation. These factors may be more important with respect to product candidates and programs that involve technologies with which we have limited prior experience. Insufficient funds may require us to delay, scale back or eliminate some or all of our research and development or commercialization programs, cause us to lose rights under existing licenses or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose and may adversely affect our ability to operate as a going concern. We may not be able at a given necessary time to obtain additional funding on acceptable terms, or at all. Our inability to raise additional capital on terms reasonably acceptable to us would seriously jeopardize our business.
We have a history of operating losses.
We have incurred substantial losses throughout its history. A large portion of our revenue has historically consisted of upfront and milestone payments from licensing transactions. We reported operating losses for 2019, 2018 and 2017. Without upfront or other such payments, we operate at a loss, due in large part to the significant research and development expenditures required to identify and validate new product candidates and pursue our development efforts. Moreover, we have derived no significant revenue from product sales and have only in the last several years derived revenue from royalties. We may not achieve significant product sales or royalty revenue for a number of years, if ever. We expect to incur net operating losses and negative cash flow from operations in the future, which could increase significantly if we expand our clinical trial programs and other product development efforts. Our ability to achieve and sustain profitability is dependent in part on obtaining regulatory approval for and then commercializing product candidates, either alone or with others. Our operations may not be profitable even if our product candidates under development are commercialized. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
Our ability to use net operating losses to offset future taxable income is subject to certain limitations.
We currently have significant net operating losses (“NOLs”) that may be used to offset future taxable income. The U.S. Internal Revenue Code limits the amount of taxable income that may be offset annually by NOL carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation, and our use of NOL carryforwards may be further limited as a result of any future equity transactions that result in an additional change of control.
Our stock price has a history of volatility and may be affected by selling pressure. You should consider an investment in our stock as risky and invest only if you can withstand a significant loss.
Our stock price has a history of significant volatility. It has varied between a high of $6.37 and a low of $3.42 in 2019, between a high of $9.42 and a low of $3.62 in 2018, and between a high of $11.72 and a low of $4.60 in 2017. Factors that may have a significant impact on the market price of our common stock include the results of clinical trials and pre-clinical studies undertaken by us or our collaboration partners; delays, terminations or other changes in development programs; developments in marketing approval efforts; developments in collaborator or other business relationships, particularly regarding RELISTOR, AZEDRA or other significant products or programs; technological innovation or product announcements by us, our collaborators or our competitors; patent or other proprietary rights developments; governmental regulation; changes in reimbursement policies or health care legislation; safety and efficacy concerns about products developed by us, our collaborators or our competitors; our ability to fund ongoing operations; fluctuations in our operating results; general market conditions; and the reporting of or commentary on such matters by the press and others. At times, our stock price has been volatile even in the absence of significant news or developments. The stock prices of biotechnology companies and securities markets generally have been subject to dramatic price swings in recent years, and financial and market conditions during that period have resulted in widespread pressures on securities of issuers throughout the world economy.
Our stockholders may be diluted, and the price of our common stock may decrease, as a result of future issuances of securities, exercises of outstanding stock options, or sales of outstanding securities.
We expect to issue additional common stock in public offerings, private placements and/or through our October 2018 sales agreement with an investment bank, pursuant to which we may sell from time to time up to $75.0 million of our stock, and to issue options to purchase common stock for compensation purposes. We may issue preferred stock, restricted stock units or securities convertible into or exercisable or exchangeable for our common stock. All such issuances would dilute existing investors and could lower the price of our common stock. Sales of substantial numbers of outstanding shares of common stock could also cause a decline in the market price of our stock. We require substantial external funding to finance our research and development programs and may seek such funding through the issuance and sale of our common stock, which we have done in follow-on primary offerings in 2012, 2013, 2014 and 2018, and ATM transactions in 2017 and 2018. We have a shelf registration statement which may be used to issue up to $250.0 million of common stock and other securities before any underwriter discounts, commissions, and offering expenses. We also have in place registration statements covering shares issuable pursuant to our equity compensation plans, and sales of our securities under them could cause the market price of our stock to decline. Sales by existing stockholders or holders of options or other rights may adversely affect the market price of our common stock.
We are exposed to potential risks from legislation requiring companies to evaluate controls under Section 404 of the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act requires that we maintain effective internal controls over financial reporting and disclosure controls and procedures. Among other things, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act and related regulations (“Section 404”). Compliance with Section 404 requires substantial accounting expense and significant management efforts. Our testing, or the subsequent review by our independent registered public accounting firm, may reveal deficiencies in our internal controls that would require us to remediate in a timely manner so as to be able to comply with the requirements of Section 404 each year. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all deficiencies or weaknesses in our financial reporting. If we are not able to comply with the requirements of Section 404 in a timely manner each year, we could be subject to sanctions or investigations by the SEC, the Nasdaq Stock Market or other regulatory authorities that would require additional financial and management resources and could adversely affect the market price of our common stock. No assurance is given that our procedures and processes for detecting weaknesses in our internal control over financial reporting will be effective.
We do not intend to pay dividends on our common stock. Until such time as we pay cash dividends, our stockholders must rely on increases in our stock price for appreciation.
We have never declared or paid dividends on our common stock. We intend to retain future earnings to develop and commercialize our product candidates. Therefore, we do not intend to pay cash dividends in the foreseeable future. Until such time as we determine to pay cash dividends on our common stock, our stockholders must rely on increases in the market price of our common stock for appreciation of their respective investments.
Other Risks
Our principal stockholders are able to exert significant influence over matters submitted to stockholders for approval.
At December 31, 2019, our directors and executive officers together beneficially owned or controlled approximately 1.6% of our outstanding common shares, including shares currently issuable upon option exercises, and our five largest other stockholders held approximately 50.1%. Should these parties choose to act alone or together, they could exert significant influence in determining the outcome of corporate actions requiring stockholder approval and otherwise control our business. This control could, among other things, have the effect of delaying or preventing a change in control of the Company, adversely affecting our stock price.
Anti-takeover provisions may make removal of our Board and/or management more difficult, discouraging hostile bids for control that may be beneficial to our stockholders.
Our Board is authorized, without further stockholder action, to issue from time to time shares of preferred stock in one or more designated series or classes. The issuance of preferred stock, as well as provisions in some outstanding stock options that provide for acceleration of vesting upon a change of control, and Section 203 and other provisions of the Delaware General Corporation Law could make a takeover or the removal of our Board or management more difficult; discourage hostile bids for control in which stockholders may receive a premium for their shares; and otherwise dilute the rights of common stockholders and depress the market price of our stock.