This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words "anticipate," "believe," "goals," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and our stockholders should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly under the section "Summary of Principal Risk Factors" below and the risk factors detailed further in theItem 1A, "Risk Factors" section,of Part I of this report and in our Securities and Exchange Commission reports filed after this report, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Eye diseases can be caused by many factors and can affect both the front or back of the eye. In its most extrememore severe cases, eye diseasediseases can result in blindness.total loss of vision. In the developed world, the majormost common eye diseases that can result in blindnesstotal loss of vision are those affecting the retina and optic nerve, including AMD, diabetic retinopathy and glaucoma. These diseases deprive patients of their sight and, as a result, impair their ability to live independently and perform daily activities. Any improvement in vision, or even a slowing of the rate of progression of vision loss, has a tremendous impact on the quality of life of people with impaired vision. There are also many other eye diseases that may beare less common but still represent an unmet medical need, particularly orphan diseasesIRDs that are associated with mutations in a genetic mutationsingle gene, referred to as monogenic, that lead to retinal degeneration and vision loss.loss, generally in younger patients. We believe that these disease areas present several potential opportunities for ophthalmic drug development. A 2014 report from Prevent Blindness, a patient advocacy group, estimated that the total real annual costs in the United States related to eye diseases and vision problems expressed in constant 2014 dollars would increase from $145 billion in 2014 to $376 billion by 2050.
Zimura is administered by intravitreal injection. Before a physician administers anPatients receiving intravitreal injection, the patientinjections typically receivesreceive topical numbing drops or injection of a numbing agent. In addition,agent prior to the injection. The administering physician also typically rinses the ocular surface with an antiseptic solution. By injecting the active agent into the vitreous cavity, the physician delivers the agent in close vicinity to the active disease site with minimal potentialwhile minimizing the risk for systemic exposure to non-ocular tissues.
OPH2001: Completed Phase 1/2a Clinical Trial of Zimura for GA Secondary to Dry AMD
In 2011, we completed a multicenter, uncontrolled, open label Phase 1/2a clinical trial to evaluate the safety and tolerability of Zimura administered as a monotherapy in patients with GA. We enrolled 47 patients in this trial. We randomly assigned patients in this trial to one of two dose groups. Patients received a total of five intravitreal injections of either 0.3 mg or 1 mg of Zimura over a 36-week treatment period. Patients received an intravitreal injection of Zimura at day 0, week 4, week 8, week 24 and week 36 of the trial, with a final follow-up visit at week 48.
Zimura was generally well-tolerated in this trial. We did not observe any evidence of drug related adverse events. We also did not observe any incidence of conversion to wet AMD in eyes treated with Zimura. Adverse events were primarily ocular adverse events in the study eye which were related to the injection procedure.
In addition, we performed assessments of visual acuity to detect any potential decrease in vision associated with intravitreal injections, the administered drug or natural progression of the disease if left untreated. We did not identify any drug related safety issues through measurements of visual acuity.
Our Phase 1/2a clinical trial was an uncontrolled study with a small sample size and was not powered to detect a difference between Zimura dose groups, or the efficacy of Zimura monotherapy, with statistical significance. The primary
purpose of the study was to assess safety and tolerability. However, during the more frequent dosing period, which is the first 24 weeks, we observed a trend, in favor of the higher of two dose groups, of a relative reduction in the mean growth of the GA lesion area, as measured by fundus autofluorescence images read by an independent reading center. Fundus autofluorescence is a common technique for photographing and documenting the size of GA present in the back of the eye, or fundus. Autofluorescence refers to the natural emission of light by biological structures. In fundus autofluorescence images, areas of atrophy are characterized by lower fluorescence.
The following graph sets forth the mean change in GA lesion area from baseline for the two treatment groups over the course of the trial.
We believe this apparent trend in the relative reduction of mean growth in GA lesion area when Zimura was dosed more frequently, together with the relative loss of the benefit when Zimura was dosed less frequently, may suggest a possible drug effect.
In 2009, we completed a multicenter, uncontrolled, ascending dose and parallel group, open-label, first in human Phase 1/2a clinical trial to evaluate the safety tolerability and pharmacokinetic profiletolerability of multiple intravitreal injections of Zimura given in combination with multiple doses of Lucentis 0.5 mg of Lucentis in patients with wet AMD. We enrolled 60 patients in this trial, of which 58 were treatment-naïve patients, and two were treatment-experienced patients.
Patients were treated at one of five Zimura dose levels: 0.03 mg, 0.3 mg, 1 mg, 2 mg and 3 mg. During Part 1 of the trial, a dose-escalation stage, a total of 17 patients were enrolled. Patients received treatment starting at the lowest dose level to be investigated and then further patients were enrolled in a dose-escalation multiple dose scheme in which patients received Zimura dose levels of 0.03 mg, 1 mg, 2 mg or 3 mg. Forty-three patients were subsequently recruited to the second part of the trial, a parallel group stage, in which patients received Zimura dose levels of 0.3 mg, 1 mg, 2 mg or 3 mg. As this was a first in human trial, there were various changes made to the protocol during the trial as data were developed, including a protocol amendment to support a dosing regimen for six monthly injections of Zimura once required toxicology data became available. Seven patients from Part 1 of the study had completed the trial prior to this amendment, and therefore received only three injections of Zimura, while the remaining ten patients from Part 1 received six injections of Zimura. In addition, because of a stability issue with the 3 mg formulation, all patients initially receiving the Zimura 3 mg dose level were switched to the 1 mg dose. The Zimura 2 mg dose level was added to Part 2 of the trial at this time.
Zimura was generally well tolerated in this trial when tested in combination with Lucentis. None of the patients experienced any dose limiting toxicities at any of the dose levels tested. We observed only a single adverse event assessed by the investigators to be related to Zimura, mild subcapsular cataract in one patient in the group treated with Zimura 2 mg of Zimura.mg. Despite this event, this patient's visual acuity improved during the study. Adverse events were primarily ocular adverse events in the study eye which were related to the injection procedure. One patient from the 0.3 mg Zimura treatment group withdrew from the trial as a result of a serious adverse event of bacteremia unrelated to study drug or injection procedure, which resulted in a subsequent fatality. Another patient from the 0.3 mg treatment group withdrew from the trial due to the investigator's decision. Systemic adverse events in this trial were not frequently reported. No systemic adverse events were assessed as drug related.
Our Phase 1/2a clinical trial was an uncontrolled study with a small sample size and was not powered to detect a difference between Zimura dose groups or the efficacy of Zimura combination therapy with statistical significance. The primary purpose of the study was to assess safety and tolerability. However, inIn addition to our safety assessment, however, we also performed assessments of visual acuity primarily as safety assessments to detect any decrease in vision associated with the intravitreal drug combination or the injection procedure. We did not identify any safety issues through measurements of visual acuity. There was a general trend towards an improvement in visual acuity seen in all treatment groups. We focused our assessment of vision outcomes on the subgroup of 43 treatment-naïve patients who had received all six Zimura injections at doses of 0.3 mg, 1 mg and 2 mg. This was the most homogeneous group of patients with consistent dosing.same dosage. We observed a mean increase in visual acuity from baseline at all time points for treatment-naïvethese patients, who received six injections of Zimura at these doses, based on the number of ETDRS letters the patient could read. For this subgroup, at week 24 of the trial, we noted improvements in mean visual acuity from baseline as follows: 13.6 letters for the 13 patients receiving the 0.3 mg dose, 11.7 letters for the 15 patients receiving the 1 mg dose and 15.3 letters for the 15 patients receiving the 2 mg dose. In this subgroup,
During the fourth quarter of 2015, we initiated an open-label Phase 2a clinical trial to evaluate Zimura’s potential role when administered in combination with anti-VEGF therapy for the treatment of wet AMD in anti-VEGF treatment-experienced patients who did not respond adequately to anti-VEGF monotherapy. In 2017, following our reassessment of our Zimura development programs, we stopped enrolling patients in this trial as we determined that we would initiate a new Zimura wet AMD trial, the OPH2007 trial described below, for treatment-naïve patients. One patient continuescontinued to receive treatment in this trial.
In late 2014, we initiated a very small, uncontrolled, open-label, Phase 2a clinical trial to evaluate Zimura’s potential role when administered in combination with anti-VEGF agents for the treatment of IPCV in treatment-experienced patients for whom anti-VEGF monotherapy failed. IPCV is an age-related disease that is similar to wet AMD and is commonly characterized by leakage under the RPE, subretinal hemorrhage and RPE detachment. We enrolled four patients in the trial. None of the patients had a greater than 15-ETDRS letter decrease in visual acuity, which is considered a significant loss in visual acuity, following treatment in this study. ThereNone of the patients experienced any drug-related adverse events and there were no findings in relation to ophthalmic examinations which were unexpected orsafety issues from this trial.
Gene therapy consists of delivering DNA encoding for a functional protein to a target tissue to facilitate protein synthesis using a recipient's existing cellular machinery. Gene therapy can be used to replace a non-functional protein produced innately by the subject as a result of a genetic mutation or simply as a means of producing and delivering a therapeutic protein that would not otherwise be produced within the body. The DNA, which is generally deliveredMany IRDs are monogenic, meaning they are caused by mutations in a single gene, and therefore could potentially be addressed by a viralgene replacement approach. For genetic diseases where the mutant protein has toxic effect, we have been encouraged by the potential for a “knockdown” and “replace” approach in which gene therapy not only can introduce a wildtype version of the gene into the host body but also can suppress the expression of the mutant gene. Furthermore, because gene therapy may result in a lasting, or even permanent, addition to a host body's genetic code, gene therapy has potential for an extended treatment effect through a single administration. We therefore believe that gene therapy also holds promise as a potential treatment for age-related and other non-orphan retinal diseases, especially for diseases where patients might otherwise require chronic therapy over years, if not decades.
AAV vectors are generally limited as a delivery vehicle by the size of their genetic cargo, which is restricted to approximately 4,700 base pairs of genetic code. The use of "minigenes" as a novel therapeutic strategyminigenes seeks to deliver a shortenedsmaller but still functional form of a larger gene packaged into a standard-size AAV delivery vector. The "minigene" strategy may offer an innovative solutiongoal of minigene therapy is to deliver a gene expressing a protein that, although smaller than the naturally occurring protein, is nonetheless functional for diseases that would otherwise be difficultpurposes of treating the associated disease.
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of Zimura, IC-500, IC-100, IC-200 or any other product candidate we may develop. Although we rely and intend to continue to rely upon third–partythird-party contract manufacturersmanufacturing organizations, or CMOs, to produce our products and product candidates, we have recruited personnel with experience to manage
We expect that our commercial strategy for any of our product candidates, including whether to retain commercial rights and market and sell the product candidate ourselves or to utilize collaboration, distribution or other marketing arrangements with third parties in some or all geographic markets, will be determined based on a variety of factors, including the size and nature of the patient population, the disease area, the particular indication for which the product candidate is approved, the territory in which the product candidate may be marketed and the commercial potential for such product candidate. We are currently developing Zimura and IC-500 for GA secondary to AMD, which is a condition affecting a relatively large number of individuals, and we are also developing Zimura for STGD1, which is a condition affecting a more limited number of individuals. Our gene therapy programs are currently being developed for orphan IRDs with a limited number of affected individuals. If any of our product candidates are approved, the size and nature of the affected patient population will be an important factor in our commercial strategy.
In addition, our commercial strategy will vary depending on whether the disease is typically treated by general ophthalmology practitioners, specialists, such as retinalretina specialists, or other sub-specialists.sub-specialists, and the degree and potential degree of acceptance of our product candidate by the relevant physicians in various markets. For example, in the United States, retinalretina specialists perform most of the medical procedures involving diseases of the back of the eye. Intravitreal injection is aand subretinal injection are specialized procedure.procedures. In the vast majority of cases in the United States, retinalretina specialists perform intravitreal injections and highly specialized retina surgeons perform subretinal injections. We believe that retinalretina specialists and retina surgeons in the United States are sufficiently concentrated such that we could effectively promote aan approved product candidate approved for such an indication to these specialists with a targeted specialty sales and marketing group. If successfulFor example, in the developmentUnited States and Europe, retina specialists who see patients with IRDs, as well as their patients, are generally concentrated in a limited number of anylarge, academic research institutions.
the size of the approved indication, we may utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize any such product candidate in markets outside the United States.
Competition
The biotechnologydevelopment and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, generic or biosimilarcommercialization of new drug companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Many of our competitors have significantly greater financial and human resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring products, product candidates or other technologies that we may target to in-license or acquire in pursuit of our business plan.
Growth of our business through our business plan will be based on our selectively licensing or acquiring and then developing product candidates. Our success will be based in part on our ability to build and actively manage a portfolio of drugs that address or seek to address unmet medical needs and creates value in ophthalmology. However, the acquisition and licensing of pharmaceutical products is a competitive area, and a number of more established companies, which have acknowledged strategies to license and acquire products, may have competitive advantages, as may emerging companies taking similar or different approaches to product acquisition. Established companies pursuing this strategy may have a competitive advantage over us due to their size, cash flows and institutional experience.
The key competitive factors affecting the success of our product candidates, if approved, are likely to be the respective drug’s efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of coverage and reimbursement from government and other third–party payors. The method of administration of Zimura, intravitreal injection, is commonly used to administer ophthalmic drugs for the treatment of sever disease and is generally accepted by patients facing the prospect of sever visual loss or blindness. A therapy that offers a less invasive method of administration, however, might have a competitive advantage over one administered by intravitreal injection, depending on the relative safety of the other method of administration.
highly competitive. We face competition with respect to our product candidates from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies, as well as generic orand biosimilar drug companies, worldwide. There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of GA, wet AMD, Stargardt disease, non-infectious intermediate and posterior uveitis, or other disease indications for which we may develop Zimura. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach,approaches, and others are based on entirely different approaches. We also will face similar competition with respect to any other products or product candidates that we may seek to develop or commercialize in the future. In particular, many companies are pursuing gene therapy approaches for age-relatedorphan and orphanage-related retinal diseases.
Based on publicly available information, we are aware of the following research and development programs that may be competitive with programs we are pursuing. Other competitive programs may exist of which we are not aware.
Competitive considerations for Dry AMD and GA:GA or dry AMD:
There
•We are aware that LumiThera, Inc. has a medical device using its LT-300 light delivery system, which is approved in the European Union for the treatment of dry AMD. In addition, there are a number of products in preclinical research and clinical development by third parties to treat dry AMD, including several that are in development for GA secondary toor dry AMD. In general, these product candidates can be categorized based on their proposed mechanisms of action. The mechanisms of action for these product candidates include inflammation suppression, such as complement system inhibitors and corticosteroids,inflammation suppression, visual cycle modulators, antioxidants and neuroprotectants, cell and gene therapies and vascular perfusion enhancers. Based on publicly available information, weWe are aware that Novartis AG and MorphoSys AG,Alexion Pharmaceuticals, Inc., Annexon Inc., Apellis Pharmaceuticals, Inc., or Apellis, Applied Genetic Technologies Corporation, or AGTC, Biogen Inc., Gemini Therapeutics, Inc., Gyroscope Therapeutics, IONIS Pharmaceuticals, Inc. (in collaboration with Roche AG), Janssen Pharmaceuticals Inc. (which acquired its program through the acquisition of Hemera Biosciences, Inc.LLC), Achillion Pharmaceuticals,MorphoSys AG, NGM Biopharmaceuticals Inc., and Catalyst Biosciences, Inc.Novartis AG each have complement inhibitors in
development for GA or dry AMD, including, in the cases of Gemini Therapeutics, Gyroscope Therapeutics and Janssen Pharmaceuticals, complement inhibitor gene therapies and AGTC and Gemini Therapeutics each has a research program on complement factor H gene therapy. We believe that the most advanced of which we believethese programs is Apellis's pegylated, synthetic peptide targeting complement factorprotein C3. In July 2020, Apellis announced positive Phase 2 results forthat it had completed patient enrollment in its product candidate and has announced plans to initiate a Phase 3 program during 2018.with a total of 1,259 patients, and expects to announce top-line data from the trials in the third quarter of 2021. If Apellis's Phase 3 program for its C3 complement factor C3inhibitor product candidate is successful, it is likely that Apellis maywould obtain marketing approval for its product candidate in advance of when we could reasonably expect to obtain marketing approval for Zimura in GA or IC-500 in GA, if at all. Moreover, based on publicly available information, we are aware that several other companies, have announcedincluding Allergan Inc., Allegro Ophthalmics, LLC, Alkeus Pharmaceuticals Inc., Astellas Pharma Inc., Boehringer Ingelheim, EyePoint Pharmaceuticals, Inc., Lineage Cell Therapeutics, Inc., Roche AG and Stealth BioTherapeutics Corp., are pursuing development programs for the treatment ofGA or dry AMD targetingusing different mechanisms of action outside of the complement system.
Competitive considerations for wet AMD:
Theresystem, including Genentech, Inc. (an affiliate of Roche AG) and Gemini Therapeutics, which are pursuing HtrA1 inhibition as a numbermechanism of products in preclinical research and clinical development by third parties to treat wet AMD. Based on publicly available information, we are awareaction. We believe that multiple mechanisms of action are in clinical or pre-clinical development for wet AMD, including Angiopoietin-2 inhibitors, including onethe most advanced HtrA1 inhibitor program in development by Roche, tyrosine kinase inhibitors, integrin inhibitors, novel VEGF inhibitors and complement inhibitors, as well as a few remaining PDGF inhibitors. Within the complement system, we are aware that Apellis is planningGenentech's monoclonal antibody HtrA1 inhibitor, which is currently being studied in a Phase 2 clinical trial with their C3 inhibitor in combination with anti-VEGF therapy. Moreover, based on publicly available information, we are aware that several companies and research organizations are pursuing treatments targeting other molecular targets, potential gene therapy treatments and stem cell transplant treatments for the treatment of wet AMD. In addition, other companies are undertaking efforts to develop technologies to allow for topical dosing of therapeutic agents such as anti-VEGF agents or integrin inhibitors through eye-drops or to allow for a less frequent intravitreal dosing schedule than currently used for standard of care anti-VEGF agents.
trial.
The commercial opportunity for Zimura in wet AMD in particular also could be reduced or eliminated if our competitors develop and commercialize products that reduce or eliminate the use of anti–VEGF drugs for the treatment of patients with wet AMD, since we are only developing Zimura for wet AMD as a combination therapy with anti-VEGF agents. Moreover, we expect that if Zimura is approved for combination therapy for the treatment of wet AMD, the cost of combination treatment would be higher than the cost of treatment of wet AMD with Lucentis, Eylea or particularly Avastin monotherapy. Insurers and other third–party payors may encourage the use of anti–VEGF drugs as monotherapy and discourage the use of Zimura in combination with these drugs. This could limit sales of Zimura for this indication.
Competitive considerations for Stargardt disease:
•There are a number of products in preclinical research and clinical development by third parties to treat Stargardt disease. Based on publicly available information, weWe are aware that Sanofi, Acucela Inc.,AGTC, Alkeus Pharmaceuticals, Inc., Beam Therapeutics Inc., Generation Bio Co., Kubota Vision Medicines, Inc. (formerly Acucela), Lin BioScience, Inc., Nightstar Therapeutics plc and(prior to its acquisition by Biogen), or Nightstar, ProQR Therapeutics N.V., or ProQR, and Spark Therapeutics each have research or development programs in Stargardt disease. FourThree of these programs, Acucela, Alkeus, Vision MedicinesKubota and Lin BioScience, are exploring the use of oral therapeutics, while Sanofi, with technology provided by Oxford BioMedica plc,AGTC, Nightstar and NightstarSpark are each using a gene therapy approach, Beam is using a base editing approach, and ProQR is using an RNA interferencebased approach. Acucela’s,Kubota’s product candidate, to which the FDA and the EMA granted orphan drug designation in August 2020, is in Phase 3 development while Alkeus’s and Sanofi’s product candidates are eachcandidate is in Phase 2 development. In addition, several academic organizations have early stage programs in Stargardt disease.
Competitive considerations for RHO-adRP:
•We are aware that ProQR is developing an RNA-based therapeutic for RHO-adRP, for which it is currently conducting a Phase 1/2 clinical trial. Ocugen, Inc. is developing a gene therapy for RHO-adRP, for which the FDA granted orphan
drug designation in July 2020. In the caseaddition, prior to its acquisition by Biogen, Nightstar had a preclinical AAV gene therapy program in RHO-adRP. 4D Molecular Therapeutics is developing an intravitreal gene therapy for RHO-adRP. Editas Medicine, Inc. is exploring a potential gene editing program in this disease. We are also aware that multiple academic institutions have early stage gene therapy development programs in RHO-adRP.
Competitive considerations for BEST1-related IRDs:
•We are aware that, prior to its acquisition by Biogen, Nightstar had a preclinical AAV gene therapy program for one or more BEST1-related IRDs.
Competitive considerations for LCA10:
•We are aware that Editas Medicine, Inc. has a gene editing program for LCA10, for which a Phase 1/2 clinical trial is ongoing, ProQR is developing an RNA-based therapeutic for LCA10 that is currently in Phase 2/3 development, Generation Bio Co. has a preclinical program that utilizes ceDNA technology to target LCA10 and Oxford Biomedica plc is developing a lentiviral gene therapy program for LCA10 that is in preclinical development. In addition, several academic institutions have preclinical programs in LCA10.
Competitive considerations for USH2A-related IRDs:
•There are a number of orphan diseases such as Stargardt disease, should we be successfulproducts in preclinical research and clinical development our commercialization efforts may rely on non-patent market exclusivity periods under the Orphan Drug Actby third parties to treat USH2A-related IRDs. We are aware that ProQR is pursuing two RNA based approaches for different mutations causing Usher 2A, one of 1983, or the Orphan Drug Act,which is currently in Phase 1/2 clinical development and the Drug Price Competitionother of which is in preclinical development. We are also aware that Editas Medicine, Inc. and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act. The Orphan Drug Act only provides exclusivity periods for the specific drug granted orphan designation for a specific indication. In addition, thereOdylia Therapeutics are limited circumstances under each of the Orphan Drug Act and the Hatch-Waxman Act that could resultexploring potential programs in our loss of data and marketing exclusivity, which could allow a competitor to enter the market. Failure to maintain either data or market exclusivity period would have a material adverse effect on our ability to commercialize our product candidates.USH2A-related IRDs.
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know–how,know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position, among other methods and where patent protection is available, by filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business, and by maintaining our issued patents. For our collaborative gene therapy sponsored research programs, we are generally relying on our university collaborators to perform research and generate data to support new patent applications, and to file, prosecute and maintain any patents or patent applications resulting from the sponsored research. We also rely upon trade secrets, know–how,know-how, continuing technological innovation and in–licensingin-licensing opportunities to develop and maintain our proprietary position.
Our patent portfolio includes the following:
•patents and patent applications in–licensedin-licensed from Archemix Corp., or Archemix:
composition–of–matter •patents covering Zimura,Zimura's composition-of-matter, which have issued in the United States, the countries covered by the European Union,Patent Organisation, which we refer to as the EPO Countries, Japan and certain other jurisdictions, and which are expected to expire in Japan in 2026 and elsewhere in 2025; and composition–of–matter patent applications covering Zimura,Zimura's composition-of-matter, which are pending in certain other jurisdictions, and which, if granted, are expected to expire in 2025; and
•patents covering the treatment of certain complement mediated disorders with Zimura, Zimura for use in a method of treating certain complement mediated disorders or a composition comprising Zimura for treating certain complement mediated disorders, which have issued in the United States, the European Union,EPO Countries, Japan and certain other jurisdictions, and which are expected to expire in the United States and Japan in 2026 and elsewhere in 2025; and
patents and •patent applications owned by Ophthotech:IVERIC bio, Inc.:
•patent applications covering co–formulations, methods of use for treating GA, Stargardt disease and other conditions, and other proprietary technology relating to Zimura, which are pending in the United States,
the European Union,EPO Countries, Japan and certain other jurisdictions, and which, if granted, are expected to expire in 2034.2034; and
•patent applications owned by our subsidiary Orion Ophthalmology LLC, or Orion:
•three families of composition-of-matter and method-of-treatment patent applications covering IC-500 and other HtrA1 inhibitors owned by Orion, which are pending in the United States, the EPO Countries, Japan and certain other jurisdictions, and which, if granted, are expected to expire in 2037; and
•patent applications in-licensed from UFRF and Penn:
•two families of composition-of-matter and method-of-treatment patent applications relating to the proprietary RHO-adRP AAV technology of UFRF and Penn, which are pending in the United States, the EPO Countries, Japan and certain other jurisdictions, and which, if granted, are expected to expire in 2037 and 2039, respectively; and
•patent applications covering methods of treating autosomal dominant BEST1-related IRDs and autosomal recessive BEST1-related IRDs, which are pending in the Patent Cooperation Treaty jurisdictions, and which, if granted, are expected to expire in 2041; and
•patent applications in-licensed from UMass:
•two families of composition-of-matter and method-of-treatment patent applications relating to certain proprietary minigene technology for the treatment of diseases associated with mutations in the CEP290 gene, which are pending in the United States, the EPO Countries, Japan and certain other jurisdictions, and which, if granted, are expected to expire in 2038 and 2040, respectively.
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non–provisionalnon-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over aor patent application claims patentably indistinct subject matter as another commonly owned patent or a patent naming a common inventor andapplication having an earlier expiration date and the patentee terminally disclaims the portion of the term beyond such earlier expiration date. The Hatch–WaxmanHatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time thea drug is undergoing clinical development or under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended.
Similar provisions are available in the European UnionEPO Countries and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us. See "—Government Regulation and Product Approvals" below for a description of market exclusivity mechanisms that may be available to us.
We may rely, in some circumstances, upon trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.
Licensing and Other Arrangements
We are a party to an agreement with Archemix Corp. or Archemix, under which we in-licensed rights in certain patents, patent applicationsa number of license, acquisition and other intellectual property related to Zimura. We entered into this agreement to acquire the intellectual property requiredagreements that have granted us rights to develop manufactureour product candidates and commercialize Zimura. Our existing in-license for Zimura imposes certainconduct our research and development programs. These agreements generally impose license fee, milestone payment, royalty payment and diligence obligations on us. We expect toOur material in-license and acquisition agreements are described below.
In the future, we may enter into additional acquisition or license agreements, in the future, particularly asif we pursue our business planchoose to acquire or in-license additional products, product candidates or other technologies and further expand our product pipeline. We expect that any future acquisition or license agreements would impose license fee, royalty payment and diligencesimilar obligations on us. In the future, we may also enter into agreements to out-license intellectual property to our collaboration and research partners to assist in the development and, if approved, commercialization of our product candidates. A descriptionWe may out-license certain rights to any of our product candidates if we believe the arrangement could assist us in the development or potential commercialization of such product candidate and would otherwise help us pursue our business plan and strategic goals.
Zimura license agreement appears below.
- Archemix C5 License Agreement
In September 2011, we entered into an amended and restated exclusive license agreement with Archemix relating to anti–C5anti-C5 aptamers, which we refer to as the C5 agreement.License Agreement. The C5 agreementLicense Agreement superseded a July 2007 agreement between us and Archemix. Under the amended and restated agreement,C5 License Agreement, we hold exclusive worldwide licenses, (subjectsubject to certain pre–existing rights)rights, under specified patents and technology owned or controlled by Archemix to develop, make, use, sell, offer for sale, distribute for sale, import and export pharmaceutical products comprised of or derived from an anti–C5anti-C5 aptamer for the prevention, treatment, cure or control of human indications, diseases, disorders or conditions of the eye, adnexa of the eye, orbit and optic nerve, other than certain expressly excluded applications.
The license we received under the C5 agreement includes sublicenses to us of rights to specified technology, which we refer to as the SELEX technology, licensed by University License Equity Holdings, Inc., or ULEHI, to Gilead Sciences, Inc., or Gilead, and sublicensed by Gilead to Archemix, as well as sublicenses to us of rights to certain other technology licensed by Gilead to Archemix. The C5 agreement contemplates that our rights to these sublicensed technologies will survive termination of the license from ULEHI to Gilead as long as we are not in breach of the C5 agreement, and will survive termination of the sublicense from Gilead to Archemix as long as such termination did not arise from our action or inaction, provided in each case that we agree to be bound to ULEHI or Gilead, as applicable, under the terms of our agreements with Archemix. However, if Archemix, its affiliates and all of Archemix’s assignees and sublicensees, including us, cease to exercise reasonable efforts to develop commercial applications of products and services using the SELEX technology, then Archemix’s rights to the SELEX technology may revert to Gilead or ULEHI, and we would lose our rights to the SELEX technology.
Financial Terms
In connection with the C5 agreement,License Agreement, as amended, we paid Archemix an upfront licensing fee of $1.0 million and issued to Archemix an aggregate of 2,000,000 shares of our series A–1A-1 preferred stock and 500,000 shares of our series B–1B-1 preferred stock. We have also paid Archemix an aggregate of $2.0$9.0 million in fees based on our achievement of specified clinical milestone events under the C5 agreement.License Agreement, including two milestone payments of $1.0 million and $6.0 million triggered by the positive 12-month data from, and by completion of, the GATHER1 trial, which we paid in March 2020 and October 2020, respectively.
Under the C5 agreement,License Agreement, for each anti–C5anti-C5 aptamer product that we may develop under the agreement, including Zimura, we are obligated to make additional payments to Archemix of up to an aggregate of $57.5$50.5 million if we achieve specified development, clinical and regulatory milestones, with $30.5$24.5 million of such payments relating to a first indication, $24.5$23.5 million of such payments relating to second and third indications and $2.5 million of such payments relating to sustained delivery applications. Under the C5 agreement,License Agreement, we are also obligated to make additional payments to Archemix of up to an aggregate of $22.5 million if we achieve specified commercial milestones based on net product sales of all anti–C5anti-C5 products licensed under the agreement. We are also obligated to pay Archemix a double–digitdouble-digit percentage of specified non–royaltynon-royalty payments we may receive from any sublicensee of our rights under the C5 agreement.License Agreement. We are not obligated to pay Archemix a running royalty based on net product sales in connection with the C5 agreement.License Agreement.
Diligence Obligations
We are required to exercise commercially reasonable efforts in developing and commercializing at least one anti–C5anti-C5 aptamer product and in undertaking investigations and actions required to obtain regulatory approvals necessary to market such product in the United States, the European Union, and Japan, and in such other markets where we determine that it is commercially reasonable to do so.
Term and Termination
Unless earlier terminated, the C5 agreementLicense Agreement will expire upon the laterlatest of 12 years after the first commercial sale in any country of the last licensed product, the expiration of the last–to–expirelast-to-expire valid claim of the licensed patents that covers a licensed product, and the date on which no further payments of sublicensing income are to be received by us.
Either we or Archemix may terminate the C5 agreementLicense Agreement if the other party materially breaches the agreement and the breach remains uncured for a specified period. Archemix may also terminate the C5 agreement,License Agreement, or may convert
our exclusive license under the agreement to a non–exclusivenon-exclusive license, if we challenge or assist a third party in challenging the validity or enforceability of any of the patents licensed under the agreement. We may terminate the agreement at any time and for any or no reason effective at the end of a specified period following our written notice of termination to Archemix.
IC-500 - Inception 4 Merger Agreement
In October 2018, we acquired IC-500 and a number of other HtrA1 inhibitors through our acquisition of Inception 4, Inc., or Inception 4, which was previously a privately held biotechnology company controlled by funds owned by Versant Ventures. We and Inception 4 entered into an agreement and plan of merger, which we refer to as the Inception 4 Merger Agreement, pursuant to which we acquired Inception 4 through a merger transaction, referred to as the Inception 4 Merger. Following the Inception 4 Merger, Inception 4 was merged into our wholly-owned subsidiary Orion, which currently owns the rights to IC-500 and the other HtrA1 inhibitors acquired in the Inception 4 Merger.
As upfront consideration for the Inception 4 Merger, the former equityholders of Inception 4 received 5,044,201 shares of our common stock, and in December 2018, they received an additional 130,526 shares of our common stock following finalization of customary post-closing adjustments. As part of the transaction, we received approximately $6.1 million in cash.
Contingent Consideration
In addition, pursuant to the Inception 4 Merger Agreement, the former equityholders of Inception 4 will be entitled to receive contingent future payments from us based on the achievement of certain clinical and regulatory milestones of up to an aggregate maximum amount of $105 million, with $45 million of such potential payments relating to GA and $60 million of such potential payments relating to wet AMD. These future milestone payments will be payable in the form of shares of our common stock, calculated based on the price of our common stock over a five-trading day period preceding the achievement of the relevant milestone, unless and until the issuance of such shares would, together with all other shares issued in connection with the Inception 4 Merger, exceed an overall maximum limit of approximately 7.2 million shares, which is equal to 19.9% of the number of issued and outstanding shares of our common stock as of the close of business on the business day prior to the closing date of the Inception 4 Merger, and will be payable in cash thereafter.
Diligence Obligation
We agreed to use commercially reasonable efforts to perform the activities described in an agreed-upon development plan outlining certain activities for developing at least one HtrA1 inhibitor for the treatment of GA. Our maximum aggregate liability for any and all breaches of our obligation under the Inception 4 Merger Agreement to use commercially reasonable efforts to develop an HtrA1 inhibitor is limited to $5 million.
Other Terms and Conditions
The Inception 4 Merger Agreement contains customary representations, warranties and covenants for both Inception 4 and our company as the purchaser. The representations and warranties generally survived until the first anniversary of the closing date, with certain specified representations and warranties surviving to 30 months after the closing date and other specified representations and warranties surviving to the expiration of the applicable statute of limitations. The Inception 4 Merger Agreement also contains customary indemnification provisions whereby the former equityholders of Inception 4 will indemnify us and certain affiliated parties for any losses arising out of breaches of the representations, warranties and covenants of Inception 4 under the Inception 4 Merger Agreement; pre-closing tax matters; appraisal claims of former Inception 4 stockholders; any pre-closing indebtedness or expenses not previously adjusted for at the closing; fraud with respect to representations and warranties of Inception 4; and certain other matters.
License Agreement with UFRF and Penn for IC-100
In June 2018, we entered into an exclusive global license agreement with UFRF and Penn, which we refer to as the RHO-adRP License Agreement. Under the RHO-adRP License Agreement, UFRF and Penn granted us a worldwide, exclusive license under specified patent rights and a worldwide, non-exclusive license under specified know-how, including specified preclinical data, to manufacture, develop and commercialize certain AAV gene therapy products for the treatment of rhodopsin-mediated diseases. The rights granted under the RHO-adRP License Agreement included certain patent rights covering IC-100, our novel AAV gene therapy product candidate intended to treat RHO-adRP.
We may grant sublicenses of the licensed patent rights and know-how without the consent of the UFRF and Penn to certain affiliates and to biopharmaceutical companies that have a minimum market capitalization at the time such sublicense is granted and may otherwise grant sublicenses of the licensed patent rights and know-how with the consent of UFRF and Penn, not to be unreasonably withheld.
Diligence Obligations
We agreed to use commercially reasonable efforts to pursue an agreed-upon development plan with the intent to develop a licensed product for sale within at least the United States and two major European countries and, subject to obtaining marketing approval, to commercialize a licensed product in at least the United States and two major European countries. In addition, we agreed to meet specified development and commercial milestones with respect to a licensed product by specified dates, as the same may be extended under the terms of the RHO-adRP License Agreement.
Financial Terms
In June 2018, we paid a $0.5 million upfront license issuance fee in connection with entry into the agreement, as well as accrued patent prosecution expenses of approximately $30 thousand. Under the agreement, we agreed to pay an annual license maintenance fee in the low double-digit thousands of dollars, which will be payable on an annual basis until the first commercial sale of a licensed product. In addition, we agreed to reimburse UFRF for the costs and expenses of patent prosecution and maintenance related to the licensed patent rights.
We further agreed to pay UFRF, on behalf of both licensors, up to an aggregate of $23.5 million if we achieve specified clinical, marketing approval and reimbursement approval milestones with respect to a licensed product and additionally, up to an aggregate of $70.0 million if we achieve specified commercial sales milestones with respect to a licensed product.
We are also obligated to pay UFRF, on behalf of both licensors, royalties at a low single-digit percentage of net sales of licensed products. Such royalties are subject to customary reductions for lack of patent coverage and loss of regulatory exclusivity. In addition, such royalties with respect to any licensed product in any country may be offset by a specified portion of any royalty payments actually paid by us with respect to such licensed product in such country under third-party licenses for patent rights or other intellectual property rights that are necessary to manufacture, develop and commercialize the licensed product in such country. Our obligation to pay royalties under the RHO-adRP License Agreement will continue on a licensed product-by-licensed product and country-by-country basis until the latest of:
•the expiration of the last-to-expire licensed patent rights covering a licensed product in the country of sale;
•the expiration of regulatory exclusivity covering a licensed product in the country of sale; and
•ten years from the first commercial sale of the applicable licensed product in the country of sale.
Beginning on the earlier of the calendar year following the first commercial sale of a licensed product and the first business day of 2031, we are also obligated to pay certain minimum royalties, not to exceed an amount in the low hundreds of thousands of dollars on an annual basis, which minimum royalties are creditable against our royalty obligation with respect to net sales of licensed products due for the year in which the minimum royalty is paid.
If we or an affiliate sublicenses any of the licensed patent rights to a third party, we will be obligated to pay UFRF, on behalf of both licensors, a low double-digit percentage of the consideration received in exchange for such sublicense, with the applicable percentage based upon the stage of development of the sublicensed product at the time we or the applicable affiliate enters into the sublicense.
If we receive a rare pediatric disease priority review voucher from the FDA in connection with obtaining marketing approval for a licensed product and we subsequently use such priority review voucher in connection with a different product candidate, we will be obligated to pay UFRF, on behalf of both licensors, aggregate payments in the low double-digit millions of dollars based on certain marketing approval and commercial sales milestones with respect to such other product candidate. In addition, if we sell such a priority review voucher to a third party, we will be obligated to pay UFRF, on behalf of both licensors, a low double-digit percentage of any consideration received from such third party in connection with such sale.
Term and Termination
Unless earlier terminated by us, the RHO-adRP License Agreement will expire upon the expiration of our obligation to pay royalties to UFRF on net sales of licensed products. We may terminate the agreement at any time for any reason upon prior written notice to UFRF. Penn or UFRF may terminate the agreement if we materially breach the agreement and do not cure such breach within a specified cure period, if we experience a specified insolvency event, if we cease to carry on the entirety of our business related to the licensed patent rights, if we cease for more than four consecutive quarters to make any payment of earned royalties on net sales of licensed products following the commencement of commercialization thereof, unless such cessation is based on safety concerns that we are actively attempting to address, or if we or an affiliate challenges or assists a third party in challenging the validity, scope, patentability, and/or enforceability of the licensed patent rights.
Following any termination of the agreement prior to expiration of the term of the agreement, all rights to the licensed patent rights and know-how granted to us will revert to UFRF and Penn.
License Agreement with Penn and UFRF for IC-200
In April 2019, we entered into an exclusive global license agreement, which we refer to as the BEST1 License Agreement, with Penn and UFRF. We entered into the BEST1 License Agreement by exercising our exclusive option rights under an option agreement that we previously entered into with Penn and UFRF in October 2018. Under the BEST1 License Agreement, Penn and UFRF granted us a worldwide, exclusive license under specified patent rights and specified know-how and a worldwide, non-exclusive license under other specified know-how to research, develop, manufacture and commercialize certain AAV gene therapy products, including IC-200, for the treatment of Best disease and other BEST1-related IRDs.
We have agreed to use commercially reasonable efforts to pursue an agreed-upon development plan with the intent to develop a licensed product for sale within at least the United States and two major European countries and, subject to obtaining marketing approval, to commercialize such product in at least the United States and two major European countries. In addition, we have agreed to meet specified development and regulatory milestones with respect to a licensed product by specified dates, as the same may be extended under the terms of the agreement.
We may grant sublicenses of the licensed patent rights and know-how, without the consent of Penn or UFRF, to certain affiliates and to biopharmaceutical companies that have a minimum market capitalization at the time such sublicense is granted, and may otherwise grant sublicenses to the licensed patent rights and know-how with the consent of Penn and UFRF, not to be unreasonably withheld.
Financial Terms
In May 2019, we paid Penn, for the benefit of Penn and UFRF, a $0.2 million upfront license issuance fee, which was recorded as a research and development expense, and we paid UFRF accrued patent prosecution expenses of approximately $18 thousand, which was recorded as a general and administrative expense. We have also agreed to pay Penn, for the benefit of Penn and UFRF, an annual license maintenance fee in the low double-digit thousands of dollars, which fee will be payable on an annual basis until the first commercial sale of a licensed product. In addition, we have agreed to pay Penn, for the benefit of Penn and UFRF, a one-time patent grant fee in the low triple-digit thousands of dollars, upon the issuance of a U.S. patent that claims inventions disclosed in the licensed patent rights or know-how or inventions generated under certain related sponsored research agreements with Penn or UFRF, and that is exclusively licensed to us. Furthermore, we have agreed to reimburse Penn and UFRF for the costs and expenses of patent prosecution and maintenance related to the licensed patent rights.
We have further agreed to pay Penn, for the benefit of Penn and UFRF, up to an aggregate of $15.7 million if we achieve specified clinical, marketing approval and reimbursement approval milestones with respect to one licensed product, and up to an aggregate of an additional $3.1 million if we achieve these same milestones with respect to a different licensed product. In addition, we have agreed to pay Penn, for the benefit of Penn and UFRF, up to an aggregate of $48.0 million if we achieve specified commercial sales milestones with respect to one licensed product, and up to an aggregate of an additional $9.6 million if we achieve these same milestones with respect to a different licensed product.
We are also obligated to pay Penn, for the benefit of Penn and UFRF, royalties at a low single-digit percentage of net sales of licensed products. Such royalties are subject to customary deductions, credits, and reductions for lack of patent coverage and loss of regulatory exclusivity. In addition, such royalties with respect to any licensed product in any country may be offset by a specified portion of any royalty payments actually paid by us with respect to such licensed product in such country under third-party licenses to patent rights or other intellectual property rights that are necessary to research, develop, manufacture and commercialize the licensed product in such country. Our obligation to pay royalties under the BEST1 License Agreement will continue on a licensed product-by-licensed product and country-by-country basis until the latest of:
•the expiration of the last-to-expire licensed patent rights covering the sale of the applicable licensed product in the country of sale;
•the expiration of regulatory exclusivity covering the applicable licensed product in the country of sale; and
•10 years from the first commercial sale of the applicable licensed product in the country of sale.
Beginning on the earlier of the calendar year following the first commercial sale of a licensed product and calendar year 2032, we are also obligated to pay certain minimum royalties, not to exceed an amount in the mid tens of thousands of dollars on an annual basis, which minimum royalties are creditable against our royalty obligation with respect to net sales of licensed products due in the year the minimum royalty is paid.
If we or any of our affiliates sublicense any of the licensed patent rights to a third party, we will be obligated to pay Penn, for the benefit of Penn and UFRF, a high single-digit to a mid ten's percentage of the consideration received in exchange for such sublicense, with the applicable percentage based upon the stage of development of the sublicensed product at the time we or the applicable affiliate enters into the sublicense.
If we receive a rare pediatric disease priority review voucher from the FDA in connection with obtaining marketing approval for a licensed product and we subsequently use such priority review voucher in connection with a different product candidate outside the scope of the BEST1 License Agreement, we will be obligated to pay Penn, for the benefit of Penn and UFRF, aggregate payments in the low double-digit millions of dollars based on certain approval and commercial sales milestones with respect to such other product candidate. In addition, if we sell such a priority review voucher to a third party, we will be obligated to pay Penn, for the benefit of Penn and UFRF, a high single-digit percentage of any consideration received from such third party in connection with such sale.
Term and Termination
The BEST1 License Agreement, unless earlier terminated by us or Penn or UFRF, will expire upon the expiration of our obligation to pay royalties to Penn, for the benefit of Penn and UFRF, on net sales of licensed products. Before the effectiveness of an IND for a licensed product, we may terminate the BEST1 License Agreement with respect to such licensed product or in its entirety, at any time for any reason upon prior written notice to Penn and UFRF. Following the effectiveness of an IND for a licensed product, we may terminate the BEST1 License Agreement with respect to such licensed product by providing Penn prior written notice and a certification that we are ceasing all use, research and development and commercialization of such licensed product, subject to certain limited exceptions. We may also terminate the BEST1 License Agreement if Penn or UFRF materially breaches the BEST1 License Agreement and does not cure such breach within a specified cure period.
Penn or UFRF may terminate the BEST1 License Agreement if we materially breach the BEST1 License Agreement and do not cure such breach within a specified cure period, if we experience a specified insolvency event, if we cease to carry on the entirety of our business related to the licensed patent rights, if we cease for more than four consecutive quarters to make any payment of earned royalties on net sales of licensed products following the commencement of commercialization thereof, unless such cessation is based on safety concerns that we are actively attempting to address, or if we, any of our affiliates or any of our sublicensees challenge or assist a third party in challenging the validity, scope, patentability, and/or enforceability of the licensed patent rights. If we materially breach certain diligence obligations under the BEST1 License Agreement with respect to only one licensed product, then Penn and UFRF may only terminate our rights and licenses under the BEST1 License Agreement for such licensed product, but not for other licensed products.
Following any termination of the BEST1 License Agreement prior to expiration of the term of the BEST1 License Agreement, all rights to the licensed patent rights and know-how that Penn and UFRF granted to us will revert to Penn and UFRF.
License Agreement with UMass for the miniCEP290 Program
In July 2019, we entered into an Exclusive License Agreement, which we refer to as the miniCEP290 License Agreement, with UMass. We entered into the miniCEP290 License Agreement by exercising our exclusive option rights under an option agreement and a sponsored research agreement that we previously entered into with UMass in February 2018. Under the miniCEP290 License Agreement, UMass granted us a worldwide, exclusive license under specified patent rights and specified biological materials and a non-exclusive license under specified know-how to make, have made, use, offer to sell, sell, have sold and import products for the treatment of diseases associated with mutations in the CEP290 gene, including LCA10. We may grant sublicenses of the licensed patent rights and know-how without the consent of UMass.
We have agreed to use diligent efforts to develop licensed products and to introduce such licensed products into the commercial market. Subject to obtaining marketing approval, we agreed to make any approved licensed product reasonably available to the public. In addition, we have agreed to meet specified development and regulatory milestones with respect to a licensed product by specified dates, as the same may be extended under the terms of the miniCEP290 License Agreement.
Financial Terms
In July 2019, we issued to UMass 75,000 shares of our common stock following execution of the miniCEP290 License Agreement pursuant to an exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act. In September 2019, we paid UMass a $0.4 million upfront license fee, which was recorded as a research and development expense, and we paid UMass accrued patent prosecution expenses of approximately $18 thousand, which was recorded as a general and administrative expense.
We have also agreed to pay UMass an annual license maintenance fee in the low double-digit thousands of dollars, which fee will be payable on an annual basis until the expiration of the royalty term for the licensed products. Furthermore, we have agreed to reimburse UMass for the costs and expenses of patent prosecution and maintenance related to the licensed patent rights.
We have further agreed to pay UMass up to an aggregate of $14.75 million in cash and issue up to 75,000 shares of our common stock if we achieve specified clinical and regulatory milestones with respect to a licensed product. In addition, we have agreed to pay UMass up to an aggregate of $48.0 million if we achieve specified commercial sales milestones with respect to a licensed product.
We are also obligated to pay UMass royalties at a low single-digit percentage of net sales of licensed products. Our obligation to pay royalties under the miniCEP290 License Agreement will continue on a licensed product-by-licensed product and country-by-country basis until the later of: (a) the expiration of the last-to-expire licensed patent rights covering the sale of the applicable licensed product in the country of sale, or (b) 10 years from the first commercial sale of the applicable licensed product in the country of sale. Beginning with the calendar year following receipt of marketing approval for a licensed product, we are also obligated to pay certain minimum royalties, not to exceed an amount in the mid-double-digit thousands of dollars on an annual basis, which minimum royalties are creditable against our royalty obligation with respect to net sales of licensed products due in the year the minimum royalty is paid.
If we or any of our affiliates sublicenses any of the licensed patent rights or know-how to a third party, we will be obligated to pay UMass a high single-digit to a mid-tens percentage of the consideration received in exchange for such sublicense, with the applicable percentage based upon the stage of development of the licensed products at the time we or the applicable affiliate enters into the sublicense.
If we receive a rare pediatric disease priority review voucher, or a priority review voucher, from the FDA in connection with obtaining marketing approval for a licensed product, and we subsequently use such priority review voucher in connection with a different product candidate outside the scope of the miniCEP290 License Agreement, we will be obligated to pay UMass a low-tens percentage of the fair market value of the priority review voucher at the time of approval of such product candidate and a low-twenties percentage of the fair market value of the priority review voucher at the time of achievement of a specified commercial sales milestone for such other product candidate. In addition, if we sell such a priority review voucher to a third party, we will be obligated to pay UMass a low-thirties percentage of any consideration received from such third party in connection with such sale.
Term and Termination
The miniCEP290 License Agreement, unless earlier terminated by us or UMass, will expire upon the expiration of our obligation to pay royalties to UMass on net sales of licensed products. We may terminate the miniCEP290 License Agreement at any time for any reason upon prior written notice to UMass. We may also terminate the miniCEP290 License Agreement if UMass materially breaches the miniCEP290 License Agreement and does not cure such breach within a specified cure period.
UMass may terminate the miniCEP290 License Agreement if we materially breach the miniCEP290 License Agreement and do not cure such breach within a specified cure period.
Following any termination of the miniCEP290 License Agreement prior to expiration of the term of the miniCEP290 License Agreement, all rights to the licensed patent rights and know-how that UMass granted to us will revert to UMass.
Government Regulation and Product Approvals
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, pricing, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post–approvalpost-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other legal requirements of regulatory authorities, require the expenditure of substantial time and financial resources.
Review and Approval of Drugs and Biologics in the United States
In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Biologic products, including gene therapy products, are licensed for marketing under the Public Health Service Act, or PHSA. The failure to comply with requirements under the FDCA or PHSA and other applicable
laws at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities, including state agencies.
A drug candidate must be approved by the FDA through a new drug application, or NDA. A biologic candidate is licensed by the FDA through approval of a biologic license application, or BLA. An applicant seeking approval to market and distribute a new product in the United States must typically undertake the following:
•completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;
•completion of the manufacture, under current Good Manufacturing Practices, or cGMP, conditions, of the drug substance and drug product that the sponsor intends to use in human clinical trials along with required analytical and stability testing;
•submission to the FDA of an investigational new drug application, or IND, which must take effect before human clinical trials may begin;
•approval by an independent institutional review board, or IRB, representing each clinical trial site before each clinical trial may be initiated;initiated at that clinical site;
•performance of adequate and well–controlledwell-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each indication for which the sponsor is seeking approval and the safety, potency and purity of a candidate biologic product for each indication;indication for which the sponsor is seeking approval;
•preparation and submission to the FDA of an application requesting marketing approval for one or more proposed indications;
•review by an FDA advisory committee, where appropriate or if applicable;
•satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or
cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
•satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
•payment of user fees and securing FDA approval of the application; and
•compliance with any post–approvalpost-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post–approvalpost-approval studies.
Preclinical Studies
Before an applicant begins testing a compounddrug or biologic with potential therapeutic value in humans, the product candidate enters themust undergo preclinical testing stage.testing. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, and the purity and stability of the substance, as well as in vitro and animal studies to assess the potential safety and activity of the product candidate for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations.
The IND and IRB Processes
An IND is an exemption from the FDCA that allows an unapproved product to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational product to humans. Such authorization must be secured prior to interstate shipment and administration of any product candidate that is not the subject of an approved application. In support of a request for an IND, applicants must submit a protocol for each clinical trial
and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. The FDA requires a 30–day30-day waiting period after the filing of each IND before clinical trials may begin. This waiting period is designed to allow the FDA to review the IND to determine whether human research subjects will be exposed to unreasonable health risks. At any time during this 30–day30-day period, or thereafter, the FDA may raise concerns or questions about the conduct of the trials as outlined in the IND and impose a clinical hold or partial clinical hold. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.begin or re-commence.
In addition to the foregoing IND requirements, an IRB or ethics committee representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprovere-approve the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. An IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the product candidate has been associated with unexpected serious harm to patients.
Additionally, some trials are overseen by an independent group of qualified experts organized by the trial sponsor, known as a data safety monitoring board or committee, or DSMB. This group provides authorization as to whether or not a trial may move forward at designated check points based on access that only the group maintains tocertain available data from the study.study to which only the DSMB may access. Suspension or termination of development during any phase of clinical trials can occur if it is determined that the participants or patients are being exposed to an unacceptable health risk. Other reasons for suspension or termination may be made by usthe sponsor based on evolving business objectives and/or competitive climate.
Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on its ClinicalTrials.gov website.
Human Clinical Trials in Support of an Application
Clinical trials involve the administration of thean investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.
Human clinical trials are typically conducted in four sequential phases, which may overlap or be combined:
•Phase 1. The product candidate is initially introduced into a small number of healthy human subjects or, in certain indications, including those for which we are developing product candidates, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
•Phase 2. The product candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Phase 2a clinical trials tend to be smaller pilot studies for the purpose of demonstrating biological activity and clinical "proof of concept." Phase 2b studies tend to be larger studies focused on finding the optimal dosage and may be controlled.
•Phase 3. These clinical trials are commonly referred to as “pivotal” studies, which denotes a study that presents the data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a product candidate. The product candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well–controlledwell-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, identify adverse effects, establish the overall risk–benefit profile of the product and to provide adequate information for the labeling of the product.
•Phase 4. Post–approvalPost-approval studies may be required to be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.
Progress reports detailing the safety results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk into humans exposed to the product candidate; and any clinically important increase in the caserate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. The FDA, or the sponsor or the data monitoring committeeDSMB may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. The FDA will typically inspect one or more clinical sites to assure compliance with GCPGCPs and the integrity of the clinical data submitted.
Expanded Access to an Investigational Drug for Treatment Use
Expanded access, sometimes called “compassionate use,” is the use of investigational new drug products outside of clinical trials to treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory alternative treatment options. Expanded access allows a patient to obtain an investigational new drug when enrolling in a clinical trial for that drug is difficult or not feasible for the patient. FDA regulations allow access to investigational drugs under an IND by the sponsor or the treating physician for treatment purposes on a case-by-case basis in certain circumstances, subject to FDA approval. There is no obligation for a sponsor to make its drug products available for expanded access. In April 2020, we adopted an expanded access policy, which is, as required by the 21st Century Cures Act, or Cures Act, available on our website.
In addition, the Right to Try Act, signed into law in May 2018, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without needing FDA approval under the expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients under the Right to Try Act.
Special Regulations and Guidance Governing Gene Therapy Products
The FDA has defined a gene therapy product as one that mediates its effects by transcription and/or translation of transferred genetic material and/or by integrating into the host genome and which is administered as nucleic acids, viruses, or genetically engineered microorganisms. The products may be used to modify cells in vivo or transferred to cells ex vivo prior to administration to the recipient. Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. Within CBER, the review of gene therapy and related products is consolidated in the Office of Cellular, TissueTissues and GeneAdvanced Therapies (OTAT), and the FDA has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its reviews. CBER works closely with theThe NIH, including its Novel and the Recombinant DNAExceptional Technology and Research Advisory Committee, or RAC, a federal advisory committee, which makes recommendations toNExTRAC, also advises the NIHFDA on gene therapy issues and engages in a public discussion of scientific, safety, ethical, and societalother issues related to proposed and ongoing gene therapy protocols.emerging biotechnologies. The FDA and the NIH have published guidance documents with respectrelating to the development and submission of gene therapy protocols.
In addition to the foregoing, products classified as gene therapies are subject to additional regulation. The FDA has issued various guidance documents regarding gene therapies.therapies, including final guidance documents released in January 2020 relating to chemistry, manufacturing and controls information for gene therapy INDs, long-term follow-up after the administration of gene therapy products, gene therapies for rare diseases and gene therapies for retinal disorders. Although the FDA has indicated that these and other guidance documents it previously issued are not legally binding, we believe that our compliance with them is likely necessary to gain approval for any gene therapy product candidate we may develop. The guidance documents provide additional factors that the FDA will consider at each of the above stages of development and relate to, among other things, the proper preclinical assessment of gene therapies; the chemistry, manufacturing, and control information that should be included in an IND application; the proper design of tests to measure product potency in support of an IND or BLA application; and measures to observe delayed adverse effects in subjects who have been exposed to investigational gene therapies when the risk of such effects is high. Further, the FDA usually recommends that sponsors observe subjects for potential gene therapy–relatedtherapy-related delayed adverse events for a 15–year15-year period, including a minimum of five years of annual examinations followed by 10 years of annual queries, either in person or by questionnaire.
If aUntil 2019, most gene therapy trial is conducted at, or sponsoredclinical trials required pre-review by institutions receivingthe predecessor of NExTRAC before being submitted for approval by the IRBs and any local biosafety boards. In 2019, the NIH funding for recombinant DNA research, a protocoleliminated the pre-review process and related documentation mustgoing forward, the review of future gene therapy clinical trial protocols would be submitted to, and the study registered with,largely handled by IRBs. Furthermore, in 2019, the NIH Office of Biotechnology Activities, or OBA, pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules prior
to the submission of an IND to the FDA. In addition, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. The NIH will convene the RAC to discuss protocols that raise novel or particularly important scientific, safety or ethical considerations at one of its quarterlyremoved from public meetings. The OBA will notify the FDA of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA web site and may be accessed by the public.
Further, to facilitate adverse event reporting and dissemination of additional information about gene therapy trials, the FDA and the NIH establishedaccess the Genetic Modification Clinical Research Information System or GeMCRIS. Investigators(GeMCRIS) database, which previously contained substantial amounts of safety and sponsors of aother patient information regarding human gene transfer trials can utilize this web–based systemtherapy studies performed to report serious adverse events and annual reports. GeMCRIS also allows membersdate.
Finally, for a gene therapy product, the FDA also will not approve the product if the manufacturer is not in compliance with good tissue practices, or GTP. These standards are found in FDA regulations and guidances that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the GTP requirements is to ensure that cell and tissue based products are manufactured in a manner designed to prevent the introduction, transmission, and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing.
Review of a Product Candidate Product by the FDA
If clinical trials are successful, the next step in the development process is the preparation and submission to the FDA of an application.application for marketing approval. The application is the vehicle through which applicants formally propose that the FDA approve a new drug for marketing and sale in the United States for one or more indications. The application must contain a description of the manufacturing process and quality control methods, as well as results of preclinical tests, toxicology studies, clinical trials and proposed labeling, among other things. Every new product must be the subject of an approved application before it may be commercialized in the United States. Under federal law, the submission of most applications is subject to an application user fee, which for federal fiscal year 20182021 is $2,421,495$2,875,842 for an application requiring clinical data. The sponsor of an approved application is also subject to an annual program fee, which for fiscal year 20182021 is $304,162.$336,432. Certain exceptions and waivers are available for some of these fees, such as an exception from the application fee for products with orphan designation and a waiver for certain small businesses.
Following submission of an application, the FDA conducts a preliminary review of an application generally within 60 calendar days of its receipt and strives to inform the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an application for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in–in depth substantive review. Under the Prescription Drug User Fee Act, or PDUFA, the FDA has agreed to specified performance goals and timelines in the review process of applications. Under that agreement, 90%applications, which goals and timelines depend on the type of applications seeking approval of New Molecular Entities, or NMEs, are meant to be reviewed within ten monthsproduct candidate for which review is sought and whether the sponsor has applied for and received from the date on which FDA acceptsany special review status for the applicationparticular product candidate allowing for filing, and 90%expedited review. Special review status is available for certain products that are intended to address an unmet medical need in the treatment of applications for NMEs that have been designated for “priority review” are meant to be reviewed within six monthsa serious or life–threatening disease or condition under one of the filing date. For applications seeking approval of drugs that are not NMEs, the ten–monthfollowing FDA-designations: fast track designation, breakthrough therapy designation, priority review designation and six–month review periods run from the date that FDA receives the application.regenerative medicine advanced therapy designation. The review process and the PDUFA goal date may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.
Before approving an application, the FDA typically will inspect the facility or facilities where the product is or will be manufactured, stored, packaged and tested. These pre–approval inspections may cover all facilities associated with an application submission, including component manufacturing (e.g., active pharmaceutical ingredients), finished product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an application, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Under the FDA Reauthorization Act of 2017, the FDA must implement a protocol to expedite review of responses to inspection reports pertaining to certain applications, including applications for products in shortage or those for which approval is dependent on remediation of conditions identified in the inspection report.
In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is an NME.a New Molecular Entity.
The FDA is required to refer an application for a novel product candidate to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Under the Pediatric Research Equity Act, or PREA, an application or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the submission of the assessment data required under PREA. These plans are subject to FDA review before beginning the pediatric study. Product candidates that have received orphan designation are generally exempt from the requirements of PREA. In addition, a sponsor may apply for a waiver of the PREA requirements, which the FDA has indicated it will automatically grant for certain diseases that do not affect pediatric populations, including AMD.
The FDA’s Decision on an Application
On the basis of the FDA’s evaluation of the application and accompanying information, including the results of the inspectioninspections of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the application, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
If the FDA approves a product, it may limit the approved indications for use forof the product, require that contraindications, warnings or precautions be included in the product labeling, require that post–approvalpost-approval studies, including Phase 4 clinical trials, be conducted to further assess the product candidate’sproduct’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post–market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.
Fast Track, Breakthrough Therapy, Priority Review and Regenerative Advanced Therapy Designations and Accelerated ApprovalApproval; Rare Pediatric Disease Priority Review Voucher Program
The FDA is 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 programs are fast track designation, breakthrough therapy designation, priority review designation and regenerative advanced therapy designation. The FDA may also approve certain products based on an accelerated basis.
Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life–threatening disease or condition, and if the product 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 application 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.information. However, the FDA’s time period goal for reviewing a fast track application does not begin until the last section of the application 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. In April 2020, the FDA granted fast track designation to Zimura for the treatment of GA secondary to dry AMD.
In 2012, Congress enacted the Food and Product Administration Safety and Innovation Act, or FDASIA. This lawFDASIA established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, 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.
The FDA may designate a product for priority review if it is a product 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 by case basis, whether the proposed product 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 product 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.
With passage of the 21st Century Cures Act, or the Cures Act, in December 2016, Congress authorized the FDA to accelerate review and approval of products designated as regenerative advanced therapies. A product is eligible for this designation if it is a regenerative medicine therapy that is
intended to treat, modify, reverse or cure a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product candidate has the potential to address unmet medical needs for such disease or condition. The benefits of a regenerative advanced therapy designation include early interactions with the FDA to expedite development and review, benefits available to breakthrough therapies, and potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints.
Finally, the The FDA may grant accelerated approval to a product for a serious or life–threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.
Post–Approval Finally, the FDA may award priority review vouchers to sponsors of rare pediatric disease product applications that meet certain criteria. A rare pediatric disease is a rare disease where the disease is serious or life-threatening with the serious or life-threatening manifestations primarily affecting individuals from age zero to 18. A sponsor who receives approval for a drug or biologic for a rare pediatric disease may qualify for a priority review voucher, which the sponsor may redeem to receive priority review of a subsequent marketing application for a different product. In lieu of using the voucher for one of its own product candidates, a sponsor may sell that voucher for use by a third party. Current prices for these vouchers range in the hundreds of millions of dollars. The current rare pediatric disease priority review voucher program, which was previously scheduled to expire in October 2020, will expire in September 2024, after Congress recently renewed the program, although a drug designated as a rare pediatric disease treatment by September 2024 can still receive a priority review voucher but no later than September 2026.
Post-Approval Requirements
Products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims,label changes, or changing the manufacturing process for the approved product, are subject to prioradditional testing and/or FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.
In addition, manufacturers and other entities involved in the manufacture and distribution of approved products are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third–party manufacturers that the sponsor may decide to use. Accordingly, sponsors and manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
A product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, Further, the FDA will conduct laboratory research related to the safety, purity, potency and effectiveness of pharmaceutical products.
Once an approval is granted, the FDA may restrict, suspend or withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information;
imposition of post–marketpost-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:
restrictions on the marketing or manufacturing of the product, suspension of the approval, or complete withdrawal of the product from the market or product recalls;
•fines, warning letters or holds on post–approvalpost-approval clinical trials;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
•product seizure or detention, or refusal to permit the import or export of products; or
•injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off–label uses, and a company that is found to have improperly promoted off–label usesAlthough health care providers may be subject to significant liability.
If a company is found to have promotedprescribe products for off-label uses it may become subject to adverse public relationsin their professional judgment, drug manufacturers are prohibited from soliciting, encouraging or promoting unapproved uses of a product.
Generic Drugs and administrative and judicial enforcement byExclusivity
Under the FDA, the Department of Justice, or the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. The federal government has levied large civil and criminal fines against companies for alleged improper promotion, and has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.
Abbreviated New Drug Applications for Generic Drugs
In 1984, with passage of the Hatch–WaxmanHatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA is authorized to approve generic drugs that are shown to contain the same active ingredients as, and to beis bioequivalent to, drugs previously approved by the FDA pursuant to NDAs.NDAs, which are also known as reference listed drugs, or RLDs. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency.FDA. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because theyapplicant does not generally do not includerely on its own preclinical andor clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer mayeffectiveness but instead can rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known asby the reference–listed drug, orsponsor of the RLD.
Specifically, in order for an The ANDA to be approved, the FDAapplicant must findshow that the generic version is identical to the RLD with respect to a number of factors, including the active ingredients, the route of administration, the dosage form, the strength of the drugingredient, and the conditions of use of the drug. At the same time, the FDA must also determine that the generic drugversion is “bioequivalent”"bioequivalent" to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rateRLD. Physicians, pharmacists and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug...” Upon approval ofthird-party payors generally consider an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider a therapeutic equivalentapproved generic drug to be fully substitutable for the RLD. In addition, by operation
Sponsors of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.
Under the Hatch–Waxman Amendments, the FDA may not approve an ANDA until any applicable period of non–patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non–patent data exclusivity for a new drug containing a new chemical entity. For the purposes of this provision, a new chemical entity, or NCE, is a drug that contains no active moiety, which is the molecule or ion responsible for the action of the drug substance, that has previously been approved by the FDA in any other NDA. In cases where such NCE exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application.
The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. Three-year exclusivity would be available for a drug product that contains a previously approved active moiety, provided the statutory requirement for a new clinical investigation is satisfied. Unlike five-year NCE exclusivity, an award of three-year exclusivity does not block the FDA from accepting ANDAs seeking approval for generic versions of the drug as of the date of approval of the original drug product. The FDA typically makes decisions about awards of data exclusivity shortly before a product is approved.
The FDA must establish a priority review track for certain generic drugs, requiring the FDA to review a drug application within eight (8) months for a drug that has three (3) or fewer approved drugs listed in the Orange Book and is no longer protected by any patent or regulatory exclusivities, or is on the FDA’s drug shortage list. The new legislation also authorizes FDA to expedite review of ‘‘competitor generic therapies’’ or drugs with inadequate generic competition, including holding meetings with or providing advice to the drug sponsor prior to submission of the application.
505(b)(2) NDAs
As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA pursuant to an NDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch–Waxman Amendments and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant. If the 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically and legally appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the previously approved RLD. The FDA may then approve the new product candidate for all, or some, of the label indications for which the RLD has been approved, as well as for any new indication sought by the 505(b)(2) applicant.
Hatch–Waxman Patent Certification and the 30–Month Stay
Upon approval of an NDA or a supplement thereto, NDA sponsorsRLDs are required to list within the FDAFDA's Orange Bank each patent with claims that covercovering the applicant’s productRLD or an approved methodmethods of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When anRLD. An ANDA or 505(b)(2) applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any such patents, listed for the RLD in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extentmay be a certification that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.
Specifically, the applicant must certify with respect to each patent that:
the required patent information has not been filed;
the listed patent has expired;
the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
the listed patent is invalid, unenforceable or will not be infringed by the new product.
A certification that the new product, will not infringe the already approved RLD’s listed patents or that such patents are invalid or unenforceablewhich is calledknown as a Paragraph IV certification. If theAn ANDA applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the applicant is not seeking approval).
If the ANDA or 505(b)(2) applicant has providedmakes a Paragraph IV certification tomust notify the FDA, the applicant must also send noticesponsor of the Paragraph IV certification to the NDA and patent holders once the ANDA or the 505(b)(2) application has been accepted for filing by the FDA. The NDA and patent holdersRLD, who may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after theof receipt of a Paragraph IV certification automaticallynotice prevents the FDA from approving the ANDA or 505(b)(2) application until the earlierearliest of 30 months after the receipt of the Paragraph IV notice,certification, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.
Market and data exclusivity provisions under the FDCA can delay the submission or the approval of certain drug applications for competing products, including generic drugs. The FDCA provides a five-year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a New Chemical Entity. A drug is a New Chemical Entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule responsible for the pharmacological activity of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or an NDA under Section 505(b)(2) of the FDCA, or an 505(b)(2) NDA, submitted by another company that references the previously approved drug. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a Paragraph IV certification.
The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA, or supplement to an existing NDA or 505(b)(2) NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant, are deemed by the FDA to be essential to the approval of the application alsoor supplement. Three-year exclusivity may be awarded for changes to a previously approved drug product, such as new indications, dosages, strengths or dosage forms of an existing drug. This three-year exclusivity covers only the conditions of use associated with the new clinical investigations and, as a general matter, does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. The five-year and three-year exclusivities will not be approved until any applicable non–patent exclusivity listed indelay the Orange Book for the branded reference drug has expired.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result,submission or approval of a Section 505(b)(2)full NDA; however, an applicant submitting a full NDA canwould be stalled untilrequired to conduct or obtain a right of reference to all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of an NCE, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorablepreclinical studies and adequate and well-controlled clinical trials necessary to the Section 505(b)(2) applicant.demonstrate safety and effectiveness.
Biosimilars and Exclusivity
The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010,or ACA, included a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA. That ActThe BPCIA established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. A biosimilar is a biological product that is highly similar to an existing FDA-licensed "reference product." As of January 1, 2018,2021, the FDA hashad approved nine29 biosimilar products for use in the United States. No interchangeable biosimilars, as described below, have been approved.approved as of January 1, 2021. The FDA has issued several guidance documents outlining an approach to the review and approval of biosimilars. Additional guidances are expected to be finalized by FDA in the near term.
Under the Act,BPCIA, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with”biosimilar to a previously approved biological product or “referencereference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity and potency. For the FDA to approve a biosimilar product as interchangeable"interchangeable" with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (forfor products administered multiple times)times, that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity,
another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” bySince the FDA will, in fact, be readily substituted by pharmacies,passage of the BPCIA, many states have passed laws or amendments to laws, including laws governing pharmacy practices, which are governed by state pharmacy law.state-regulated, to regulate the use of biosimilars.
Patent Term Restoration and Extension
A patent claiming a new drug product, its method of use or its method of usemanufacture may be eligible for a limited patent term extension, also known as patent term restoration, under the Hatch–WaxmanHatch-Waxman Amendments, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. Patent term extension is generally available only for drug products whose active ingredient has not previously been approved by the FDA. The restoration period granted is typically one–halfone-half the time between the effective date of an IND and the submission date of ana marketing approval application, plus the time between the submission date of ana marketing approval application and the ultimate approval date. Patent term extension cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an
approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office (PTO)(USPTO) reviews and approves the application for any patent term extension in consultation with the FDA.
Pediatric Studies and Exclusivity
Under the Pediatric Research Equity Act, an application or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and any other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.
For drugs intended to treat a serious or life-threatening disease or condition, the FDA must, upon the request of an applicant, meet to discuss preparation of the initial pediatric study plan or to discuss deferral or waiver of pediatric assessments. In addition, FDA will meet early in the development process to discuss pediatric study plans with sponsors and FDA must meet with sponsors by no later than the end-of-phase 1 meeting for serious or life-threatening diseases and by no later than ninety (90) days after FDA’s receipt of the study plan.
The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless and until FDA promulgates a regulation stating otherwise, the pediatric data requirements do not apply to products with orphan designation.
Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity or patent protection, including the non–patent and orphan exclusivity. This six–month exclusivity may be granted if an application sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application. With regard to patents, the six–month pediatric exclusivity period will not attach to any patents for which an ANDA or 505(b)(2) applicant submitted a paragraph IV patent certification, unless the NDA sponsor or patent owner first obtains a court determination that the patent is valid and infringed by the proposed product.
Orphan Drug Designation and Exclusivity
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 meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must request orphan drug designation before submitting an application for the product and the rare disease or condition. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee.
If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same product for the same indication for seven years, except in certain limited circumstances. Orphan exclusivity does not block the approval of a different product for the same rare disease or condition, nor does it block the approval of the same product for different indications. In particular, the concept of what constitutes the "same product" for purposes of orphan drug exclusivity remains in flux in the context of gene therapies, and the FDA has issued recent draft guidance suggesting that it would not consider two gene therapy products to be different products solely based on minor differences in the transgenes or vectors. If a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.
Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same product for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety or providingprovides a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand.
Pediatric Exclusivity
Pediatric exclusivity is another type of non-patent exclusivity in the United States and, if granted, provides for an additional six months of marketing protection to the term of any existing regulatory exclusivity or patent protection, including the non-patent and orphan drug exclusivity. This six-month exclusivity may be granted if an application sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show that the product is effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection covering the product are extended by six months. This is not a patent term extension, but it effectively extends the case despiteregulatory period during which the FDA cannot approve an earlierANDA or 505(b)(2) NDA that references the product. With regard to patents, the six-month pediatric exclusivity period will not attach to any patents for which an ANDA or 505(b)(2) applicant submitted a paragraph IV
certification, unless the NDA sponsor or patent owner first obtains a court opinion holdingdetermination that the Orphan Drug Act unambiguously requiredpatent is valid and infringed by the FDA to recognize orphan exclusivity regardless of a showing of clinical superiority.
The 21st Century Cures Act
On December 13, 2016, President Barack H. Obama signed the 21st Century Cures Act,proposed ANDA or Cures Act, into law. The Cures Act is designed to modernize and personalize healthcare, spur innovation and research, and streamline the discovery and development of new therapies through increased federal funding of particular programs. It authorizes increasing funding for the FDA to spend on innovation projects. The new law also amends the PHSA to reauthorize and expand funding for the NIH. The Act establishes the NIH Innovation Fund to pay for the cost of development and implementation of a strategic plan, early stage investigators and research. It also charges the NIH with leading and coordinating expanded pediatric research. Further, the Cures Act directs the Centers for Disease Control and Prevention to expand surveillance of neurological diseases.
With amendments to the FDCA and the PHSA, Title III of the Cures Act seeks to accelerate the discovery, development, and delivery of new medicines and medical technologies. To that end, and among other provisions, the Cures Act reauthorizes the existing priority review voucher program for certain products intended to treat rare pediatric diseases until 2020; creates a new priority review voucher program for product applications determined to be material national security threat medical countermeasure applications; revises the FDCA to streamline review of combination product applications; requires the FDA to evaluate the potential use of “real world evidence” to help support approval of new indications for approved products; provides a new “limited population” approval pathway for antibiotic and antifungal products intended to treat serious or life-threatening infections; and authorizes the FDA to designate a product as a “regenerative advanced therapy,” thereby making it eligible for certain expedited review and approval designations.
505(b)(2) product.
Review and Approval of Products in Europe and other Foreign Jurisdictions
In addition to regulations in the United States, a manufacturer is subject to a variety of regulations in foreign jurisdictions to the extent it chooses to conduct clinical trials or sell any products in those foreign countries. Even if a manufacturer obtains FDA approval of a product, it must still obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement ofbefore beginning clinical trials or marketing of the product in those countries. To obtain regulatory approval of an investigational product in the European Union, a manufacturer must submit a marketing authorization application, or MAA, to the European Medicines Agency, or EMA. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, clinical trials are to be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
Clinical Trial Approval in the European Union
Pursuant toUnder the currently applicable Clinical Trials Directive 2001/20/EC and the Directive 2005/28/EC on Good Clinical Practice, an applicant must obtain prior approval from the competent national authority of the European Union Member State, or the EU Member State, in which the clinical trial is to be conducted. If the clinical trial is conducted in different EU Member States, the competent authorities in each of these EU Member States must provide their approval for the conduct of the clinical trial. Furthermore, the applicant may only start a clinical trial at a specific study site after the competentapplicable ethics committee has issued a favorable opinion.
In April 2014, the European Union adopted a new Clinical Trials Regulation (EU) No 536/2014, which is set to replace the current Clinical Trials Directive 2001/20/EC. The new Clinical Trials Regulation will be directly applicable to and binding in all EU Member States without the need for any national implementing legislation. The new Clinical Trials Regulation (EU) No 536/2014 was published on June 16, 2014 but is not expected to apply until 2019. The conduct of all clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. It will overhaul the current system of approvals for clinical trials in the European Union. Specifically, the new legislationregulation aims at simplifying and streamlining the approval of clinical trials in the European Union. Under the new coordinated procedure for the approval of clinical trials, the sponsor of a clinical trial to be conducted in more than one EU Member State will only be required to submit a single application for approval of a clinical trial to a reporting EU Member State (RMS) through an EU Portal. The submission procedure will be the same irrespective of whether the clinical trial is to be conducted in a single EU Member State or in more than one EU Member State. The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting for clinical trials.
PRIME Designation The Clinical Trials Regulation is expected to become effective in the EU
In March 2016, the EMA launched an initiative to facilitate development of product candidatesDecember 2021, in indications, often rare, for which few or no therapies currently exist. The PRIority MEdicines, or PRIME, scheme is intended to encourage drug development in areas of unmet medical need and provides accelerated assessment of products representing substantial innovation reviewed under the centralized procedure. Products from small- and medium-sized enterprises, or SMEs, may qualify for earlier entry into the PRIME scheme than larger companies. Many benefits accrue to sponsors of product candidates with PRIME designation, including but not limited to, early and proactive regulatory dialogueconjunction with the EMA, frequent discussions onexpected going live date of a new clinical trial designstrials portal and other development program elements, and accelerated marketing authorization application assessment once a dossier has been submitted. Importantly, a dedicated Agency contact and rapporteur fromdatabase being developed for the Committee for Human Medicinal Products, or CHMP, or Committee for Advanced Therapies, or CAT, are appointed early in PRIME scheme facilitating increased understanding of the product at EMA’s Committee level. A kick-off meeting initiates these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall development andnew regulatory strategies.framework.
Marketing Authorization
In the European Union, marketing authorizations for medicinal products may be obtained through several different procedures founded on the same basic regulatory process. A marketing authorization may be granted only to an applicant established in the European Union. As in the United States, marketing authorization holders and manufacturers of approved medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual EU Member States both before and after grant of marketing authorizations.
Centralized Procedure. The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid across the European Economic Area, (i.e.i.e. the European Union as well as Iceland, Liechtenstein and Norway).Norway. The centralized procedure is compulsory for medicinal products produced by certain biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of certain diseases. It is optional for those products that are highly innovative or for which a centralized process is not in the interest of patients. UnderManufacturers must demonstrate the centralized procedurequality, safety, and efficacy of their products to the EMA, which provides an opinion regarding the MAA. The European Commission grants or refuses marketing authorization in light of the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional written or oral information is to be providedopinion delivered by the applicant in response to questions asked by the CHMP. Accelerated evaluation may be granted by the CHMP in exceptional cases. These are defined as circumstances in which a medicinal product is expected to be of a “major public health interest.” Three cumulative criteria must be fulfilled in such circumstances: the seriousness of the disease, such as severely disabling or life–threatening diseases, to be treated; the absence or insufficiency of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In these circumstances, the EMA ensures that the opinion of the CHMP is given within 150 days.EMA.
Specifically, theSpecialized Procedures for Gene Therapies. The grant of marketing authorization in the European Union for products containing viable human tissues or cells such as gene therapy medicinal products is governed by Regulation 1394/2007/EC on advanced therapy medicinal products, read in combination with Directive 2001/83/EC of the European Parliament and of the Council, commonly known as the Community code on medicinal products.products for human use. Regulation 1394/2007/EC lays downincludes specific rules concerning the authorization, supervision, and pharmacovigilance of gene therapy medicinal products, somatic cell therapy medicinal products, and tissue engineered products. Manufacturers ofAll advanced therapy medicinal products must demonstrateare approved centrally through the quality, safety,EMA. The EMA's Committee for Advanced Therapies reviews and efficacy of their products to EMA which provides an opinion regarding each advanced therapy MAA for potential final approval by the application for marketing authorization. The European Commission grants or refuses marketing authorization in lightCommission.
Decentralized Procedure. The decentralized procedure provides for approval by one or more other concerned EU Member States of an assessment of an application for marketing authorizationMAA conducted by one EU Member State, known as the reference EU Member State. In accordance with this procedure, an applicant submits an application for marketing authorizationMAA to the reference EU Member State and the concerned EU Member States. This application is identical to the application that would be submitted to the EMA for authorization through the centralized procedure. TheFollowing receipt of a valid application, the reference EU Member State prepares a draft assessment and drafts of the related materials within 120 days after receipt of a valid application.materials. The resulting assessment report is submitted to the concerned EU Member States which within 90 days of receipt, must decide whether to approve the assessment report and related materials.
If a concerned EU Member State cannot approve the assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the European Commission, whose decision is binding on all EU Member States. Authorization in accordance with the decentralized procedure will result in authorization of the medicinal product only in the reference EU Member State and in the other concerned EU Member States.
Mutual Recognition Procedure. In accordance with the mutual recognition procedure, the sponsor applies for national marketing authorization in one EU Member State. Upon receipt of this authorization the sponsor can then seek the recognition of this authorization by other EU Member States.
Periods of Authorization and Renewals in accordancethe European Union
A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk-benefit balance by the EMA or by the relevant EU Member State. To seek renewal, at least six months prior to expiration of the marketing authorization, the holder must provide the EMA or the EU Member State with eithera consolidated version of these procedures will result inthe file detailing the continued quality, safety and efficacy of the product, including all variations introduced since the marketing authorization was granted. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the relevant competent authority of the EU Member State decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal period. Any marketing authorization that is not followed by the marketing of the medicinal product onlyon the European Union market, in the referencecase of the centralized procedure, or in the market of the EU Member State and inwhich delivered the other concerned EU Member States.
A marketing authorization may be granted only to an applicant established in the European Union. Regulation No. 1901/2006 provides that, prior to obtaining a marketing authorization, in the case of the decentralized procedure, within three years after authorization ceases to be valid.
Patent Term Extensions in the European Union an applicant must demonstrate compliance with all measures included inand Other Jurisdictions
The European Union also provides for patent term extension through Supplementary Protection Certificates, or SPCs. The rules and requirements for obtaining a Pediatric Investigation Plan, or PIP, approved by the Pediatric Committee of the EMA, covering all subsets of the pediatric population, unless the EMA has granted a product–specific waiver, class waiver, or a deferral for one or more of the measures includedSPC are similar to those in the PIP.United States. An SPC may extend the term of a patent for up to five years after its originally scheduled expiration date and can provide up to a maximum of fifteen years of marketing exclusivity for a drug. These periods can be extended for six additional months if pediatric exclusivity is obtained, which is described in detail below. Although SPCs are available throughout the European Union, sponsors must apply on a country-by-country basis. Similar patent term extension rights exist in certain other foreign jurisdictions outside the European Union.
Regulatory Data Exclusivity in the European Union
In the European Union, innovative medicinal products approved on the basis of a complete independent data package qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity pursuant to Directive 2001/83/EC. Regulation (EC) No 726/2004 repeats this entitlement for medicinal products authorized in accordance the centralized authorization procedure.exclusivity. Data exclusivity prevents applicants for authorization of generics of these innovative products from referencing the innovator’s data to assessin a generic (abridged) application for a period of eight years. During an additional two-year period of market exclusivity, a generic marketing authorization applicationMAA can be submitted and authorized, and the innovator’s data may be referenced, but no generic medicinal product can be placed on the EUEuropean Union market until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which,that are shown, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entityan innovative medicinal product so that the innovator gains the additional prescribed period of datamarketing exclusivity, another company nevertheless could also market another version of the product if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical tests, preclinical tests and clinical trials.
Periods of Authorization and Renewals in the European Union
A marketing authorization is valid for five years, in principle, and it may be renewed after five years on the basis of a reevaluation of the risk–benefit balance by the EMA or by the competent authority of the relevant EU Member State. To that end, the marketing authorization holder must provide the EMA or the relevant competent authority of the EU Member State with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the relevant competent authority of the EU Member State decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five–year renewal period. Any marketing authorization that is not followed by the marketing of the medicinal product on the EU market (in the case of the centralized procedure) or on the market of the EU Member State which delivered the marketing authorization within three years after authorization ceases to be valid.
Regulatory Requirements after Marketing Authorization
As in the United States, marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual EU Member States both before and after grant of the manufacturing and marketing authorizations.
The holder of an EU marketing authorization for a medicinal product must also comply with EU pharmacovigilance legislation and its related regulations and guidelines, which detail requirements for conducting pharmacovigilance or the assessment and monitoring of the safety of medicinal products. These rules can impose on central marketing authorization holders for medicinal products the obligation to conduct a labor intensive collection of data regarding the risks and benefits of marketed products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies.
The manufacturing process for medicinal products in the European Union is highly regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations. Manufacturing requires a manufacturing authorization, and the manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice. These requirements include compliance with EU cGMP standards when manufacturing medicinal products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the European Union with the intention to import the active pharmaceutical ingredients into the European Union. Similarly, the distribution of medicinal products into and within the European Union is subject to compliance with the applicable EU laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU Member States.
In the European Union, the advertising and promotion of products are subject to EU Member States’ laws governing promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other legislation adopted by individual EU Member States may apply to the advertising and promotion of
medicinal products. These laws require that promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities. Promotion of a medicinal product that does not comply with the SmPC is considered to constitute off–label promotion. The off–label promotion of medicinal products is prohibited in the European Union. The applicable laws at the European Union level and in the individual EU Member States also prohibit the direct–to–consumer advertising of prescription–only medicinal products. These laws may further limit or restrict the advertising and promotion of products to the general public and may also impose limitations on promotional activities with health care professionals.
Pediatric Studies and Exclusivity
Prior to obtaining a marketing authorization in the European Union, applicants must demonstrate compliance with all measures included in an EMA–approved PIP covering all subsets of the pediatric population, unless the EMA has granted a product–specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are laid down in Regulation (EC) No 1901/2006, the so–called Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine for children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine for children is not needed or is not appropriate, such as for diseases that only affect the elderly population. Before an MAA can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP. If an applicant obtains a marketing authorization in all EU Member States, or a marketing authorization granted in the Centralized Procedure by the European Commission, and the study results for the pediatric population are included in the product information, even when negative, the medicine is then eligible for an additional six month period of qualifying patent protection through extension of the term of the Supplementary Protection Certificate, or SPC.
Orphan Drug Designation and Exclusivity in the European Union
Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000 provide that a product can be designated as an orphan medicinal product by the European Commission if its sponsor can establish that the product is intended for the diagnosis, prevention or treatment of: (1) a life–threateninglife-threatening or chronically debilitating condition affecting not more than five in ten thousand persons in the European Union when the application is made, or (2) a life–threatening,life-threatening, seriously debilitating or
serious and chronic condition in the European Union and that without incentives the medicinal product is unlikely to be developed. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the European Union or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition.
Once authorized, orphan medicinal products are entitled to ten years of market exclusivity in all EU Member States and, in addition, a range of other benefits during the development and regulatory review process, including scientific assistance for study protocols, authorization through the centralized marketing authorization procedure covering all member countries and a reduction or elimination of registration and marketing authorization fees. The market exclusivity period can be extended by two years following completion of an agreed upon pediatric investigation plan. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the ten year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the new product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable to not to justify maintenance of market exclusivity.
Pediatric Studies and Exclusivity
Before obtaining a marketing authorization in the European Union, applicants must demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, approved by the Pediatric Committee of the EMA, or PDCO, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The PDCO may grant deferrals for some medicines, allowing a company to delay development of the medicine for children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine for children is not needed or is not appropriate, such as for diseases that only affect the elderly population. Before an MAA can be filed, or an existing marketing authorization can be amended, the EMA must determine that the applicant actually complied with the agreed studies and measures listed in each relevant PIP. If an applicant obtains a marketing authorization in all EU Member States, or a marketing authorization granted via the centralized procedure by the European Commission, and the study results for the pediatric population are included in the product information, even when negative, the medicine is then eligible for an additional six-month period of qualifying patent protection through extension of the term of the SPC.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016,January 31, 2020, the electorateUnited Kingdom left the European Union in an event called "Brexit". As of January 1, 2021, European Union laws and regulations generally became inapplicable in the United Kingdom. In December 2020, the United Kingdom voted in favor of leavingand the European Union (commonly referred to as “Brexit”). Thereafter, on March 29, 2017,entered into a long-term trade agreement that governs their future economic relations. Since the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of the United Kingdom from the European Union will take effect either on the effective date of the withdrawal agreement or, in the absence of agreement, two years after the United Kingdom provides a notice of withdrawal pursuant to the EU Treaty. Since thepre-existing regulatory framework for pharmaceutical products in the United Kingdom covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products, is derived from EUEuropean Union directives and regulations, which the United Kingdom could abandon or modify in the future, subject to the terms of the recently concluded long-term trade agreement, Brexit could materially impact the future regulatory regime which applies tofor pharmaceutical products and the approval of product candidates in
the United Kingdom. It remainsWe are continuing to be seenanalyze how if at all, Brexit and the recently concluded trade agreement will impactaffect the future regulatory requirementsregime for product candidates andpharmaceutical products in the United Kingdom.
Pharmaceutical Insurance Coverage, Pricing and Reimbursement
In the United States and markets in many other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third–partythird-party payors to reimburse all or part of the associated healthcare costs. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third–partythird-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels, for the product. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third–partyThird-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost–effectivenesscost-effectiveness of medical products and services and imposing controls to manage costs. Third–partyThird-party payors may limit coverage for a particular indication to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particularsuch indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost–effectivenesscost-effectiveness of the product, in addition to the costsstudies required to obtain FDA or other comparable marketing approvals. Nonetheless, product candidates may not be considered medically necessary or cost effective.effective by the payors. A decision by a third–party payor not to cover a product candidate could reduce physician utilization once the product is approved and have a material adverse effect on sales, results of operations and financial condition. Additionally, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Moreover, coverage policies and third-party reimbursement rates may change at any time.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of pharmaceutical products have been a focus in this effort. Governments have shown significant interest in implementing cost–containmentcost-containment programs, including rebate programs, price controls, restrictions on reimbursement and requirements for substitution of generic products. Government authorities and third–party payors, particularly Medicare, have attemptedEfforts to control costs by limiting coveragedrug pricing have garnered bipartisan support in the U.S. Congress. The Trump Administration issued a number of executive orders and the amount of reimbursement for particular medications and encouraging the substitution of lower cost or generic products. Pricing pressures recently experienced by the pharmaceutical industry may be further exacerbated by legislative and policy changes under consideration byduring the Trump Administration. For example,Administration, various U.S. government agencies, including the new administration has expressed an interest in authorizing and/or directingFDA and the Center for Medicare & Medicaid ServiceServices, or other agenciesCMS, proposed a number of rules intended to curb drug prices.
The Biden Administration has frozen certain of the U.S. governmentTrump Administration’s measures to negotiatereform drug prices, pending further review. It remains to be seen how the Biden Administration will address this issue. The Biden Administration may pursue reference pricing policies, which is a regime that sets the price of certain drugs by reference to the average price of these drugs in other developed countries, or may seek to amend existing law that currently bans Medicare from negotiating lower prices with drug manufacturers.
At the state level, individual states are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on access to certain products, and marketing cost disclosure and transparency measures, and, in some cases, measures designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine which pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, covered by Medicare directly with pharmaceutical companies. If this were to occur, especially for wet AMD products, where a large portion of the patient population is elderlyif and is therefore covered by Medicare, there could be significant downwardonce approved, or put pressure on prices charged, not only for patients covered by Medicare, but also for patients covered by private insurers who may follow the government’s lead on price. Adoption of price controls and cost–containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third–party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which a company or its collaborators receive marketing approval, less favorable coverage policies and reimbursement rates may be implemented in the future.our product pricing.
Outside the United States, ensuring adequate coverage and payment for a product also involves challenges. Pricing of prescription pharmaceuticals is subject to governmental control in many countries. Pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require a clinical trial that compares the cost effectiveness of a product to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in commercialization.
In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost–cost effectiveness of a particular product candidate to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member statesclinical studies. EU Member States may approve a specific price for a product or itany of them may instead adopt a system of direct or indirect controls on the
profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently,Over the past decade, many countries in the European UnionEU Member States have increased the amount of discounts required on pharmaceuticals and these efforts could continue as countries attempt to manage healthcare expenditures, especially in light of the severe fiscal and debt crises experienced by many countries in the European Union. The downward pressure on health care costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being erected toUnion over the entry of new products. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained.past decade. Reference pricing used by various European Union member states,EU Member States, and parallel trade, i.e., arbitrage between low–pricedlow-priced and high–pricedhigh-priced member states, can further reduce prices. There can be no assurance that any country that
In addition to initiatives specifically directed at lowering or containing prescription drug prices, legislative action in the United States at the national level has price controls or reimbursementresulted in reduced funding levels for Medicare. For example, the Budget Control Act of 2011 led to aggregate reductions in Medicare payments to providers of up to 2% per fiscal year from 2013 through 2024, and the American Taxpayer Relief Act of 2012 reduced Medicare payments to several types of providers and increased the statute of limitations period for pharmaceutical products will allow favorable reimbursement and pricing arrangementsthe government to recover overpayments to providers from three to five years. Any reduction in healthcare, including Medicare, funding may affect the prices we may obtain for any products,of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.
Moreover, the number of individuals covered by health insurance has a direct impact on the potential market for our product candidates, if approvedapproved. The ACA, passed in 2010, included the "individual mandate," which required most Americans to carry a minimal level of health insurance. Individuals who did not obtain required coverage were subject to a penalty. The
individual mandate was repealed as part of the Tax Cuts and Jobs Act of 2017, or TCJA, with the repeal becoming effective on January 1, 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. In addition, the Trump Administration took a number of executive actions to undermine the ACA and there are current lawsuits pending regarding the ACA, including one being decided by the U.S. Supreme Court in its current term. We expect additional lawsuits may be filed.
Despite those countries.developments, we expect the new 117th Congress and the Biden Administration to support and expand on the ACA. For example, on January 28, 2021, President Biden issued an executive order directing federal agencies to review all existing regulations, policies and a variety of other guidance that limit Americans’ access to high-quality healthcare and to
consider actions that will protect and strengthen Medicaid, the ACA and, more generally, access to affordable healthcare for Americans. Under this order, federal agencies are to advance President Biden’s overall access policy and make determinations as to whether additional actions are necessary. Specifically, the agencies must examine, among other things, policies that undermine protections for people with pre-existing conditions, including complications related to COVID-19, and policies that undermine the health insurance marketplace or other markets for health insurance.
Healthcare Law and Regulation
Healthcare providers and third–partythird-party payors play a primary role in the recommendation and prescription of products that are granted marketing approval. Arrangements with providers, consultants, third–partythird-party payors and customers are subject to broadly applicable fraud and abuse, anti–kickback,anti-kickback, false claims, laws, reporting of payments to physicians and teaching physicians and patient privacy laws and regulations and other healthcare laws and regulations that may constrain business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations include the following:
•the federal Anti–KickbackAnti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
the •federal civil and criminal false claims laws, including the civil False Claims Act, and civil monetary penalties laws, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent or knowingly making, using or causing to made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which, created additional federal criminal laws that prohibit, among other things, prohibits knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respectrelating to safeguarding the privacy, security and transmission of individually identifiable health information;information by certain covered entities and their business associates;
•the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
•the federal Foreign Corrupt Practices Act, which, among other things, prohibits providing or offering to provide money or anything of value to a foreign government body, government official, or political candidate for the improper purpose of obtaining or keeping business;
•federal transparency requirements knownsuch as the federal Physician Payments Sunshine Act, created under the Patient Protection and Affordable Care Act, as amended by the Health Care Education Reconciliation Act, or collectively the ACA, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS within the United States Department of Health and Human Services, information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; and
•analogous state and foreign laws and regulations, such as state anti–kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non–governmental third–party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws, such as the European Union's General Data Protection Regulation, also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Pharmaceutical Insurance Coverage and Health Care Reform
There have been a number of federal and state proposals during the last few years regarding the pricing of pharmaceutical and biopharmaceutical products, limiting coverage and reimbursement for drugs and biologics and other medical products, government control and other changes to the health care system in the United States. In March 2010, the ACA was enacted, which includes measures that have significantly changed health care financing by both governmental and private insurers. The provisions of the ACA of importance to the pharmaceutical and biotechnology industry are, among others, the following:
an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drug agents or biologic agents, which is apportioned among these entities according to their market share in certain government health care programs;
an increase in the rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13% of the average manufacturer price for branded and generic drugs, respectively;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D;
extension of manufacturers' Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, unless the drug is subject to discounts under the 340B drug discount program;
a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers' Medicaid rebate liability;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
new requirements under the federal Physician Payments Sunshine Act for manufacturers to report information related to payments and other transfers of value made to physicians and teaching hospitals as well as ownership or investment interests held by physicians and their immediate family members;
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;
creation of the Independent Payment Advisory Board, which, if and when impaneled, will have authority to recommend certain changes to the Medicare program that could result in reduced payments for prescription products; and
establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription product spending.
Other legislative changes have been proposed and adopted since the ACA was enacted. These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and will stay in effect through 2024 unless additional congressional action is taken, and the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to
five years. These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of products under Medicare and reform government program reimbursement methodologies for products.
These healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price for any approved product and/or the level of reimbursement physicians receive for administering any approved product. Reductions in reimbursement levels may negatively impact the prices or the frequency with which products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Since enactment of the ACA, there have been numerous legal challenges and congressional actions to repeal and replace provisions of the law. In May 2017, the U.S. House of Representatives passed legislation known as the American Health Care Act of 2017. Thereafter, the Senate Republicans introduced and then updated a bill to replace the ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislation to repeal the ACA without companion legislation to replace it, and a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed healthcare reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.
The Trump Administration has also taken executive actions to undermine or delay implementation of the ACA. In January 2017, President Donald J. Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, the President signed a second Executive Order allowing for the use of association health plans and short-term health insurance, which may provide fewer health benefits than the plans sold through the ACA exchanges. At the same time, the Administration announced that it will discontinue the payment of cost-sharing reduction, or CSR, payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain.
More recently, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. According to the Congressional Budget Office, the repeal of the individual mandate will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Congress will likely consider other legislation to replace elements of the ACA, during the next congressional session.
Further, there have been several recent U.S. congressional inquiries and proposed federal and proposed and enacted state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of products under Medicare and reform government program reimbursement methodologies for products. At the federal level, Congress and the Trump Administration have each indicated that it will continue to seek new legislative and/or administrative measures to control costs. At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription product and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.
Employees
As of January 31, 2018, we had 38 full–time employees, including a total of 3 employees with M.D. or Ph.D. degrees. Of our workforce, 17 employees are engaged in research and development. During the year ended December 31, 2017, the
Company's workforce was reduced by approximately 122 employees in connection with a reduction in personnel announced in December 2016 and natural attrition. None of our employees are represented by labor unions or covered by collective bargaining agreements.
Our Corporate Information
We were incorporated under the laws of the State of Delaware in 2007. Our principal executive offices are located at OneFive Penn Plaza, 35th Floor,Suite 2372, New York, NY 10119,10001, and our telephone number is (212) 845–8200. Our Internet website is http://www.ophthotech.com.www.ivericbio.com.
Available Information
We make available free of charge through our website our Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, Current Reports on Form 8–K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC. You can find, copy and inspect information we file at the SEC’s public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1–800–SEC–0330 for more information about the operation of the SEC’s public reference room. You can review our electronically filed reports and other information that we file with the SEC on the SEC’s web site at http://www.sec.gov. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. The information contained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Annual Report on Form 10–K.
Item 1A. Risk Factors.
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please see page 1 of this Annual Report on Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected.
Risks Related to Our Business Plan, Financial Position and Need for Additional Capital
We are ina development-stage company without any commercial products. The value of our company, therefore, is highly dependent on the processsuccess of implementing a business plan that may continue to evolve as we await relevant clinical dataour research and evaluate new opportunities.development efforts and the amount of our available cash. Our business plan may lead to the initiation of one or moreresearch and development programs, or the execution of one or more transactions that you do not agree with or that you do not perceive as favorable to your investment.
In early 2017, we began a process to review our strategic alternatives, including identifying potential business development opportunities. Also beginning in early 2017, we undertook a reassessment of our development plans for Zimura and Fovista, which included an evaluation of the scientific rationale for potentially developing these product candidates in one or more other ophthalmic indications for which there is a high unmet need.
In July 2017, we announced that we are pursuing a strategy to leverage our clinical experience and retina expertise to identify and develop therapies to treat multiple ophthalmic orphan diseases for which there are limited or no treatment options available. In parallel, we also determined that we would continue our Zimura programs in age-related retinal diseases. In February 2018, we announced that an element of our strategy will include initiating gene therapy collaborations focused on discoveringnovel therapies and developing novel gene therapy technologies, to treat retinal diseases. We intend to investigate promising gene therapy product candidates through collaborations with leading companiescarry significant scientific and academic and research institutions inother risks. If any of these programs are not successful, the United States and internationally. We continue to be actively engaged in extensive business development efforts to identify, evaluate and potentially obtain rights to and develop additional therapeutic and gene therapy product candidates that would complement our strategic goals and leverage our competitive advantages.value of your investment may decline.
This business plan requires us to be successful in a number of challenging, uncertain and risky activities, including pursuing development of Zimura in indications for which we have limited or no human clinical data, identifying promising new assets for development that are available for acquisition or in-license and that fit our strategic focus and, if so identified,
negotiating and executing an acquisition or in-license agreement for one or more of those programs on favorable terms, converting early stage gene therapy research efforts into clinical development opportunities, building internal or outsourced gene therapy capabilities and designing and executing a pre-clinical and/or clinical development program for any newly acquired product candidates. We may not be successful at one or more of the activities required for us to execute this business plan. We are also continuing to consider other alternatives, including mergers or other transactions involving oura development-stage company as a whole or other collaboration transactions. We cannot be sure when or if this process will result inwithout any type of transaction. Even if we pursue a transaction, such transaction may not be consistent with our stockholders’ expectations or may not ultimately be favorable for our stockholders, either in the shorter or longer term.
approved products. Our growth prospects and the future value of our company are primarilyhighly dependent on the progress of our research and development programs, including our ongoing and plannedany future clinical trials for Zimura, our preclinical development programs for ZimuraIC-100, IC-200 and the outcome of our ongoing business development effortsIC-500, and pipeline expansion activities, together with the amount of our remaining available cash. The development of Zimura and the outcome of our ongoing business development efforts and pipeline expansion activities are highly uncertain.
We have only very limited data from small, uncontrolled clinical trials regarding the safety and efficacy of Zimura as a monotherapy for the treatment of GA or in combination with anti-VEGF agents for the treatment of wet AMD or IPCV, and we have no human clinical data regarding the safety and efficacy of Zimura as a treatment for autosomal recessive Stargardt disease, referred to as STGD1, or non-infectious intermediate and posterior uveitis. Our prior Zimura trials were not powered to demonstrate the efficacy of Zimura therapy with statistical significance. We determined the size of the OPH2003 trial in GA based on our best estimates of the size of trial required to demonstrate a potential clinical benefit for Zimura. This estimate incorporates our assumptions regarding the potential performance of Zimura in this indication based in part on available third-party clinical data and our statistical analysis of this data. In addition, we determined the size of the OPH2005 trial in STDG1 based on the number of patients with STGD1 that we believe could potentially be enrolled within a reasonable period of time. This number may be increased or decreased in light of the actual enrollment rate during the trial. As STGD1 is an orphan indication, to our knowledge there is only very limited natural history data currently available regarding the variability for our planned primary efficacy endpoint in the STGD1 patient population we plan to enroll in this trial. Given the information above, these trials could be underpowered to demonstrate a potential clinical benefit for Zimura in these indications.
With respect to business development efforts and pipeline expansion activities, our research collaboration with UMMS is for very early stage technology which may never translate into clinical development programs. We may be unable to secure additional collaborations, partnerships or in-licensing or acquisition opportunities.
We may continue to reassess and make changes to our existing development programs and pipeline expansion strategy. Our future plans for our Zimura development program may be affected by the results of competitors’ clinical trials of complement inhibitors. Our plans for our business development efforts and pipeline expansion activities may be affected by the results of competitors' ongoing research and development efforts. We may modify, expand or terminate some or all of our development programs, clinical trials or collaborative research programs at any time as a result of new competitive information or as the result of changes to our product pipeline or business development strategy.
We expect that our remaining cash balances will continue to decline as we pursue these development programs, pursue our collaborative research programs, pursue our business development activities and until such time, if any, as we receive additional funding, and the value of our stockholders’ investment may decline as a result.
Our strategy of obtaining rights to products, product candidates or technologies for the treatment of ophthalmic diseases through in-licenses and acquisitions may not be successful. Our failure to successfully expand our clinical pipeline would likely impair our ability to grow.
An important element of our strategy has been and continues to be to expand our product pipeline through potentially in-licensing or acquiring the rights to products, product candidates or technologies that would complement our strategic goals as well as other compelling ophthalmology opportunities. In addition, we have recently added gene therapy research as an area of interest for our strategy. Because we expect generally that we will not engage directly in internal early stage research and drug discovery efforts, the future growth of our business beyond our current product portfolio will depend significantly on our ability to in-license or acquire the rights to approved products, additional product candidates or technologies, including any promising product candidates that may emerge from our collaborative gene therapy research programs, including, for example, our collaboration with UMMS, for which we have an option to obtain an exclusive license to patents and patent applications resulting from the sponsored research but for which we have not yet agreed to license terms. We may be unable, however, to in-license or acquire the rights to any such products, product candidates or technologies from third parties for several reasons. The success of this strategy depends partly upon our ability to identify, selectprograms. Drug development is a highly uncertain undertaking and acquire or in-license promising product candidates
and technologies. We may be unable to identify suitable products, product candidates or technologies within our area of focus. The process of proposing, negotiating and implementing a license or acquisition of a product candidate is lengthy and complex.
The in-licensing and acquisition of pharmaceutical products is an area characterized by intense competition, and a number of companies (both more established and early stage biotechnology companies) are also pursuing strategies to in-license or acquire products, product candidates or technologies that we may consider attractive. We believe that other companies may be particularly active in pursuing opportunities to in-license or acquire promising gene therapy opportunities. More established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities, while earlier stage companies may be more aggressive or have a higher risk tolerance. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the rights to the relevant product, product candidate or technology on terms that would allow us to make an appropriate return on our investment. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts or we may incorrectly judge the value or worth of an acquired or in-licensed product candidate or technology.
Further, any product candidate that we acquire would most likely require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate would not be shown to be sufficiently safe and effective for approval by regulatory authorities.
If we are unable to successfully obtain rights to suitable products, product candidates or technologies, our business, financial condition and prospects for growth could suffer. In addition, acquisitions and in-licensing arrangements for product candidates and technologies are inherently risky, and ultimately, if we do not complete an announced acquisition or license transaction or integrate an acquired or licensed product or technology successfully and in a timely manner, we may not realize the benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our management team and our company may suffer in the marketplace. In addition, even if we are able to successfully identify, negotiate and execute one or more transactions to acquire or in-license new products, product candidates or technologies, our expenses and short-term costs may increase materially and adversely affect our liquidity.
In addition, future acquisitions and in-licenses may entail numerous operational, financial and legal risks, including:
exposure to known and unknown liabilities, including possible intellectual property infringement claims, violations of laws, tax liabilities and commercial disputes;
incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions;
higher than expected acquisition and integration costs;
difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;
inability to maintain uniform standards, controls, procedures and policies;
restructuring charges related to eliminating redundancies or disposing of assets as part of any such combination;
large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that can be immediately written off as compare to the amount that must be amortized over the appropriate life of the asset;
increased amortization expenses or, in the event that we write-down the value of acquired assets, impairment losses;
impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership;
inability to retain personnel, key customers, distributors, vendorscarries significant scientific and other business partners integral to an in-licensed or acquired product candidate or technology;risks.
potential failure of the due diligence processes to identify significant problems, liabilities or other shortcomings or challenges of an acquired or licensed product candidate or technology, including, without limitation, problems, liabilities or other shortcomings or challenges with respect to intellectual property, product quality, revenue recognition or other accounting practices, partner disputes or issues and other legal and financial contingencies and known and unknown liabilities; and
entry into therapeutic modalities, indications or markets in which we have no or limited direct prior development or commercial experience and where competitors in such markets have stronger market positions.
If we are unable to successfully manage our acquisitions or other in-license transactions, our ability to develop new products and continue to expand and diversify our product pipeline may be limited.
We may not use our available cash and other sources of funding effectively as we pursue our business plan.
Our business plan may not be successful, or we may be unsuccessful in effectively executing our business plan, which, in either case, could result in the expenditure of our available cash and other sources of funding in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates. Pending their use, we may invest our available cash in a manner that does not produce adequate income, if any, or that loses value. For example, as we implement our revised business plan, we could allocate our available capital resources to pursue the development or acquisition of a particular product candidate or technology that proves to be ineffective, or we could fail to allocate sufficient resources to strategic opportunities or product candidates or technologies that may be more profitable or for which there is a greater likelihood of success. If we fail to effectively allocate our available capital resources, we may not be able to achieve our goals, and our financial condition and prospects for growth could suffer.
Our limited operating history may make it difficult for our stockholders to evaluate the success of our business to date and to assess our future viability.
We were incorporated and commenced active operations in 2007. Our operations to date have been focused on organizing and staffing our company, acquiring rights to product candidates, business planning, raising capital and developing Zimura, Fovista and other product candidates. We have not yet demonstrated our ability to successfully complete a large-scale, pivotal clinical trial with safety and efficacy data sufficient to obtain marketing approval, apply for and obtain marketing approval, qualify a commercial manufacturer through a pre-approval inspection with respect to any of our products, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays, expenses and other known and unknown factors. The failure of our pivotal Phase 3 program for Fovista for the treatment of wet AMD has required us to reevaluate our future development plans for our product candidates, as well as our business plan more broadly, and has significantly decreased the likelihood that we will have a commercial product in the near term. We may never be successful in developing or commercializing any of our product candidates.candidates or other programs. There is a high rate of failure in pharmaceutical research and development. Even if we have promising preclinical or clinical candidates, their development could fail at any time. Our failure could be due to unexpected scientific, safety or efficacy issues with our product candidates and other programs, invalid hypotheses regarding the molecular targets and mechanisms of action we choose to pursue or unexpected delays in our research and development programs resulting from applying the wrong criteria or experimental systems and procedures to our programs or lack of experience or other factors, including disruptions resulting from the COVID-19 pandemic, with the possible result that none of our product candidates or other programs result in the development of marketable products. We have not yet demonstrated our ability to successfully complete the development of a pharmaceutical product, including completion of large-scale, pivotal clinical trials with safety and efficacy data sufficient to
obtain marketing approval or activities necessary to apply for and obtain marketing approval, including the qualification of a commercial manufacturer through a pre-approval inspection with regulatory authorities. If successful in developing and obtaining marketing approval of one of our product candidates, we would need to transition from a company with a product development focus to a company capable of supporting commercial activities.commercializing pharmaceutical products. We may not be successful in such a transition.transition, as our company has never conducted the sales, marketing and distribution activities necessary for successful product commercialization.
Because the value of our company is largely based on the prospects for our research and development programs and their potential to result in therapies capable of achieving marketing approval and generating future revenues, any failure, delay or setback for these programs will likely have a negative impact on the value of your investment. In addition, because a number of our product candidates are in the preclinical stage, even if we are successful in advancing the research and development of those product candidates, the value of our common stock may not rise in a meaningful way, which could affect our ability to raise additional finances. As we continue to invest in our research and development programs to generate data to support further development or applications to obtain marketing approval for commercialization, the amount of our available cash will continue to decline until we raise additional finances.
We have a history of significant operating losses. We expect to continue to incur losses until such time, if ever, that we successfully commercialize our product candidates and may never achieve or maintain profitability.
Since inception, we have experienced significant cash outflows in funding our operations. To date, we have not generated any revenues from commercial product sales and have financed our operations primarily through private placements of our common stock and preferred stock, venture debt borrowings, funds received under our prior Fovista royalty purchase and sale agreement with Novo Holdings A/S, which we refer to as the Novo Agreement, which we entered into in May 2013, our initial public offering, which we closed in September 2013, funds we received under our prior Fovista licensing and commercialization agreement with Novartis Pharma AG, funds we received in connection with our acquisition of Inception 4 in October 2018, and our follow-on public offering,offerings, which we closed in February 2014, December 2019 and funds we received under the Fovista Licensing and Commercialization Agreement with Novartis Pharma, AG, which we refer to as the Novartis Agreement, which we entered into in May 2014.June 2020. As of December 31, 2017,2020, we had an accumulated deficit of $484.8$565.1 million. Although we hadOur net income of $114.2loss was $84.5 million for the yeartwelve months ended December 31, 2017, all of the revenue associated with such net income was on account of the recognition during the period, especially during the third quarter of 2017, of revenue under the relative selling price method that related to the consideration that2020 and we had received in prior periods under the Novartis Agreement, which we had previously deferred. Although we have recorded net income for the full year ending December 31, 2017 on account of the
deferred revenue recognized in 2017 exceeding our overall expenses, we incurred an operating loss of $14.9 million and a net loss of $9.5 million during the fourth quarter of 2017 and expect to continue to incur significant operating losses for the foreseeable future.
We have devoted substantially all of our financial resources and efforts to the research and development of Fovista and Zimura and preparations for the potential commercial launch of Fovista, including manufacturing scale-up activities. Although we are no longer pursuing the development of Fovista, we expect to continue to incur significant expenses and operating losses over the next few years as we continue the development of Zimura and potentially add to our product portfolio through in-licensing or acquisition of additional product candidates. Our net losses may fluctuate significantly from quarter to quarter and year to year.
Our product candidate Zimura is in clinical development.development, our gene therapy product candidates IC-100 and IC-200, and IC-500, the selected product candidate from our HtrA1 inhibitor program, are each in preclinical development, and we are funding multiple ongoing collaborative gene therapy sponsored research programs. We expect to continue to incur significantour research and development expenses to increase as we pursue the development of Zimurathese programs as currently planned. We could also incur additional research and development expenses if we conclude that there is a scientific rationalemodify or further expand the scope of our clinical trials, including if we develop Zimura for potentially developing,additional indications, preclinical development programs or collaborative gene therapy sponsored research programs, or if we undertake the development of Zimura in additional indications, beyond those already in development, and as we evaluate and potentially in-license or acquire, and undertake development of, additional product candidates and technologies, including any promising product candidates that emerge from our collaborative gene therapy sponsored research programs. We could also incur additional research and development expenses if, for example, we are required by the FDA, the EMA, or regulatory authorities in other jurisdictions to perform clinical trials and nonclinical or other studies in addition to those we currently expect to conduct. If we experience delays or disruptions to our research and development programs, including delays in patient enrollment or issues with patient retention or patients missing scheduled visits and treatments, if we experience issues with our preclinical development programs, such as unfavorable toxicology or other preclinical data, if we experience issues with the manufacture and supply of product candidates for our development programs, including issues with process development or manufacturing scale-up activities, whether such delays or disruptions are due to the COVID-19 pandemic or other reasons, we could incur additional and unexpected expenses as a result of such delays or disruptions and our business and financial results may be materially impacted. Furthermore, if we successfully develop and expect to obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. We are party to an agreementagreements with Archemix Corp., or Archemix, with respect to Zimura, the University of Florida Research Foundation, Incorporated, or UFRF, and Penn with respect to IC-100 and IC-200, UMass with respect to any potential product candidates from our miniCEP290 program, and the former equityholders of Inception 4 with respect to IC-500, in each case, that imposesimpose significant milestone payment obligations on us in connection with our achievement of specificif we achieve specified clinical, regulatory and commercial milestones with respect to Zimura.these product candidates, as well as certain royalties on net sales with respect to IC-100, IC-200 and any product candidates we choose to develop from our miniCEP290 program. It is likely that any future in-licensing or acquisition agreements that we enter into with respect to additional products, product candidates or technologies would include similar obligations.
We expect that we will continue to incur significant expenses as we:
•continue the clinical development of Zimura as currently planned orin GA, STGD1 and potentially in other indications if we believe there is a sufficient scientific rationale to pursue such development;indications;
in-license or acquire the rights to, and pursue the development
pursue our collaborative gene therapy research programs;
maintain, expand and protect our intellectual property portfolio;
hire additional clinical, manufacturing, quality control, quality assurance and scientific personnel, especially if we are successful in acquiring or in-licensing rights to additional products, product candidates or technologies or progressing the clinical development of any of our product candidates or if we decide to establish internal gene therapy capabilities;
seek marketing approval for any product candidates that successfully complete clinical trials;
•expand our outsourced manufacturing activities or establish commercial operations or sales, marketing and distribution capabilities, if we receive, or expect to receive, marketing approval for any of our product candidates;
•continue the development of IC-100, IC-200 and IC-500 and pursue our collaborative gene therapy sponsored research programs;
•in-license or acquire the rights to, and pursue the development of, other product candidates or technologies;
•seek marketing approval for any product candidates that successfully complete clinical trials;
•maintain, expand and protect our intellectual property portfolio;
•hire additional clinical, commercial, medical affairs, regulatory, manufacturing, quality control, quality assurance and scientific personnel; and
•expand our general and administrative functions to support our future growth of the company.growth.
Our ability to become and remain profitable depends on our ability to generate revenuerevenues in excess of our expenses. Our ability to generate revenues from product sales is dependent on our obtaining marketing approval for and commercializing our product candidates or any product candidates we may in-license or acquire. We may be unsuccessful in our efforts to develop and commercialize product candidates or in our efforts to in-license or acquire additional product candidates. Even if we succeed in developing and commercializing one or more of our product candidates, we may never achieve sufficient sales revenue to achieve or maintain profitability. See “-Risks“—Risks Related to Product Development and Commercialization” for a further discussion of the risks we face in successfully developing and commercializing our product candidates and achieving profitability.
We mayexpect we will require substantial, additional funding in order to complete the activities necessary to develop and commercialize one or more of our product candidates. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate one or more of our product development programs or commercialization efforts. We may require additional funding beyond what we currently expect or sooner than we currently expect.
As of December 31, 2017,2020, we had cash, cash equivalents and marketableavailable for sale securities of $167.0$210.0 million. For 2018, we expect theWe estimate that our year-end 2021 cash, required to fund our operationscash equivalents and capital expenditures, including our Zimura development programs and collaborative gene therapy research programs, as currently plannedavailable for sale securities will range between $50.0$130 million and $55.0$140 million. We also had $137.5 million in total liabilities as of December 31, 2017, of which $125.0 million related to the Novo Agreement, which we are required to show as a liability on our balance sheets under generally accepted accounting principles but which does not correspond to any contractual repayment obligation.
We believeestimate that our cash, cash equivalents and marketableavailable for sale securities will be sufficient to fund our operations andplanned capital expenditure requirements as currently plannedand operating expenses, excluding any potential approval or sales milestones payable to Archemix or any commercialization expenses for at leastZimura, into 2024. These estimates are based on our current business plan, which includes the next 12 months. This estimate doescontinuation of our ongoing clinical development programs for Zimura, the progression of our IC-100 and IC-200 programs into the clinic, and the advancement of our IC-500 development program. These estimates also assume that we will enroll approximately 400 patients in the GATHER2 trial. These estimates do not reflect any additional expenditures related to potentially studying Zimura in other indications, or resulting from additional sponsored research or the potential in-licensing or acquisition of additional product candidates or technologies, commencement of any new sponsored research programs, or any associated development that we may pursue following any such transactions.pursue. We have based this estimatethese estimates on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Our capital requirements
We expect we will depend on several factors, including the scope of any additional collaborative research programs, the success of our pursuit, by acquisition, in-licensing or otherwise, and subsequent development of additional product candidates or technologies, and the success of our ongoing development programs. We believe that we may needrequire substantial, additional funding in order to complete the event that we acquire or in-licenseactivities necessary to develop and commercialize one or more additional product candidates and undertake development. In addition, our expenses may exceed our expectations if we experience delays in enrollment or with the availability of drug supply for our clinical trials, if we experience any unforeseen issues in our ongoing clinical trials or if we further expand the scope or size of our clinical trials and programs. Our costs may also exceed our expectations for other reasons, for example, if we experience issues with manufacturing or process development, or if we are required byproduct candidates. Although the FDA, the EMA, or regulatory authorities in other jurisdictions to perform clinical or nonclinical trials or other studies in addition to those we currently expect to conduct. As a result, we may need or may seek to obtain additional funding in connection with our continuing operations sooner than expected.
The future development of our product candidates is highly uncertain. Weuncertain, we expect the clinical development for Zimuraof our product candidates will continue for at least the next several years. At this time, we cannot reasonably estimate the total remaining costs necessary to complete clinical development, to complete process development and manufacturing scale-up and validation activities orand to potentially seek marketing approval with respect tofor any of our product candidates.
Our future capital requirements therefore, will depend on many factors, including:
•the scope, progress, costs and results of our ongoingcurrent and any future Zimura clinical programs as well asand any additional clinical trialsfurther development we may undertake to obtain data sufficientenable us to seek marketing approvalfile a new drug application, or NDA, for Zimura in one or more indications;
•the scope, costs, progress, and results of process development, manufacturing scale-up and validation activities, analytical method development and qualification, and stability studies associated with Zimura and our other product candidates;
•the scope, progress, costs and results of our efforts to develop IC-100, IC-200 and IC-500, including activities to establish manufacturing capabilities and other preclinical development activities to enable us to file INDs for these product candidates;
•the scope, progress, costs and results from our collaborative gene therapy sponsored research programs, including costs related to the in-license and future development of any indication;promising product candidates and technologies that emerge from these programs;
•our ability to establish collaborations on favorable terms, if at all, if we choose to do so, including any collaboration for the further development and potential commercialization of any of our product candidates;
•the timing and extent of delays or disruptions to our research and development programs as a result of the COVID-19 pandemic;
•the extent to which we in-license or acquire rights to, and undertake research or development of, products,additional product candidates or technologies, including any product candidate or other technologies we may evaluate as part of our collaborative gene therapy research programs;technologies;
the amount of any upfront, milestone payments and other financial obligations associated with the in-license or acquisition of other product candidates;
the scope, progress, results and costs of preclinical development and/or clinical trials for any other product candidates that we may develop;
the costs and timing of process development, manufacturing scale-up and validation activities and ongoing stability studies associated with Zimura or any other product candidates that we may develop;
our ability to establish collaborations on favorable terms, if at all;
•the costs, timing and outcome of regulatory filings and reviews of our product candidates;
•the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending intellectual property-related claims;
•the timing, scope and cost of commercialization activities for any of our product candidates if we receive, or expect to receive, marketing approval for a product candidate; and
•subject to receipt of marketing approval, net revenue received from commercial sales of any of our product candidates, after milestone payments and royalty payments that we would be obligated to make.
We do not have any committed external source of funds. Our ability to raise adequate additional financing when needed, and on terms acceptable to us, will depend on many factors. These factors include investors' perceptions of the potential success of our ongoing business, including the development of our product candidates and other programs, and the potential future growth of our business. Additionally, these factors include general market conditions that also affect other companies. For example, the COVID-19 pandemic and governmental responses to the pandemic have caused volatility and uncertainty in the financial markets as well as additional volatility in the price of our stock, which may result in prospective investors being less likely to invest new capital. These factors may make raising capital difficult, and may result in us accepting terms that are unfavorable to us, especially if we are in need of financing at the particular time. Although we were able to raise approximately $150 million in net proceeds through our June 2020 public offering and concurrent private placement, we may not be able to successfully raise additional capital. The size of our company and our status as a company listed on The Nasdaq Global Select Market, or Nasdaq, may also limit our ability to raise financing. For example, our ability to raise adequate financing through a public offering may be limited by market conditions and SEC rules based on our current market capitalization. Nasdaq listing rules also generally limit the number of shares we may issue in a private placement to a number less than 20% of the number of shares of our common stock outstanding immediately prior to the transaction, unless we issue such shares at a premium, which investors may be unwilling to accept, or unless we obtain shareholder approval, which can be expensive and time-consuming and can add risk to our ability to complete the financing transaction. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate the development of one or more of our product candidates, our collaborative gene therapy sponsored research programs, or our future commercialization efforts.
We may require additional funding beyond what we currently expect due to unforeseen or other reasons. Our costs may exceed our expectations if we experience an issue in our clinical trials, such as issues with patient enrollment, the retention of enrolled patients, enrolled patients maintaining scheduled visits and receiving scheduled treatments, or the availability of drug supply, if we experience an issue in our preclinical development programs, such as unfavorable toxicology or other preclinical data, if we experience issues with manufacturing, or if we modify or further expand the scope of our clinical trials, preclinical development programs or collaborative gene therapy sponsored research programs. For example, we have decided to enroll approximately 25 additional patients in our ongoing STAR trial, with the goal of enrolling a total of approximately 120 patients, which will extend the duration of that trial and increase our costs of conducting that trial. Our costs may also exceed our expectations for other reasons, for example, if we are required by the FDA, the EMA, or regulatory authorities in other jurisdictions to perform clinical trials or nonclinical or other studies in addition to those we currently expect to conduct, if we experience issues with process development, establishing or scaling-up of manufacturing activities or activities to enable and
qualify second source suppliers, or if we decide to increase preclinical and clinical research and development activities, build internal research capabilities or pursue internal research efforts. For example, we are conducting the GATHER2 trial with the expectation that data collected from such trial, if it is positive, together with data from our GATHER1 trial, will be sufficient to support an application for marketing approval in the United States and the European Union and we may subsequently decide to, or be required by regulatory authorities to, enroll additional patients in the GATHER2 trial beyond our current expectations, conduct additional clinical trials for Zimura in GA or conduct additional non-clinical studies of Zimura in order to seek or maintain marketing approval or qualify for reimbursement approval. In addition, the COVID-19 pandemic may result in disruptions to the progress of the GATHER2 trial or the STAR trial, including slowing patient enrollment or causing enrolled patients to miss their scheduled visits or drop out in greater numbers than we expect, or disruptions to our other research and development programs, which could cause us to continue to expend our cash resources while not progressing our research and development programs as expeditiously as we would have had the pandemic not occurred or persisted. We may experience difficulty in enrolling or retaining patients or maintaining scheduled visits and treatments due to patients' fears of visiting clinical trial sites or ongoing restrictive measures requiring social distancing or limiting travel. For example, we are aware that, in the STAR trial, a number of patients initially enrolled in the trial missed consecutive visits during the early months of the COVID-19 pandemic. We do not know yet whether the number of missed visits will increase or decrease among the newly enrolled patients in the STAR trial or how many missed visits will occur in the GATHER2 trial, and whether and to what extent missed visits may impact the results of any of the trials. As a result of any of the above, we may need or may seek to obtain additional funding for our continuing operations sooner or in greater amounts than expected.
Our need for additional financing may continue even if we are able to successfully develop one or more of our product candidates. Our future commercial revenues, if any, will be derived from sales of any of oursuch product candidates, that we are able to successfully develop, which may not be available for at least several years following completion of successful product development, if at all. In addition, if approved, our product candidates may not achieve commercial success. If that is the case, we will need to obtain substantial additional financing to achieve our business objectives. Even if those products are successful and we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Adequate Under most, if not all, of the foregoing circumstances, we may need to obtain substantial additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminateachieve our product development or future commercialization efforts.business objectives.
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
Until such time, if ever, aswhen we can generate substantial product revenues, we may need or may seek to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our existing stockholders’stockholders' ownership interests would be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect our existing stockholders’stockholders' rights as holderscommon stockholders. The dilutive effect of future equity issuances may be substantial, depending on the price of our common stock.stock at the time of such capital raise, with a lower stock price translating to greater dilution for existing stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or declaring dividends.entering into certain investments or transactions.
In addition, we have issued, and may in the future issue additional, equity securities as consideration for business development transactions, which may also dilute our existing stockholders' ownership interests. For example, under the agreement and plan of merger pursuant to which we acquired Inception 4, or the Inception 4 Merger Agreement, we issued an aggregate of 5,174,727 shares of our common stock as up-front consideration to the former equityholders of Inception 4. The Inception 4 Merger Agreement also requires us to make payments to the former equityholders of Inception 4 upon the achievement of certain clinical and regulatory milestones, subject to the terms and conditions set forth in the Inception 4 Merger Agreement. Those milestone payments will be in the form of shares of our common stock, calculated based on the price of our common stock over a five-trading day period preceding the achievement of the relevant milestone, unless and until the issuance of such shares would, together with all other shares issued under the Inception 4 Merger Agreement, exceed an overall maximum limit of approximately 7.2 million shares, which is equal to 19.9% of the number of issued and outstanding shares of our common stock as of the close of business on the business day prior to the closing date of our acquisition of Inception 4, and will be payable in cash thereafter. In July 2019, we also issued 75,000 shares of our common stock to UMass as partial upfront consideration for the in-license of our miniCEP290 program, and are obligated to issue up to 75,000 additional shares to UMass upon the achievement of a development milestone.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, products or product candidates or grant licenses on terms that may not be favorable to us. If we choose to pursue a collaboration for any
of our product candidates, we may be required to relinquish certain valuable rights depending on the terms of such a transaction. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
The COVID-19 pandemic, which is a fluid and evolving situation, has adversely affected and may continue to negatively affect our business and operations in a number of ways, and its long-term effects are uncertain. In addition, the pandemic has caused substantial disruption in the financial markets and economies, which could adversely affect our business and operations.
The COVID-19 pandemic, which began in December 2019, has spread worldwide. A majority of the world's population has been affected by government efforts to slow the spread of the outbreak through stay-at-home and social distancing orders, shutdowns of businesses and public places, heightened border security, travel restrictions, quarantines and other measures. The COVID-19 pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as a substantial number of people have been required to stay and work from home; worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel and conferences, has fallen.
Beginning in March 2020, the COVID-19 pandemic and measures taken to contain it have affected our business and operations in a number of ways. These include, but are not limited to, the following:
•In March 2020, we decided to delay the initiation of patient enrollment in our GATHER2 trial. Although we initiated patient enrollment in June 2020 and our clinical trial sites are continuing to enroll patients, we and our clinical trial sites are doing so cautiously in light of new health and safety practices put into place as a result of the COVID-19 pandemic. We are continuing to monitor the situation closely and may need to slow down or stop patient enrollment in certain geographies depending on the local situation. In addition, we have added sites to this trial because of the ongoing and variable nature of the pandemic and its potential impact on patient recruitment and retention. Health authorities and ethics committees in certain countries have reduced their staff and operations due to the COVID-19 pandemic. This reduction in operations has resulted in delays to the approval of our trial in certain countries outside the United States and delays in the activation process for a number of our planned clinical trial sites. We may face difficulties in recruiting or retaining patients or maintaining scheduled visits to the extent patients are affected by the virus or are fearful of visiting or traveling to our clinical trial sites because of the pandemic. We are aware that a number of patients initially enrolled in the STAR trial missed consecutive visits during the early months of the pandemic. We do not yet know whether the number of missed visits will increase or decrease among the newly enrolled patients in the STAR trial or how many missed visits will occur in the GATHER2 trial, or what the impact of missed visits may be on trial results, especially because we are masked to the treatment of patients during the conduct of the trials. At this time, we do not know whether there will be further impacts on the timing and progress of patient enrollment or on patient retention or maintenance of scheduled visits in any of our ongoing or planned clinical trials as a result of the COVID-19 pandemic.
•Although most of our clinical trial sites have reopened and are continuing to conduct patient visits for our clinical trials, they are doing so with fewer staff and other restrictions and many of them are focusing on more urgent matters rather than clinical trials. We are engaging with our clinical trial sites, with the goal of monitoring the health and well-being of our patients who remain in our trials and maintaining their scheduled visits and treatments. Where possible, we and our clinical investigators have instituted practices such as flexible scheduling of visits for patients and remote monitoring, and we have also provided patient travel services and personal protective equipment to support our sites and patients. Recently, a number of our clinical trial sites have been scaling back their operations because of recent surges in COVID-19 cases or new lockdown measures being imposed. We have been and will continue to monitor the situation closely.
•In some instances, our third-party contract manufacturers, academic research collaborators and contract research organizations have limited their operations and staff, which has resulted in delays to some of our manufacturing and research and development activities and limited our ability to be on site to oversee these activities. For example, the closure of animal research laboratories at the UMMS for several months during 2020 caused delays to the progress of, and to our timelines for receipt of data from, our collaborative gene therapy sponsored research programs. Additionally, we were unable to perform person-in-plant (PIP) observations on a number of critical manufacturing activities at our CDMO for IC-100 and IC-200, which caused minor delays to our manufacturing timelines for both
product candidates. Furthermore, because of the COVID-19 pandemic and restrictions on remote auditing due to privacy and other concerns, we have experienced difficulties and delays in performing audits on most of our clinical trial sites.
•Shortages, delays and governmental restrictions arising from the COVID-19 pandemic have disrupted and may continue to disrupt the ability of our contract manufacturers to procure items, such as raw materials, that are essential for the manufacture of our product candidates. For example, during 2020, our contract manufacturer for IC-500 experienced a shortage in obtaining one of the critical raw materials that was sourced from China, which was caused by the shutdown of local suppliers and the slowdown in trade due to the COVID-19 pandemic. This shortage delayed our process development activities for the drug substance for IC-500 by a number of months. Additionally, there is increased demand for the vials we are planning to use for the fill/finish of Zimura drug product, which governments and other companies intend to use for COVID-19 vaccines and medicines. This increased demand may limit our ability to obtain these vials for our own needs.
•We instituted company-wide remote working starting in March 2020 and expect to continue working remotely for the foreseeable future. We have been relying on remote means of working and communication both internally and externally. We are continuing to monitor and support the health and well-being of our employees and their productivity as remote working continues.
The progression of the COVID-19 pandemic remains fluid and its impact on our business and operations remains uncertain. From late 2020 to January 2021, many countries and regions, including most states in the United States, experienced a surge in the number of new cases, including as a result of several new mutations to the SARS-COV-2 virus, which caused public health authorities to reimpose restrictive measures. Although the number of new cases in the United States in February 2021 appears to have receded from the January highs, this trend may not continue or may reverse. In addition, although the FDA has granted emergency use authorization to three vaccines for this disease, there continue to be challenges with distributing vaccines and administering them to the general population, and the long-term safety and efficacy and ability of these vaccines to slow transmission are largely unknown. As a result, governments may continue to deploy measures to contain the pandemic for a prolonged period of time. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or lessen its impact and the economic impact on local, regional, national and international markets. If the delays and other disruptions due to the pandemic become prolonged or more extensive, then we may experience further delays or disruptions to our research and development programs and our financial position, results of operations or cash flows for future periods may be materially affected.
In addition, many companies have been using force majeure clauses in their contracts to excuse or delay performing under their contracts. Our contract manufacturers, academic research collaborators, contract research organizations and other third parties on whom we rely for goods or services may make similar claims. If any such force majeure claims were successful, then not only would our timelines be delayed but also our right to recover for any economic damages due to the delay would be limited. Because we rely on many single-source suppliers, any such claims from them are likely to result in a delay to our timelines or otherwise adversely affect our operations or financial position.
We cannot foresee if and when the COVID-19 pandemic will be effectively contained, nor can we predict the severity and duration of the impact of the pandemic on our financial condition or operations. Even if the pandemic is contained and the economy is largely reopened, the pandemic may recur and the existing measures may be re-imposed. If the COVID-19 pandemic is not effectively and timely controlled, we may experience prolonged disruptions to our clinical trials or supply chains, extended closures of facilities, such as clinical trial sites, academic research centers and suppliers, including single source suppliers, and delays in interactions with regulatory agencies or obtaining approvals for our product candidates. Many economists are predicting that the pandemic may have significant or long-lasting effects on economies worldwide. If the effects of COVID-19 on the financial markets and the global economy persist, they could hamper our ability to raise additional finances. Additional public health crises and natural disasters, such as future epidemics or pandemics or those resulting from the effects of climate change, may arise in the future. Any of these events may materially and adversely affect our business operations and financial condition.
Our strategy of obtaining additional rights to products, product candidates or technologies for the treatment of retinal diseases may not be successful.
An element of our strategy has been to expand our pipeline through in-licensing or acquiring the rights to products, product candidates or technologies that would complement our strategic goals as well as other compelling ophthalmology
opportunities. Since early 2018, we have completed multiple acquisition, in-license, exclusive option and sponsored research arrangements for product candidates and other technologies intended to treat retinal diseases. We plan to continue to evaluate additional opportunities to in-license or acquire products, product candidates and technologies on a selective and targeted basis, including technologies that may complement our existing product candidates and other strategic lifecycle initiatives. We may also continue to consider other alternatives, including mergers or other transactions involving our company as a whole or other collaboration transactions, including collaboration or out-license opportunities for further development and potential commercialization of our product candidates. Our business development efforts may fail to result in our acquiring rights to additional products, product candidates or technologies, or may result in our consummating transactions with which you do not agree.
We may be unable to in-license or acquire the rights to any such products, product candidates or technologies from third parties for several reasons. The success of this strategy depends partly upon our ability to identify, select and acquire or in-license promising product candidates and technologies. There are currently a limited number of available product candidates or technologies for the treatment of diseases affecting the retina and the competition for those assets is intense. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or technology is lengthy and complex. With respect to potential product candidates or technologies for which we have entered into option agreements or sponsored research agreements for which we have option rights, our agreements generally do not have fixed economic or other key terms for definitive agreements, and we may not obtain favorable terms if and when we choose to exercise our option to acquire or in-license any product candidates or technologies.
The in-licensing and acquisition of pharmaceutical products is an area characterized by intense competition, and a number of companies (both more established and early stage biotechnology companies) are also pursuing strategies to in-license or acquire product candidates or technologies that we may consider attractive. We believe that other companies may be
particularly active in pursuing opportunities to in-license or acquire gene therapy opportunities. More established companies may have a competitive advantage over us due to their size, cash resources and greater research, preclinical or clinical development, manufacturing or commercialization capabilities, while earlier stage companies may be more aggressive or have a higher risk tolerance. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the rights to the relevant product candidate or technology on terms that would allow us to make an appropriate return on our investment. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts or we may incorrectly judge the value of an acquired or in-licensed product candidate or technology.
Further, any product candidate that we acquire or in-license would most likely require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate would not be shown to be sufficiently safe and effective for approval by regulatory authorities.
If we are unable to successfully obtain rights to suitable product candidates or technologies, our business, financial condition and prospects for growth could suffer. In addition, acquisitions and in-licensing arrangements for product candidates and technologies are inherently risky, and ultimately, if we do not complete an announced acquisition or license transaction or integrate an acquired or licensed product candidate or technology successfully and in a timely manner, we may not realize the benefits of the acquisition or license to the extent anticipated and the perception of the effectiveness of our management team and our company may suffer in the marketplace. In addition, even if we are able to successfully identify, negotiate and execute one or more transactions to acquire or in-license new product candidates or technologies, our expenses and short-term costs may increase materially and adversely affect our liquidity.
In addition, acquisitions and in-licenses may entail numerous operational, financial and legal risks, including:
•exposure to known and unknown liabilities, including possible intellectual property infringement claims, violations of laws, tax liabilities and commercial disputes;
•incurrence of substantial debt, dilutive issuances of securities or depletion of cash to pay for acquisitions or in-licensing transactions;
•higher than expected acquisition and integration costs;
•difficulty in combining the operations and personnel of any acquired businesses with our operations and personnel;
•inability to maintain uniform standards, controls, procedures and policies;
•restructuring charges related to eliminating redundancies or disposing of assets as part of any such combination;
•large write-offs and difficulties in assessing the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount that must be amortized over the appropriate life of the asset;
•increased amortization expenses or, in the event that we write-down the value of acquired assets, impairment losses;
•impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and ownership;
•inability to retain personnel, key customers, distributors, vendors and other business collaborators integral to an in-licensed or acquired product candidate or technology;
•potential failure of the due diligence process to identify significant problems, liabilities or other shortcomings or challenges of an acquired or licensed product candidate or technology, including problems, liabilities or other shortcomings or challenges with respect to intellectual property, data or product quality, revenue recognition or other accounting practices, partner disputes or issues and other legal and financial contingencies and known and unknown liabilities; and
•entry into therapeutic approaches, indications or markets in which we have no or limited direct prior development or commercial experience and where competitors in such markets have stronger market positions.
We and certain of our current and former board members and executive officers have been named as defendants in lawsuits that could result in substantial costs and divert management’s attention.
We and certain of our current and former executive officers have been named as defendants in twoa purported consolidated putative class action lawsuitslawsuit initiated in 2017 that generally allegealleges that we and certain of our officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the results of our Phase 2b trial and the prospects of our Phase 3 trials for Fovista in combination with anti-VEGF agents for the treatment of wet AMD. TheCertain current and former members of our Boardboard of Directorsdirectors and current and former officers have also been named as defendants in a shareholder derivative action initiated on February 7,in August 2018, which generally alleges that the defendants breached their fiduciary duties to our company by adopting a compensation plan that overcompensatesfailing to oversee our business during the non-employee membersperiod of the Board relative to the boardsPhase 2b and Phase 3 clinical trials of companies of comparable market capitalization and size.Fovista. These complaints seek equitable and/or injunctive relief, unspecified damages, attorneys’ fees, and other costs. In September 2019, the court issued an order dismissing some, but not all, of the allegations in the class action lawsuit and denied our motion to dismiss the shareholder derivative action. The class action lawsuit is currently in the discovery phase. The shareholder derivative action has been stayed while a special litigation committee of our board of directors investigates the allegations contained in the complaint. We and the defendants continue to deny any and all allegations of wrongdoing and intend to vigorously defend against these lawsuits. We are unable, however, to predict the outcome of these matters at this time. Moreover, any conclusion of these matters in a manner adverse to us and for which we incur substantial costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on our financial condition and business. In addition, the litigation, including in responding to discovery requests, has caused our management and board of directors to divert time and attention to the litigation and could adversely impact our reputation and further divert management and our Boardboard of Directors’directors’ attention and resources from other priorities, including the execution of our business plansplan and strategies that are important to our ability to grow our business, any of which could have a material adverse effect on our business. Additional similar lawsuits mightmay be filed.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation that significantly revised the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of
21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain how various states will respond to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
Risks Related to Product Development and Commercialization
Companies in our industry face a wide range of challenging activities, each of which entails separate, and in many cases substantial, risk.
The long-term success of our company, and our ability to become profitable as a biopharmaceutical company, will require us to be successful in a range of challenging activities, including:
•designing, conducting and successfully completing pre-clinicalpreclinical research and development activities, including pre-clinicalpreclinical efficacy and IND-enabling studies, for our product candidates or product candidates we are interested
in in-licensing or acquiring, including product candidatesthose we may evaluate as part of our collaborative gene therapy sponsored research programs;
•making arrangements with third-party manufacturers and providers of starting materials for our product candidates, and having those manufacturers successfully develop manufacturing processes for drug substance and drug product and provide adequate amounts of drug product for preclinical and clinical activities in accordance with our expectations and regulatory requirements;
•designing, conducting and completing clinical trials for our product candidates;
•obtaining favorable results from required clinical trials, including for each ophthalmic product candidate, favorable results from two adequate and well controlledwell-controlled pivotal clinical trials in the relevant indication;
•applying for and receiving marketing approvals from applicable regulatory authorities for the usemarketing and sale of our product candidates;
•making arrangements with third-party manufacturers for scale-up and commercial manufacturing, validating and receiving regulatory approval of our manufacturing processes and our third-party manufacturers’ facilities from applicable regulatory authorities and ensuring adequate supply of drug substance and drug product and starting materials used for the manufacture of drug substance and drug product;
•establishing sales, marketing and distribution capabilities, either internally or through collaborations or other arrangements, to effectively market and sell our product candidates;candidates, if and when approved;
•achieving acceptance of the product candidate, if and when approved, by patients, the medical community and third-party payors;
•if our product candidates are approved, obtaining from governmental and third-party payors adequate coverage and reimbursement for our product candidates and, to the extent applicable, associated injection procedures conducted by treating physicians;
•effectively competing with other therapies, including the existing standard of care, and other forms of drug delivery;
•maintaining a continued acceptable safety profile of the product candidate during development and following approval;
•obtaining and maintaining patent and trade secret protection and regulatory exclusivity, including under the Orphan Drug Act and the Hatch-Waxman Amendments to the Federal Food, Drug and Cosmetic Act, or FDCA, if we choose to seek such protections for any of our product candidates;
•protecting and enforcing our rights in our intellectual property portfolio; and
•complying with all applicable regulatory requirements, including FDAGood Laboratory Practices, or GLP, Good Clinical Practices, or GCP, current Good Manufacturing Practices, or GMP,cGMP, and standards, rules and regulations governing promotional and other marketing activities.
Each of these activities has associated risks, many of which are detailed below and throughout this “Risk Factors” section. We may never succeed in these activities and, even if we do, may never generate revenues from product sales that are significant enough to achieve commercial success and profitability. Our failure to be commercially successful and profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations. A decrease in the value of our company would also cause our stockholders to lose all or part of their investment.
Drug development is a highly uncertain undertaking. Our research and development efforts may not be successful or may be delayed for any number of reasons, in which case potential clinical development, marketing approval or commercialization of our product candidates could be delayedprevented or prevented.delayed.
Before obtaining approval from regulatory authorities for the sale of any product candidate, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidatescandidate in humans. Prior to initiating clinical trials, a sponsorwe must complete extensive pre-clinicalpreclinical testing of a product candidate, including, in most cases, pre-clinicalpreclinical efficacy experiments as well as IND-enabling toxicology studies. TheseDrug research, including the gene therapy research we are sponsoring with UMMS, may never yield a product candidate for preclinical or clinical development. Early stage and later stage research experiments and preclinical studies, including the IND-enabling toxicology study we are conducting for IC-200 and similar studies we are planning to conduct for IC-500, may fail at any point or produce unacceptable results for any number of reasons, and even if completed, may be time-consuming and expensive to complete. The necessary pre-clinical testing may not be completed successfully forexpensive. As a pre-clinical product candidate andresult of these risks, a potentially promising product candidate may therefore never be tested in humans.
Once it commences, clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover,For example, our pivotal Phase 3 Fovista program for the treatment of wet AMD failed to produce positive safety and efficacy data that support the use of Fovista in wet AMD, despite the results from preclinical testing and earlier clinical trials of Fovista, including a large Phase 2b trial with a statistically significant efficacy signal. Additionally, although the 18-month results from our GATHER1 trial supported the 12-month results in this trial, at which time Zimura met the prespecified primary endpoint in reducing the mean rate of GA growth in patients with GA with statistical significance across both the Zimura 2 mg and Zimura 4 mg treatment groups when compared to the corresponding sham control groups while maintaining a favorable safety profile, these results may not be replicated in the GATHER2 trial or any future trials we may conduct for Zimura in GA. Preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events during drug development that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. In particular, clinical trials of our product candidates may produce inconclusive or negative results, such as the results we observed in our pivotal Phase 3 Fovista program for the treatment of wet AMD.
We have limited data regarding the safety, tolerability and efficacy of Zimura administered for the treatment of GA or administered in combination with anti-VEGF drugs for the treatment of wet AMD or IPCV and no data regarding the safety, tolerability and efficacy of Zimura administered for the treatment of STGD1 or non-infectious intermediate and posterior uveitis.
Given that we have limited data regarding the effect of Zimura in GA, we determined the size of the OPH2003 trial in GA based on our best estimates of the size of trial required to demonstrate a potential clinical benefit for Zimura. This estimate incorporates our assumptions regarding the potential performance of Zimura in this indication based in part on available third-party clinical data and our statistical analysis of this data. In addition, we determined the size of the OPH2005 trial in STDG1 based on the number of patients with STGD1 that we believe could potentially be enrolled within a reasonable period of time. This number may be increased or decreased in light of the actual enrollment rate during the trial. As STGD1 is an orphan indication, to our knowledge there is only very limited natural history data currently available regarding the variability for our planned primary efficacy endpoint in the STGD1 patient population we plan to enroll in this trial. Given the information above, these trials could be underpowered to demonstrate a potential clinical benefit for Zimura in these indications.
Furthermore, our current and planned Zimura clinical trials are evaluating or will evaluate Zimura dosing regimens that we have not studied before, which may increase the risk that patients in these trials experience adverse events and/or serious adverse events (either ocular, systemic or both) that we have not observed or at rates that we have not observed in prior trials. For a further discussion of the safety risks in our trials, see the risk factor herein entitled "If serious adverse or unacceptable side effects are identified during the development of our product candidate, we may need to abandon or limit our development of such product candidate."
Moreover, the failure of prior clinical trials evaluating complement inhibition in GA, including a competitor's two Phase 3 clinical trials evaluating an investigational anti-complement factor D antibody administered via intravitreal injections, a second competitor's Phase 2 clinical trial evaluating an investigational anti-C5 antibody administered via intravitreal injections and a third competitor's Phase 2 clinical trial evaluating an anti-C5 antibody administered systemically, may call into question the hypothesis underlying the use of a complement inhibitor as a method for treating GA. In addition, the competitor's anti-C5
antibody administered via intravitreal injections that was studied for the treatment of GA did not show any benefit when studied in a cohort of anti-VEGF treatment-experienced wet AMD patients.
Our clinical development programs may fail to produce positive safety or efficacy data that support the use of these product candidates in the indications we are pursuing. Additional developmentThese risks include, but are not limited to, the following:
•we may not be able to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation of clinical studiestrials for any preclinical product candidates that we in-licenseare developing;
•we or acquire;
our contract manufacturers may be unable to develop a viable manufacturing process for any product candidates that we are developing;
•the supply or quality of our product candidates or other materials necessary to conduct preclinical development and clinical trials of our product candidates may be insufficient or we may face delays in the manufacture and supply of our product candidates for any number of reasons, including as a result of interruptions in our supply chain, including in relation to the procurement or quality of starting materials, such as plasmids used for the manufacture of our gene therapy product candidates and the polyethylene glycol, or PEG, used for the manufacture of Zimura, and issues with the packaging, distribution, storage and import/export of materials and products;
•we or our contract research organizations may be unable to complete necessary analytical development for and testing of our product candidates, including assays for assessing the potency of our gene therapy product candidates;
•we may not be able to successfully scale up or validate a manufacturing process for one or more of our product candidates, and may need to rely on second source suppliers for adequate supply of drug substance and/or drug product in line with our needs and expectations;
•regulators or institutional review boards may not agree with our study design,clinical trial designs, including our selection of endpoints, or may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
•we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinicalcontract research organizations or clinical trial sites, especially in cases where we are working with clinicalcontract research organizations or clinical trial sites we have not worked with previously;
•our contract research organizations, clinical trial sites, contract manufacturers, providers of starting materials and packagers and analyticanalytical testing service providers may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
•we, through our clinical trial sites, may not be able to locate and enroll a sufficient number of eligible patients to participate in our clinical trials as required by the FDA or similar regulatory authorities outside the United States, especially in our clinical trials for orphan or other rare diseases;
•we, through our clinical trial sites, may not be able to maintain enrolled patients for scheduled visits and treatments, or to retain patients altogether, especially in light of the COVID-19 pandemic, which could result in missing data from our clinical trials, potentially leading to uninterpretable results or a clinical trial not being sufficiently powered to demonstrate an efficacy benefit;
•we may decide, or regulators or institutional review boards may require us, to suspend or terminate clinical researchtrials for various reasons, including noncompliance with regulatory requirements, including GCPs, or a finding that the participants are being exposed to unacceptable health risks;
•as there are no therapies approved for either GA, or Stargardt disease, RHO-adRP or any BEST1-related IRDs, in either the United States or the European Union, the regulatory pathway for product candidates in thesethose indications, including the selection of the primary efficacy endpoint for a pivotal clinical trial,endpoints, is highly uncertain;
•there may be changes in regulatory requirements and guidance or we may have changes in trial design that require amending or submitting new clinical trial protocols;
•there may be changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
•we may decide, or regulators may require us, to conduct additional clinical trials or non-clinical studies beyond those we currently contemplate or to abandon product development programs;
•the number of patients required for clinical trials of our product candidates to demonstrate statistically significant results may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate. These risksThis risk may be heightened for clinical trials in orphan diseases, for which the natural history of the disease is less understood, making it more difficult to predict the drug effect required to adequately demonstrate efficacy, and because there are fewer affected patientsindividuals available to participate in clinical trials; and
•the cost of clinical trials of our product candidates, including the costs of manufacturing activities to support those clinical trials, may be greater than we anticipate;anticipate.
the supply or quality of our product candidates or product candidates we are investigating or other materials necessary to conduct clinical trials of our product candidates, such as the anti-VEGF drugs we need to use in combination with Zimura in our wet AMD and IPCV trials, may be insufficient or inadequate or we may face delays in the manufacture and supply of our product candidates as a result of a decision to transfer manufacturing between contract manufacturers or on account of interruptions in our supply chain, including in relation to the packaging and distribution or import / export of clinical materials; and
we may face delays in the manufacture and supply of any product candidates we are investigating in our collaborative gene therapy research programs as a result of our inability to establish new manufacturing capabilities or processes.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we contemplate, if we otherwise change our clinical development plans, if we are unable to successfully complete clinical trials or of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
•be delayed in obtaining marketing approval for our product candidates;
•not obtain marketing approval at all;
•obtain approval for indications or patient populations that are not as broad as intended or desired;
•obtain approval with labeling that includes significant use limitations, distribution restrictions or safety warnings, including boxed warnings;
•be subject to additional post-marketing testing requirements; or
•have the product removed from the market after obtaining marketing approval.
Despite our current development plans and ongoing efforts, we may not complete any of our ongoing or planned clinical trials or other clinical trialsdevelopment activities for our product candidates. Moreover, theThe timing of the completion of, and the availability of results from, development activities, especially clinical trials, is difficult to predict. For clinical trials in particular, we do not know whether they will begin as planned, will need to be restructured or will be completed on schedule, or at all. The progress of our clinical trials may be dependent on macro-economic events beyond our control, such as the COVID-19 pandemic. For example, although we are continuing to enroll patients in the GATHER2 trial, we may later decide to or be required to slow down or pause patient recruitment due to the continued persistence of the pandemic or as a result of governmental measures instituted in response to the pandemic. Furthermore, our development plans may change based on feedback we may receive from regulatory authorities throughout the development process.process or for other reasons. For example, our expectations regarding the remaining clinical requirements to demonstrate the safety and efficacy of Zimura for the treatment of GA secondary to AMD in a manner sufficient to support an application for marketing approval to the FDA and EMA are based on our review of the 12-month and 18-month data from the GATHER1 trial as well as informal discussions with the FDA. Our expectations regarding the minimum clinical requirements to demonstrate the safety and efficacy of Zimura for GA could be incorrect or may change as we continue to have interactions with the FDA, as we continue to review and analyze data from our GATHER1 trial, as we conduct our GATHER2 trial, and as new regulatory or third party information, including third-party clinical data or information from prospective collaborators or licensees, becomes available. Additionally, we recently revised our development plans and timelines for IC-500 after completing a review of this product candidate and the potential market for such candidate. If we experience delays in manufacturing, testing or marketing approvals, our product development costs would increase. We do not know whether clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trialproduct development delays also could shortenallow our competitors to bring products to market before we do, could impair our ability to successfully commercialize our product candidates, including by shortening any periods during which we may have the exclusive right to commercialize our product candidates, or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may otherwise harm our business and results of operations.
Our development of Zimura is based on a novel mechanism of action that is unproven in GA and STGD1 and poses a number of scientific and other risks, and we may not be successful in developing Zimura in the indications we are pursuing or in any other indication we may choose to pursue.
We are currently targeting GA, an advanced form of AMD, and STGD1 with Zimura. The causes of AMD are not completely understood. In addition to advanced age, there are environmental and genetic risk factors that contribute to the development of AMD including ocular pigmentation, dietary factors, a positive family history for AMD, high blood pressure and smoking. Although we believe there is a scientific rationale for pursuing the development of inhibitors of selective molecular targets, including complement C5, as potential pharmaceutical treatments for GA secondary to AMD, and that the results from our GATHER1 trial of Zimura in GA support our view, this approach may not prove successful for treating GA secondary to AMD in a clinically meaningful way. Similarly, although there is non-clinical scientific literature supporting the potential use of complement system inhibitors for the treatment of STGD1, we have not yet completed a clinical trial assessing Zimura for the treatment of STGD1 and do not have any unmasked data regarding the efficacy of Zimura in this indication. As a result, this approach may not prove clinically successful.
Zimura is designed to inhibit complement C5. There are no FDA or EMA approved products that utilize C5 inhibition as a mechanism of action to treat GA or STGD1. There have been other investigational products using complement inhibition as a mechanism of action for the treatment of GA, including inhibition of C5, that proved to be unsuccessful, even in later stage clinical trials. Even though our GATHER1 trial of Zimura in GA met its prespecified primary endpoint at month 12 and continued to show positive treatment effect at month 18, this mechanism of action may not prove safe and effective for the treatment of GA, STGD1 or any other indication for which we may develop Zimura.
We may decide to pursue clinical development of Zimura for other indications, including those we previously studied such as wet AMD and IPCV and other indications such as earlier stages of AMD. Similar to GA and STGD1, Zimura, and the use of C5 inhibition, are unproven in those indications and we may not be successful in our efforts to develop Zimura for those indications.
We are continuing to review and analyze the results and individual patient level data from the GATHER1 trial. Further analysis may lead to the discovery of information that is inconsistent with our initial conclusions regarding the GATHER1 data. The GATHER2 trial may yield results that are different from the results observed in the GATHER1 trial. An unfavorable result from the GATHER2 trial likely would materially adversely affect our ability to obtain approval for Zimura in GA.
Although the 18-month data from the GATHER1 trial supported the results we observed at 12 months, these data are subject to several limitations. In accordance with the prespecified statistical analysis plan for the trial, we only performed
descriptive analysis of the 18-month efficacy data. Although the favorable safety profile for Zimura was maintained at month 18, individual, unmasked patient data may indicate that our conclusions were not well founded due to inconsistencies, data entry errors or because of unknown variables or patient sub-groups that could potentially be driving the results in one or more treatment groups. Although not reported as related to Zimura by investigators, we observed an increase in the number of investigator-reported cases of CNV in the Zimura treatment groups in the GATHER1 trial as compared to the sham control groups. Additionally, we learned from our independent masked reading center that the retinal images of one of the patients in the Zimura 4 mg group showed evidence of CNV in the study eye that was not reported by the investigator. As we continue to evaluate the individual, unmasked patient data from the GATHER1 trial, we may learn of additional cases of non-investigator reported safety issues, which may affect the safety profile of Zimura.
Unlike the GATHER1 trial, the GATHER2 trial includes only one treatment arm, Zimura 2 mg, in addition to a control arm. Several Phase 3 clinical trials for ophthalmic product candidates that have been, or are currently being, conducted by other sponsors include multiple treatment arms, either different doses or treatment regimens, in addition to a control arm. The FDA has expressed that including multiple study doses or treatment regimens within a single trial helps mitigate the risk of bias in the trial and is therefore recommended, although not required. We believe that the anatomical measure used as the primary efficacy endpoint in both our GATHER1 trial and our GATHER2 trial, the mean rate of change in GA growth, as evaluated by an independent, masked reading center, is not subject to bias. We have decided to proceed with only one treatment arm in the GATHER2 trial consisting of a single monthly administration of Zimura 2 mg, because the 12-month data from the GATHER1 trial suggested that monthly administration of Zimura 2 mg provides a similar benefit (approximately 27%) in reducing the mean rate of GA growth over 12 months as compared to the corresponding sham control group, as measured by our primary endpoint, as Zimura 4 mg, and these results are supported by the results of the 18-month data, and because we want to avoid the treatment burden associated with the Zimura 4 mg dose evaluated in our GATHER1 trial. Additionally, for our GATHER2 trial, because we want to begin to evaluate the efficacy of a less frequent dosing regimen, we plan to re-randomize the patients in the monthly Zimura 2 mg treatment arm at 12 months and evaluate dosing Zimura 2 mg every other month, a dosing regimen which we have not previously studied, in half of those patients during the second 12 months of the trial. The GATHER2 trial, however, is not designed to reliably assess any differences we observe between these treatment groups at 24 months with statistical significance and the label we would seek for Zimura in GA, if the results from the GATHER2 trial are positive, would in all likelihood provide for monthly administration of Zimura.
We are conducting the GATHER2 trial at many clinical trial sites and in many countries that were not included in the GATHER1 trial. The introduction of new sites, and the resulting involvement of new treating physicians, as well as potentially different patient demographics, can introduce additional variability into the conduct of the trial and may result in greater variability of patient outcomes, which could adversely affect our ability to detect statistically significant differences between patients treated with Zimura 2 mg and patients receiving sham control.
In addition, the 12-month and 18-month data from the GATHER1 trial suggested there is an overall dose response relationship in which higher doses of Zimura (for example, the 4 mg and the 2 mg doses) corresponded to a greater reduction in the mean rate of GA growth as compared to the corresponding sham group as compared to lower doses of Zimura (for example, the 1 mg dose). For our GATHER2 trial, for the reasons stated above, we have decided to proceed with only a 2 mg dose treatment arm and not include a 4 mg dose treatment arm. The 2 mg dose may prove not to be efficacious in treating GA. Additionally, unlike the protocol for the GATHER1 trial, the protocol of the GATHER2 trial provides that patients who develop CNV in the study eye in the trial may remain in the trial and receive either Lucentis or Eylea in accordance with the label for that anti-VEGF agent, and that measurements of these patients' GA will be included in the primary efficacy analysis if their fundus autofluorescence, or FAF, images can be reliably assessed by the masked reading center. The retention of these patients in the GATHER2 trial may introduce additional variability not present in the GATHER1 trial, as we do not have any data regarding the progression of GA in patients with CNV who receive treatment with an anti-VEGF agent. Moreover, if a significant number of patients develop CNV in the study eye and these patients' FAF images are not reliably assessable, or if more patients than we anticipate drop out or their data is otherwise missing, any such occurrence would reduce the number of patients from whom data is available for analyzing the primary endpoint for this trial and the GATHER2 trial could be underpowered to demonstrate a potential clinical benefit for Zimura in GA with statistical significance.
Our intended regulatory pathway for generating sufficient safety and efficacy data to submit an NDA and potentially obtain marketing approval for Zimura for GA is subject to a number of assumptions, including that we may be able to rely on the results from our GATHER1 and GATHER2 trials as two well-controlled, Phase 3 trials typically required by the FDA. The FDA, EMA and other regulatory authorities may not accept the results of the GATHER1 trial as a Phase 3 clinical trial, or may not agree with our selection of the primary endpoint for the GATHER1 and GATHER2 trials or the statistical analysis we performed. We may decide to or may be required to enroll additional patients, collect additional safety data or conduct additional clinical trials or non-clinical studies to seek or obtain approval for Zimura in GA.
Based on the results of our GATHER1 trial, additional statistical analysis we have performed and informal discussions we have had with the FDA, we believe that the efficacy results from this trial could potentially satisfy the FDA’s requirements as one of the two pivotal clinical trials typically required for marketing approval. This belief is based on many assumptions, including that a reduction in mean rate of GA growth over 12 months, measured by FAF based on readings at three time points: baseline, month 6 and month 12, calculated using the square root transformation of the GA area, is a primary endpoint of clinical relevance, in the absence of a demonstrated reduction in the loss of vision, and that data from the GATHER1 trial is robust. The FDA, the EMA or other regulatory authorities may not agree with our view that the observed reduction in the rate of GA growth, calculated using the square root transformation, is clinically relevant or meaningful, or may require us to correlate this reduction in rate of GA growth with another outcome more directly associated with visual function. We are not currently planning to include visual function measures as primary or secondary efficacy endpoints in the GATHER2 trial and vision will be assessed as a safety endpoint. The FDA, the EMA or other regulatory authorities may disagree with our conclusion regarding the robustness of the data from the GATHER1 trial based on our sensitivity analyses or may conduct their own sensitivity analyses yielding different results. Even if we meet with the FDA, EMA or other regulatory authorities, we likely will not have an opportunity to obtain definitive confirmation from the FDA, EMA or other regulatory authorities regarding the sufficiency or robustness of the data from our clinical trials, including the GATHER1 trial, until such time as we submit an application for marketing approval and receive a response from the applicable authority. If the GATHER1 trial results are not considered robust, or if regulatory authorities do not accept our primary endpoint as clinically relevant without correlation to an outcome more directly associated with visual function, in order to seek marketing approval we may need to conduct, in addition to the GATHER2 trial, one or more additional, well-controlled clinical trials that meets the applicable regulatory requirements in order to obtain sufficiently robust data for an acceptable endpoint to support marketing approval.
The FDA, EMA or other regulatory authorities may not agree with the methodologies we used to perform the statistical analysis of the GATHER1 trial results. In particular, they may not agree with how we performed the comparisons of patients receiving Zimura 2 mg with patients in the sham groups, as the comparisons draw upon patients who were enrolled into two different parts of the trial, using different randomization ratios and different vision criteria. In addition, they may not agree with the validity of our MRM analysis, which imputes the values of missing data based on observed data. We plan to use the same MRM analysis in the GATHER2 trial. Moreover, the FDA, EMA or other regulatory authorities may disagree with our inclusion in our efficacy analysis of patients who do not strictly meet all eligibility criteria, or whose treatment or assessments in the clinical trial deviated from the clinical trial protocol on one or more occasions. The FDA, EMA or other regulatory authorities may take issue with the degree of data that are missing from the clinical data set from our GATHER1 trial, or with the rate at which patients withdrew from the trial. To the extent patients miss critical visits or drop out of the GATHER2 trial, we face a similar risk with GATHER2.
Although we believe that our GATHER1 trial was well-controlled, with appropriate eligibility criteria and appropriate stratification for baseline characteristics, the FDA, EMA or other regulatory authorities may not agree with the methodologies we used to determine patient eligibility and to randomize patients to the various treatment groups and therefore may not agree that the comparisons we have made for mean rate of GA growth are statistically valid. The FDA, EMA or other regulatory authorities may take issue with the number of modifications we introduced to the GATHER1 trial following its commencement, which they may view as introducing additional uncontrolled variables, invalidating the comparisons across groups. In particular, the FDA, EMA or other regulatory authorities may view the change in enrollment criteria applied in the various modifications as changing the nature of the patients enrolled, thus rendering the results of the trial as uninterpretable, or may disagree with our decision to remove patients who develop CNV in their study eye from future treatments and assessments as inappropriate, concluding that it may have resulted in unmitigated or uncontrolled bias in the safety or efficacy results from the trial.
Based on informal discussions with the FDA, following the GATHER1 trial, we believe we need to conduct one additional clinical trial with enough patients such that we will have safety data for a minimum of 300 patients having received the dose of Zimura for which we are seeking approval, or a higher Zimura dose, independent of indication, for a minimum of 12 months, with 24-month safety data available for some portion, but not all, of these 300 patients. This additional clinical trial would need to be well-controlled, with a primary efficacy analysis at the 12 month time point or later. We believe that if we were to file an application for marketing approval for Zimura for GA, we would be able to rely on safety data from our GATHER1 and GATHER2 trials in GA, as well as our STAR trial evaluating Zimura for STGD1. We also believe that, if the
data from the GATHER2 trial are positive, we would be able to submit our application following the primary efficacy analysis for the GATHER2 study at the 12-month time point, without waiting for the full 24-month data package, which we would collect after submitting for marketing approval and use to supplement our applications for marketing approval while they are pending. We have designed our GATHER2 trial to meet these requirements, which, as we understand them, and if data from the GATHER2 trial are positive, will permit us to seek marketing approval for Zimura in GA in the United States and potentially the European Union. Since receiving the 12-month results from the GATHER1 trial, we have not had an end of phase 2 or other formal meeting with either the FDA or the EMA and we may not do so before receiving results from the GATHER2 trial and submitting our applications for marketing approval. In addition, we have been engaging with various regulatory authorities, including competent national authorities in Europe, during the GATHER2 trial, and expect to continue engaging with regulatory authorities, including with the FDA as part of the fast track program. We may receive feedback that is not consistent with our expectations, including potential disagreements by the EMA and other regulatory authorities with what we are understand are the requirements of the FDA. Regulatory authorities may require us to enroll additional patients, collect additional safety data, conduct additional trials or take other actions, which would require us to revise our development plans for Zimura, including potentially changing the design of the GATHER2 trial, increase the costs of our Zimura clinical programs and delay our expected timelines. In addition, because of the COVID-19 pandemic or other reasons, we may experience a higher than anticipated rate of dropouts and missed visits and treatments in our GATHER2 trial, which could result in our not having adequate safety data for a sufficient number of patients to obtain marketing approval in GA, even if the primary endpoint is met and the results from the GATHER2 trial are otherwise positive.
Furthermore, our previous and ongoing Zimura clinical trials have evaluated Zimura dosing levels and regimens that we have studied only in cohorts consisting of a small number of patients. This approach may increase the risk that patients in our ongoing trials experience adverse events and/or serious adverse events (either ocular, systemic or both) that we have not observed or at rates that we have not observed in prior trials. Although we have not observed any adverse events or serious adverse events attributable by the investigators to the drug product in our GATHER1 trial, we may become aware of safety concerns as we analyze individual patient level data in our GATHER1 trial, and they may manifest in our STAR trial, in our GATHER2 trial or in any other subsequent clinical trials we or a potential collaborator may undertake for Zimura. When we follow patients for a longer period of time or collect safety data from a greater number of patients, we may observe safety events that we have not previously observed. For a further discussion of the safety risks in our trials, see the risk factor herein entitled "If serious adverse or unacceptable side effects are identified during the development of our product candidates, we may need to abandon or limit our development of such product candidates."
Because the primary efficacy endpoint and the statistical analysis plan we would expect to use to analyze efficacy data for our GATHER2 trial are similar to those of the GATHER1 trial, any disagreements by the FDA, EMA or other regulatory authorities with GATHER1 will likely affect GATHER2 as well. Our ongoing clinical trials and any future clinical trials for Zimura that we or a potential collaborator may undertake may fail to demonstrate sufficient safety or efficacy to justify further development or to ultimately seek or obtain marketing approval. Any negative results from our ongoing or any other future clinical trials for Zimura could adversely affect our business and the value of your investment in our company.
We have no unmasked clinical data regarding the safety and efficacy of Zimura as a treatment of STGD1. The dropout rate or patients with missing visits may reduce the number of patients from whom we can collect and analyze data from STAR. We may not be able to recruit additional patients for this trial in line with our expectations.
We have no unmasked clinical data regarding the safety and efficacy of Zimura as a treatment for STGD1. As STGD1 is an orphan indication, to our knowledge there is only very limited natural history data currently available regarding the variability of our planned primary efficacy endpoint in the STGD1 patient population we enrolled in this trial. Moreover, because Stargardt disease, like GA, is a degenerative disease, and in many cases, the rate of degeneration is slow, and because we are seeking to slow the progression of degeneration with Zimura, and not necessarily to reverse prior degeneration or restore visual function, patients participating in our STAR trial, who are generally younger and may experience vision loss that is more subtle than patients with GA or other forms of AMD, may not perceive a benefit from continuing to participate and therefore may drop out of this trial or miss scheduled visits and treatments. This risk is particularly magnified during the COVID-19 pandemic, which may cause our patients to voluntarily or involuntarily drop out of the trial or miss scheduled visits and treatments in greater numbers than before. Although we and the investigators and their staffs take efforts to encourage continued patient participation, the dropout rate may exceed our expectations. A higher than expected dropout rate would reduce the number of patients from whom data is available for analyzing the primary endpoint for this trial. Given the information above, our STAR trial could be underpowered to demonstrate a potential clinical benefit for Zimura in STGD1 with statistical significance.
We have decided to enroll approximately 25 additional patients in this trial, with the goal of enrolling a total of approximately 120 patients. This change to the trial will increase the costs associated with this trial and delay the timelines for
receipt of data from this trial. We believe an expanded trial could allow us to collect additional data regarding the effect of Zimura on STGD1 patients and help us mitigate the risks from additional patient dropouts and missed visits; however, these expectations may prove to be incorrect. Patient recruitment may take longer or cost more than we would expect.
The COVID-19 pandemic has affected and may continue to affect the initiation and conduct of our clinical trials, including the recruitment and retention of patients for our GATHER2 and STAR clinical trials. It may have long-lasting effects on the conduct of clinical trials, which can make our ongoing and any future trials more difficult, costly or time consuming.
Our GATHER1, GATHER2 and STAR trials involve sites located across the United States and in many countries outside the United States. In early 2020 after the start of the COVID-19 pandemic, we were in the process of completing patient visits for our GATHER1 trial and those of the initially enrolled patients in the STAR trial, and we were conducting startup activities for the GATHER2 trial. We have made a number of changes to the operations of our clinical trials as a result of the COVID-19 pandemic, its effects on current and prospective participating patients, and various governmental and other measures to control the pandemic. As the COVID-19 pandemic evolves, we may make further changes to how we conduct our ongoing and any future clinical trials.
Patient enrollment, missed patient visits and patient retention remain key risks for our clinical trials. Due to the COVID-19 pandemic, we delayed the initiation of patient enrollment for the GATHER2 trial from March 2020 to June 2020. Even though we are continuing to enroll patients in the GATHER2 and STAR trials, we are doing so cautiously in light of the health and safety measures put into place at various clinical trial sites. We may choose to or be required to slow down or stop patient enrollment in certain geographies due to the COVID-19 situation and any governmental measures taken in response. Patients, in turn, may be reluctant to enroll in clinical trials or to maintain their scheduled visits and treatments once enrolled due to their fears of visiting clinical trial sites or ongoing restrictive measures requiring social distancing or limiting travel. These concerns may particularly apply to GA patients, many of whom are elderly and therefore at a higher risk for COVID-19 and other diseases than the general population.
For patients who are enrolled in our trials, the COVID-19 pandemic may cause them to miss study visits or drop out in greater numbers than expected, which could affect our ability to complete our trials and obtain data in accordance with our expectations. Compared to the generally elderly patients in our GATHER2 trial, the patients in the STAR trial are generally younger and have work and family commitments, which may cause them to miss more visits or drop out in greater numbers. In addition to the risks posed by increased patient dropouts, if patients miss scheduled visits in greater numbers as a result of the pandemic, especially if a patient misses consecutive visits, it may affect our ability to draw meaningful conclusions from the clinical data. We are aware that a number of patients initially enrolled in the STAR trial missed consecutive visits during the early months of the COVID-19 pandemic. We do not know yet whether the number of missed visits will increase or decrease among the newly enrolled patients in the STAR trial or among the patients in the GATHER2 trial, and whether and to what extent missed visits may impact the results of the trials, especially since we are masked to the data until the conclusion of the trials. The duration of the GATHER2 and STAR trials, at 24 months and 18 months, respectively, plus time for recruiting patients, makes them more likely to be affected by any subsequent waves of the COVID-19 pandemic.
The COVID-19 pandemic has caused many of our clinical trial sites and competent health authorities and ethics committees in certain countries to reduce their staff and operations. This reduction in operations has resulted in delays to the approval of and the site activation process for the GATHER2 trial in certain geographies. As we continue to add clinical trial sites to the GATHER2 trial, the progress of site activation will depend on the local situation in each specific geography. In addition, many sites are focusing on more urgent matters rather than clinical trials, which may delay their ability to recruit patients. Recently, a number of our clinical trial sites have been scaling back their operations because of recent surges in COVID-19 cases or new lockdown measures being imposed. Shortages of vaccines, personal protective equipment and other supplies for the prevention of COVID-19 may cause our clinical trial sites to further scale back the number of staff on site and other operations, and may also cause prospective or enrolled patients to avoid clinical trial visits.
In addition to the disruptions to the operations of many clinical trial sites, the COVID-19 pandemic affected our monitoring and audit operations, for example, by requiring remote monitoring, remote source document verification and remote auditing in many instances. Some countries prohibit or limit remote source document verification due to privacy and other concerns. Because of privacy and other concerns with remote auditing, we have experienced difficulties and delays in performing audits on most of our clinical trial sites. Although we do not believe the COVID-19 pandemic has materially affected the robustness of our data verification process for the GATHER1 trial, we may find data verification discrepancies as we continue to evaluate the individual, unmasked patient level data from the GATHER1 trial. This risk may also affect our data verification processes for the STAR and GATHER2 trials.
Gene therapy is an emerging field of drug development that poses many scientific and other risks. As a company, we have only limited prior experience in gene therapy research and manufacturing and no prior experience in gene therapy clinical development. Our lack of experience and the limited patient populations for our gene therapy programs may limit our ability to be successful or may delay our development efforts.
Gene therapy is an emerging field of drug development with only onetwo gene replacement therapytherapies having received FDA approval to date. The novelOur gene therapy delivery technologiesresearch and "minigene" therapy approachesdevelopment programs, which we decided to undertake based on a review of a limited set of preclinical data, are evaluating in our collaboration with UMMS are particularly early-stage in their development.still at an early stage. Even with promising pre-clinical efficacypreclinical data, for a new gene therapy product candidate, there will remainremains several areas of drug development risk, including translational science, manufacturing techniques,materials and processes, safety concerns, regulatory pathway and clinical trial design and the approach to ocular gene therapy administration through either sub-retinal surgery or intravitreal delivery,execution, which will likely pose particular uncertainty for our programs given the relatively limited development history forof, and our limited prior experience with, gene therapies. Furthermore, the medical community's understanding of the genetic causes of many diseases continues to evolve and further research may change the medical community's views on what therapies and approaches are most effective for addressing certain diseases.
For example, our IC-100 product candidate, which we are developing for RHO-adRP, has a mechanism of action that suppresses the expression of endogenous rhodopsin and seeks to replace it with a healthy version of rhodopsin. Patients with autosomal dominant conditions, such as RHO-adRP, have one healthy allele and one mutant disease-causing allele. For patients with RHO-adRP, although the rhodopsin produced by the mutant allele is generally toxic, leading to retinal degeneration, the rhodopsin produced by the healthy allele supports, and may be necessary for, the patient's existing vision. IC-100 may suppress the expression of all endogenous rhodopsin, whether expressed from the healthy or the mutant allele. Treatment with IC-100 may fail to suppress a sufficient amount of the toxic mutant allele or may fail to replace the rhodopsin expressed by the healthy allele to a sufficient degree. Although we believe, based on preclinical experiments in a canine model of RHO-adRP, that IC-100 will restore rhodopsin production to a level sufficient to maintain vision, we will not know this to be the case until we obtain human clinical data regarding IC-100's effect in this patient population.
Moreover, while there are more than 200 known mutations to the BEST1 gene, the different types of mutations and their association with various BEST1-related IRDs are still not well-understood. Our product candidate for these diseases, IC-200, may only be effective in treating retinal diseases associated with certain mutations in the BEST1 gene and not other mutations, especially if the mutation is associated with the production of a toxic protein. Additionally, we decided to in-license and pursue the development of IC-200 based on results observed in an autosomal recessive canine disease model. A majority of humans with BEST1-related IRDs, however, have the autosomal dominant form of the disease, commonly referred to as Best disease. If we choose to develop IC-200 for this patient population, using a construct previously studied in an autosomal recessive canine disease model, this approach may ultimately prove ineffective.
For our miniCEP290 program and other minigene programs, we are sponsoring research using a novel approach that is largely untested and presents various scientific and regulatory risks. To date, all the data generated for our miniCEP290 program are in a newborn mouse model for LCA10, and we do not know whether the effect we observed with these minigenes in mice will be replicated in other animals or humans. Furthermore, minigenes result in the expression of a protein that differs from the naturally occurring protein. The protein expressed by the minigene may have physiological effects, including toxic effects, that are not yet known. Because of the novelty of minigenes, the medical community's and regulators' receptiveness to this approach remains unknown. Our sponsored research may not fully elucidate all of the physiological risks associated with a particular minigene and the associated expressed protein. For these and other reasons, promising minigene candidates that emerge from our sponsored research programs with UMMS may not succeed in later stage preclinical and clinical development.
We have particularly focused on AAV gene therapy, as AAV vectors are relatively specific to retinal cells and their safety profile in humans is relatively well-documented as compared to other delivery vehicles and gene therapy technologies currently in development. However, AAV has a number of drawbacks, including its small packaging capacity: an AAV vector can hold only up to approximately 4,700 base pairs of DNA, whereas the genes that are associated with a number of diseases, such as LCA10, Stargardt disease and Usher 2A, exceed that size. Although AAV is the most commonly used vector in ocular gene therapy today, it may prove to pose safety risks that we are not aware of and other vector forms, such as retroviral or lentiviral and non-viral based vectors, or gene editing approaches, may prove to be safer and more effective.
Although we believe gene therapy is a promising area for ophthalmicretinal drug development, we do not have any internalour gene therapy research and development experience or specificis limited to only a limited number of personnel hired to supervise our outside service providers. In pursuing this new technology, we have begun to establish our own gene therapy capabilities. In entering this new area,technical capabilities, but we will need to continue to build significant technicalthose capabilities including translational, manufacturing, process development, and other capabilities. We willby either need to hirehiring internally for these capabilities or establish them throughseeking assistance from outside service providers. We believe that gene therapy is an area of significant investment by biotechnology and pharmaceutical companies and that there may be a scarcity of talent available to us in these areas. If we are not able to establishexpand our own internal or outsourced gene therapy capabilities, we may not be able to develop in the way we intend or desire, IC-100, IC-200 or any promising product candidates that emerge from our miniCEP290
program or our other collaborative gene therapy sponsored research programs, which would limit our prospects for future growth.
We have not previously conducted any clinical development involving gene therapies. As we prepare for the potential initiation of our first gene therapy clinical trial, we will need to build our internal and external capabilities in designing and executing a gene therapy clinical trial. There are many known and unknown risks involved in translating preclinical development of gene therapies to clinical development, including selecting appropriate endpoints and dosage levels for dosing humans based on preclinical data. We are planning to meet with the FDA to discuss our selected doses for a first-in-human clinical trial for IC-100; the FDA may disagree with our selected doses or require us to conduct additional preclinical studies, which may delay our timelines for IC-100. In particular, many of the indications for which we are pursuing our gene therapy programs have limited natural history data and limited number of therapies in clinical development, which may make selecting an appropriate endpoint difficult. Furthermore, our gene therapy programs are targeting orphan diseases with relatively small populations, which limits the pool of potential patients for our gene therapy clinical trials. Because gene therapy trials generally require patients who have not previously received any other therapy for the same indication, we will also need to compete for the same group of potential clinical trial patients with our competitors who are also developing therapies for these same indications. If we are unable to initiate and conduct our gene therapy clinical trials in a manner that satisfies our expectations or regulatory requirements, the value of our gene therapy programs may be diminished.
For a further discussion of the risks associated with the manufacturing of gene therapy products, see the risk factor herein entitled "The manufacture of gene therapy products is complex with a number of scientific and technical risks, some of which are common to the manufacture of drugs and biologics and others are unique to the manufacture of gene therapies. We have limited experience with gene therapy manufacturing and are dependent on our third-party contract manufacturers and sole source suppliers".
Our development of IC-500 is also based on a novel mechanism of action that is unproven and poses a number of scientific and other risks.
IC-500, our selected product candidate from our HtrA1 inhibitor program, is in preclinical development. There are no FDA or EMA approved products that utilize HtrA1 inhibition as a mechanism of action for treating ophthalmic diseases, including GA and other age-related retinal diseases for which we may develop IC-500, and this mechanism of action may not prove safe and effective for these diseases. Although other companies are pursuing HtrA1 inhibition as a strategy for treating retinal diseases, including Genentech in an ongoing Phase 2 clinical trial in GA, to date, there is limited published clinical data regarding the safety and efficacy of HtrA1 inhibition in the target patient population. We are also aware that Genentech recently commenced a clinical trial to assess the long-term safety and tolerability of its monoclonal antibody HtrA1 inhibitor. We made the decision to acquire this program in 2018 based on our interpretation of the scientific literature and rationale for this potential target that suggest an association between HtrA1 and the risk for AMD, as well as a limited set of preclinical data generated by Inception 4 prior to the acquisition. We note, however, the HtrA1 gene is in the same region of the 10q26 chromosome as the age-related maculopathy susceptibility 2, or ARMS2, gene. The ARMS2 and HtrA1 genes are linked, and variants in, or expression of, the ARMS2 gene may also be associated with the risk for AMD. The risk for AMD associated with ARMS2 may ultimately prove to be greater than the risk associated with HtrA1. In addition, even though genetic and histologic findings correlate HtrA1 with AMD, the development and progression of AMD may not be affected by HtrA1. Our hypothesis that targeting inhibition of HtrA1 may be a safe and effective method of treating AMD may ultimately be incorrect, which would likely adversely affect the value of IC-500 and its continued development.
To our knowledge, there are no suitable animal models for GA or dry AMD. This absence of a suitable animal model makes designing a proof of concept study to assess the preclinical efficacy of IC-500 difficult. To date, we have not yet generated any preclinical data of IC-500 in animal studies. In addition, we have not had any formal or informal interactions with the FDA or other regulatory authorities regarding our preclinical development plans for IC-500. We do not know whether the FDA or other regulatory authorities will accept any preclinical proof of concept study we may propose, or other aspects of our preclinical development plans for IC-500. The FDA may require us to change our plans or conduct additional studies, which would increase our costs and delay our timelines.
If serious adverse or unacceptable side effects are identified during the development of our product candidate,candidates, we may need to abandon or limit our development of such product candidate.candidates. There are a number of known safety risks associated with our product candidates, including gene therapies, and currently unknown safety issues may arise during development.
If any of our product candidates are associated with serious adverse events or undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent,
less severe or more acceptable from a risk–benefitrisk-benefit perspective. Many compoundsdrugs that initially showed promise in clinical or earlier stage testing have later been found to cause side effects that prevented further developmentdevelopment. Safety issues may arise due to reasons unrelated to the study drug, such as issues with the injection procedure or the syringes or needles being used.
In our completed clinical trials for Zimura, we have observed only a single adverse event, mild subcapsular cataract, from our OPH2000 trial, assessed to be drug-related by participating investigators. Although not reported as related to Zimura by investigators, we observed an increase in the number of investigator-reported cases of CNV in the compound.
Zimura treatment groups in the GATHER1 trial as compared to the sham control groups. For the GATHER2 trial, because we are asking investigators to perform monthly OCT imaging and to submit cases where patients experience a decrease in visual acuity of five or more ETDRS letters between successive visits to the independent reading center for confirmation by multi-modal imaging, in addition to the cases the investigator suspects to be CNV, we may observe a higher rate of CNV cases in the GATHER2 trial, including, potentially in the Zimura 2 mg treatment group as compared to the sham group. We have limitedno unmasked data regarding the safety, tolerability andor efficacy of Zimura administered for the treatment of GA or administered in combination with anti–VEGF drugs for the treatment of wet AMD or IPCV andSTGD1. We have no human data regarding the safety, tolerability and efficacy of Zimura administered for the treatment of STGD1IC-100, IC-200 or non-infectious intermediate and posterior uveitis. IC-500.
Our clinical trials for Zimura involve dosing regimens that we have not studied before,extensively, which may increase the risk that patients in these trials experience adverse events and/or serious adverse events (either ocular, systemic or both) that we have not observed or at rates that we have not observed in prior trials. In addition,For example, although we view the rate of CNV incidence in the Zimura treatment groups, as compared to the corresponding sham control groups, as acceptable and within the range observed in other clinical trials of complement inhibitors in development for GA, the FDA, EMA, other regulatory authorities, treating physicians or patients may not agree, concluding that Zimura may increase the risk of patients developing CNV to an unacceptable degree. Moreover, our clinical trials for Zimura will involve multiple intravitreal injections over an extended period of time and, as such, may involve risks regarding multiple and chronic intravitreal injections. For these reasons, there may be, among others, an increase in the rates of intraocular infections, or endophthalmitis, intraocular pressure, glaucoma, retinal tears, cataracts, retinal detachment, intraocular inflammation, retinal and/or choroidal circulation compromise, cardiovascular disease such as myocardial infarctions, stroke, blood clots or emboli, or hospitalizations in patients who receive Zimura. Although the safety profile of Zimura monotherapyremained favorable at month 18 in our GATHER1 trial, we may encounter unknown safety issues as we analyze the unmasked individual patient level data. An unforeseen or unexpected safety event, or any safety finding that is inconsistent with our prior experience with Zimura, in combination with anti-VEGF therapy. Because we currently have only one product candidate in clinical development, it is possible that a safety issue infrom any of our ongoing clinical trials for Zimura, including from the GATHER2 trial during which we will follow patients and collect safety data over 24 months, may impact our ability to continue to develop Zimura or the long-term viability of Zimura as a potential treatment for GA, STGD1 or any other indication for which we may seek to develop Zimura.
As HtrA1 inhibition is a novel treatment approach for treating ocular disease, this treatment approach may present potentially unknown safety risks when tested in clinical trials that could impact allnot have been anticipated based on preclinical studies, including the toxicology studies we are planning. In addition, if we are successful in formulating IC-500, we intend to administer IC-500 by intravitreal injection, which poses the same safety risks outlined above with respect to intravitreal injections of our ongoing clinical trials.Zimura.
In addition, there are several known safety risks specific to gene therapy, including inflammation resulting from a patient's immune response to the administration of viral vectors and the potential for toxicity as a result of chronic exposure to the expressed protein. Managing a host body's immune response to introduced viral vectors has been and remains a challenge for gene therapies. For AAV gene therapy, "vector shedding," or the dispersal of AAV vectors away from the target tissue to other parts of the body, which can trigger a more serious and extensive immune response, is a known safety issue. Although subretinal injection, which is the method often used to administer retinal gene therapies, helps to control vector shedding beyond the eye, subretinal injection is a surgical procedure that requires significant skill and training for the administering surgeon and involves its own risks separate from the gene therapy vectors, including the risk of retinal detachment. The margin for error with subretinal injections is extremely low and there are a limited number of retinal surgeons with experience in performing subretinal injections in the eye. In order to generate useful clinical data for gene therapy clinical trials, one or more retinal surgeons must repeat the same subretinal injection procedure in multiple patients with consistency across patients and surgeons. In addition, in order to avoid accelerating damage to a patient's retina, subretinal injection for RHO-adRP patients in particular must be conducted under extremely low light levels using infrared technology, further complicating the surgical procedure. In the event that we in-licenseprogress into clinical development with IC-100, IC-200 or acquire aany other gene therapy product candidate and progress it into clinical development,we may in-license or acquire, we may experience delays or other challenges for our gene therapy development programs as a result of safety issues.
Our experience manufacturing Zimura is limited. We have no experience manufacturing
In addition to the currently known safety risks, there may be unknown risks to human health from gene therapies. Because gene therapy involves the introduction of concentrated quantities of AAV, as well as the introduction of persistent foreign genetic material into the human body, any safety risks may not manifest until much later, if at all. Gene therapies have only recently been used in the treatment of human diseases and the scientific and medical understandings of safety or other risks
to humans continue to evolve. The safety profile of minigenes and their associated proteins in humans remains largely unknown. If gene therapies prove to be unsafe for humans, we likely will need to curtail or eliminate our gene therapy development programs or gene therapy products in commercialization, if any.
We do not have any internal manufacturing capabilities and use third parties to manufacture our product candidates. Manufacturingcandidates on a contract or purchase order basis. We may encounter manufacturing issues including technical or quality issues or issues securing capacity, may arise that could cause delays in our development programs or increase costs. In addition, weWe may experience delays in regulatory approval of our product candidates if we or our contract manufacturers do not satisfy applicable manufacturing regulatory requirements. If any of our product candidates is approved, a manufacturing issue could result in product shortages, which could impair our ability to commercialize our products and generate revenue.
We do not have any internal manufacturing facilities personneland use or other capabilities and are dependent onplan to use outside contract manufacturers to manufacture Zimura, IC-100, IC-200, IC-500 and any other product candidates that we wouldmay acquire or in-license as partin-license. We have a limited number of pursuingpersonnel hired to supervise these outside vendors. The manufacturing processes for our business plan. Manufacturing for these product candidates could be complicatedare technically complex. Problems with developing, executing or present novel technical challenges. Problems withscaling up the manufacturing process, even minor deviations from the normalestablished process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims, insufficient inventory or insufficient inventory.delays to our programs. We may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet FDA, EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.
We currently rely upon a single third-party manufacturer, Agilent Technologies, to supply us with the chemically synthesized API for Zimura and a different, single third-party manufacturer, Ajinomoto Althea, to provide fill/finish services for Zimura. In order to obtain and maintain regulatory approval for Zimura , our third-party manufacturers will be required to consistently produce the API used in Zimura in commercial quantities and of specified quality and to execute fill/finish services on a repeated basis and document their ability to do so. If the third-party manufacturers are unable to satisfy this requirement, our business would be materially and adversely affected. To date, we have not yet scaled up the manufacturing process for Zimura beyond the scale used for developmental clinical batches, nor have we validated the manufacturing process.
These manufacturing processes and the facilities of our third-party manufacturers, including our third-party API manufacturer and our third-party fill/finish service provider, are subject to inspection and approval by the FDA, referred to as a pre-approval inspection, before we can commence the commercial sale of any approved product candidate, and thereafter on an ongoing basis. Our third-party API manufacturer has undergone only one pre-approval inspection by the FDA, and has not yet gone through a pre-approval inspection for Zimura. Our third-party fill/finish service provider is subject to FDA inspection from time to time. Failure by our third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in delays in the approval of our applications for marketing approval in the event a recommendation to withhold is issued, as well as regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses. Additionally, on October 22, 2014, the FDA issued its final guidance on the circumstances that constitute delaying, denying, limiting or refusing a drug inspection pursuant to Section 707 of the Food and Drug Administration Safety and Innovation Act of 2012. If any of our third-party manufacturers are found to have delayed, denied, limited or refused a drug inspection, our API or drug product could be deemed adulterated. Based on the severity of the regulatory action, our clinical or commercial supply of API or our fill/finish services could be interrupted or limited, which could have a material adverse effect on our business.
Some of the standards of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use, which establishes basic guidelines and standards for drug development in the United States, the European Union, Japan and other countries, do not apply to oligonucleotides, including aptamers. As a result, there are no established generally accepted manufacturing or quality standards for the production of Zimura. The lack of uniform
manufacturing and quality standards among regulatory agencies may delay regulatory approval of Zimura or any future product candidate.
In addition, in order to manufacture and supply any of our product candidates for later-stage clinical trials or on a commercial scale in the future, we will need to increase our manufacturing personnel and bolster our quality control and quality assurance capabilities, including by augmenting our manufacturing processes and adding personnel.capabilities. We also may encounter problems hiring and retaining the experienced specialist scientific, manufacturing and manufacturingquality assurance and control personnel needed to operateoversee our manufacturing process,contract manufacturers, which could result in delays in our production or difficulties in maintaining compliance with applicable regulatory requirements. As we or anyour contract manufacturer we engage scales-upscales up manufacturing of any approved product candidate, we may encounter unexpected issues relating to the manufacturing processes or the quality, purity or stability of the product, and we may be required to refine or alter our manufacturing processes to address these issues.issues, or may need to use an alternative manufacturer. Resolving these issues could result in significant delays and may result in significantly increased costs. If we underestimate the demand for an approved product, given the long lead times required to manufacture or obtain regulatory approvals for our products, we could potentially face commercial drug product supply shortages. If we experience significant delays or other obstacles in producing any approved product at commercial scale, our ability to market and sell any approved products may be adversely affected and our business could suffer.
Gene therapies
The manufacturing processes and the facilities of our third-party manufacturers are complexsubject to inspection and difficultapproval by the FDA, referred to manufacture. A numberas a pre-approval inspection, before we can commence the commercial sale of factors commonany approved product candidate, and thereafter on an ongoing basis. None of our third-party manufacturers have undergone a pre-approval inspection by the FDA for Zimura or any of our other product candidates. Failure by our third-party manufacturers to pass such inspections and otherwise satisfactorily complete the manufacturingFDA approval regimen with respect to our product candidates may result in delays in the approval of most biologics and drugsour applications for marketing approval, as well as regulatory actions such as the issuance of FDA Form 483 notices of observations, warning letters or injunctions or the loss of operating licenses. If any of our third-party manufacturers are found to have delayed, denied, limited or refused a drug inspection, our drug substance or drug product could also cause production interruptions, including raw materials shortages, raw material failures, growth media failures, equipment malfunctions, facility contamination, labor problems, natural disasters, disruption in utility services, terrorist activities, or acts of god beyond our control.
In addition, we believe that becausebe deemed adulterated. Based on the severity of the high demand forregulatory action, our clinical gene therapyor commercial supply of drug substance or drug product could be interrupted or limited, which could have a material in the industry, and a scarcity of potential contract manufacturers, there may be long lead times for establishing manufacturing capabilities and for manufacturing materials for gene therapy drug development activities, including for GMP material needed for clinical trials. It is often the case that early stage research is conducted with materials that are not manufactured using GMP techniques and are not subject to the same level of analysis that would be required for clinical grade material. Therefore, to the extent that we are in-license or acquire a new gene therapy product candidate, we may need to devote significant time and financial resources to establishing manufacturing processes that are sufficient for clinical supplies. In addition, because early stage, pilot manufacturing is often doneadverse effect on a small scale, we may face challenges scaling up any early stage manufacturing to the scale necessary to support supply for clinical trials. If we are not able to establish gene therapy manufacturing or related processes, our development plans may be delayed or stalled and our business may be materially harmed.business.
Any problems in our manufacturing process or our third-party contract manufacturers’ facilities could make us a less attractive collaborator for potential partners,collaborations, including with larger pharmaceutical companies and academic research institutions, which could limit our access to additional attractive development programs.institutions. Problems in our manufacturing process or facilities also could restrict our ability to meet market demand for our products.
Even if any
For a further discussion of the risks associated with our reliance on third-party manufacturers, including the effects of the COVID-19 pandemic on our third-party manufacturers, see the risk factor herein entitled, "We contract with third parties for the manufacture of and for providing starting materials for our product candidates for preclinical development activities and clinical trials and expect to continue to do so in the future. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates receives marketing approval, suchor products, which could delay, prevent or impair our development or commercialization efforts."
Our experience manufacturing Zimura is limited. As we conduct our GATHER2 trial and our expanded STAR trial and plan for potential commercialization of Zimura, we and our third-party manufacturers will need to complete several activities to ensure the continued supply of drug product candidate may failfor these trials and adequate preparations to achieve the degreesupport potential future commercial supply of market acceptance by physicians, patients, third-party payors and othersZimura. Any delay or failure in completing these activities could cause delays in the medical community necessary for commercial success and the market opportunity for any of our products and product candidates may be smaller than we estimate.
If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current treatments for wet AMD, including Lucentis, Eylea and low cost, off-label use of Avastin, are well established in the medical community, and doctors may continue to rely upon these treatments without Zimura. If any of our product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptancedevelopment of Zimura or any otherits potential approval or could result in inadequate clinical or commercial product candidatesupply.
In order to obtain and maintain regulatory approval for Zimura, our third-party manufacturers will be required to produce Zimura drug substance with consistent quality and to execute fill/finish services on a repeated basis and document their ability to do so. In order for us to successfully commercialize Zimura, if approved, our manufacturers also need to be able to produce quantities at a commercial scale. If our third-party manufacturers are unable to satisfy these requirements, our business would be materially and adversely affected. To date, we have not yet scaled up the manufacturing process for Zimura beyond the scale used for developmental clinical batches, nor have we validated the manufacturing process.
In early 2017, we completed the small scale manufacture of multiple batches of Zimura drug substance that we are using to support clinical drug supply for the GATHER2 trial and the expanded STAR trial. Although we believe we have adequate Zimura drug substance for the GATHER2 trial and the expanded STAR trial, this supply may develop, if approvednot be sufficient for our needs over the duration of the trials or for any additional trials we may conduct. We have initiated activities in preparation for the scale-up and validation of the manufacturing process for Zimura drug substance with a new manufacturer, with the goal of assessing whether this manufacturer can produce Zimura drug substance at an adequate scale for future potential commercial sale, will depend on ause. If this manufacturer is successful, we intend for this manufacturer to be our primary supplier of Zimura drug substance. However, this manufacturer may not be successful because of any number of factors, including:
efficacyreasons. We also recently engaged our historical contract manufacturer for Zimura drug substance, Agilent Technologies, Inc., or Agilent, for scale-up and potential advantages compared to alternative treatments, including the existing standard of care;
any restrictions in the labelvalidation activities. Depending on the use of our products in combination with other medications;
any restrictions in the label on the use of our products by a subgroup of patients;
restrictions in the label on the use of our combination therapy product candidates, such as Zimura for the treatment of wet AMD or IPCV, limiting their use in combination with particular standard of care drugs, such as a particular anti-VEGF drug;
restrictions in the label imposing a waiting period in between intravitreal injections;
our and any commercialization partner’s ability to offer our products at competitive prices, particularly in lightsuccess of the costscale-up activities by the new manufacturer, we may use either this new manufacturer, Agilent or both for future supply of anyZimura drug substance, which may increase our costs and delay our timelines. In addition, regardless of our combination therapy product candidates in additionwhich manufacturer we use, we will need to demonstrate that the drug substance produced through the scaled-up process is analytically comparable to the cost ofdrug substance we are currently using. If we are unable to demonstrate that the underlying standard of care drug;
availability of third-party coverage and adequate reimbursement, particularly by Medicare givenZimura drug substance produced through the target market for AMD indications for persons over age 50;
increasing reimbursement pressures on treating physicians duescaled-up process is analytically comparable to the formation of accountable care organizations and the shift away from traditional fee-for-service reimbursement models to reimbursement based on quality of care and patient outcomes;
willingness of the target patient population to try new therapies and of physicians to prescribe these therapies, particularly in light of the existing available standard of care or to the extent our product candidates require invasive procedures for administration, such as subretinal surgery;
prevalence and severity of any side effects or perceived safety concerns, especially for new therapeutic modalities such as gene therapy; and
whether competing products or other alternativesZimura drug substance we are more convenient or easier to administer,currently using, including whether co-formulated alternatives, alternatives that can be co-administered in a single syringe or alternatives that offer a less invasive method of administration than intravitreal injection come to market.
For each of our Zimura trials where patients will receive multiple intravitreal injections on the same day, either Zimura in combination with an anti-VEGF agent or multiple Zimura injections, we have provided for a delay in the second intravitreal injection to minimize the risk of an unacceptable increase in IOP as a result of not having the volumeappropriate assays to demonstrate analytical comparability, our timelines to complete the development of and seek regulatory approval for Zimura would be impacted.
In 2020, we engaged a contract manufacturer to provide us with additional supply of finished Zimura drug product to support our needs for the GATHER2 trial and the expanded STAR trial. We expect that this contract manufacturer will be able to supply sufficient finished Zimura drug product for these two clinical trials. However, we may face issues with releasing batches of finished Zimura drug product from this contract manufacturer, or even if these batches can be successfully released, we may not have sufficient supply for our needs over the duration of these trials or for any additional trials we may conduct. In addition, we are planning to make a change to the existing vial used for Zimura drug product, which we believe may allow us to support a more efficient fill/finish operation at a commercial scale. We have been in discussions with our historical fill/finish manufacturer, Ajinomoto Bio-Pharma Services, or Ajinomoto, regarding its capacity to supply us with finished Zimura drug product with the new vial for potential commercial use. If Ajinomoto is unable to provide us and/or a potential collaborator with Zimura drug product for potential commercial use, we will need to use alternative suppliers, which may increase our costs and delay our timelines.
We order the PEG starting material used to make Zimura drug substance from a sole source third-party manufacturer outside the United States. We currently procure the supply on a purchase order basis and are planning to enter into a long-term supply agreement with this manufacturer for the PEG starting material. However, we may not be able to agree to terms or may need to agree to unfavorable terms in order to secure adequate supply. We are assessing this supplier's capacity to supply the PEG at the scale that we expect we will need for commercial manufacturing. If this supplier is unable to supply us the PEG in line with our expectations, we believe there are a limited number of alternative suppliers for this critical raw material, and if we need to use those suppliers, it could increase our costs and delay our manufacturing plans for Zimura.
Each of these activities is costly, time-consuming and uncertain in outcome. We may not be able to successfully scale up or validate our manufacturing process for Zimura, demonstrate analytical comparability of the multiple injections. If Zimura receives marketingdrug substance manufactured through the scaled up process with the previously manufactured Zimura drug substance, or establish the long-term stability of the Zimura drug product stored in the new vial container. The new manufacturers we have engaged or may engage in the future have not had previous experience with Zimura and there may be issues with technology transfer. We may need to perform additional work beyond what we currently plan to establish manufacturing and analytical capabilities sufficient to obtain regulatory approval for a particular indication and the approved label requires a waiting period, the potential market opportunityof our manufacturing process for Zimura may be limitedand to the extent that physicians and patients find such a waiting period unacceptable.
In addition, thesupport potential market opportunity forcommercial operations. If any product candidate is difficult to estimate precisely. Our estimates of the potential market opportunityforegoing events occur, it could result in delays or increased costs to support our future development and commercialization
of Zimura, even if we successfully complete any required clinical trials for our product candidates include several key assumptions based on our expectationsZimura and obtain sufficient and favorable safety and efficacy data.
Some of the safety and effectivenessstandards of the relevant product candidate, our industry knowledge, industry publications, market response to marketed AMD drugs, third-party research reportsInternational Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use, which establishes basic guidelines and other surveys. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions and any of these assumptions could prove to be inaccurate, and the actual marketstandards for such product candidates could be smaller than our estimates of our potential market opportunity.
With respect to our programs for orphan diseases, our understanding of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patientsdrug development in the United States, the European Union, Japan and elsewherecertain other countries, do not apply to oligonucleotides, including aptamers. As a result, there are limited established generally accepted manufacturing or quality standards for the production of oligonucleotides such as Zimura. The lack of uniform manufacturing and quality standards among regulatory agencies may turn outdelay regulatory approval of Zimura. Furthermore, there are a limited number of contract manufacturers with experience manufacturing oligonucleotides, which may limit our ability to find and use alternative manufacturers.
The manufacture of gene therapy products is complex with a number of scientific and technical risks, some of which are common to the manufacture of drugs and biologics and others of which are unique to the manufacture of gene therapies. As previously disclosed, we identified an issue with one of the starting materials used to manufacture IC-100, which delayed our timelines for that program. We have limited experience with gene therapy manufacturing and are dependent on our third-party contract manufacturers and sole source suppliers.
Gene therapy drug products are complex and difficult to manufacture. We believe that the high demand for clinical gene therapy material and a scarcity of potential contract manufacturers may cause long lead times for establishing manufacturing capabilities for gene therapy drug development activities. Even after a manufacturer is engaged, any problems that arise during manufacturing, including during process development and cGMP manufacturing, may result in unanticipated delays to our timelines, including delays attributable to securing additional manufacturing time slots. In 2020, we experienced delays to our cGMP manufacturing activities for IC-100 and IC-200 because of a number of manufacturing issues at our CDMO. There may also be long lead times to manufacture or procure starting materials such as cell banks or plasmids. In particular, plasmids and other starting materials for gene therapy manufacture are usually sole sourced, as there are a limited number of qualified suppliers. The progress of our gene therapy programs is highly dependent on these suppliers providing us or our contract manufacturers with the necessary starting materials that meet our requirements in a timely manner. A failure to procure or a shortage of necessary starting materials likely would delay our manufacturing and development timelines.
As previously disclosed, we identified an issue with one of the starting materials used for our manufacturing process for IC-100. That issue caused us to delay our cGMP manufacturing run at our CDMO, and we had to reschedule the run for a later date based on the CDMO's availability. The supplier has since provided new starting materials for our rescheduled cGMP manufacturing run. Although we believe the new starting materials met our expectations and the manufacturing of the cGMP batch has been successful, we may find unexpected issues as we complete testing and release of the batch. If there are issues with the new starting materials or the produced batch, our timelines and the future development of IC-100 could be adversely affected.
A number of factors common to the manufacturing of biologics and drugs could also cause production or quality issues for gene therapies, including raw material or starting material variability in terms of quality, consistency in cell growth, productivity or cell line stability issues, product and process impurities, material shortages of any kind, shipping, distribution, storage and supply chain failures, cell culture contamination, equipment malfunctions, operator errors, facility contamination, labor problems, natural disasters, disruption in utility services, terrorist activities, epidemics and pandemics, or acts of god that are beyond our or our contract manufacturer's control. It is often the case that early stage process development is conducted with materials that are not manufactured using cGMP starting materials, techniques or processes and which are not subject to the same level of analysis that would be required for clinical grade material. We may encounter difficulties in translating the manufacturing processes used to produce research grade materials to cGMP compliant processes, and any changes in the manufacturing process may affect the safety and efficacy profile of our product candidates. In particular, for IC-100 and IC-200 we and our contract manufacturers have developed our own manufacturing processes, which differ from those originally used by our university collaborators, for example, by using different starting materials and analytical methods. Our manufactured materials may not match the safety and efficacy profile of those used by the universities.
Because manufacturing for early stage research is often done under different conditions, using different starting materials and manufacturing systems and done on a smaller scale than what is required for manufacturing for clinical supplies, we may face challenges producing the same product as that produced by the manufacturing processes used by our licensors and other academic collaborators and scaling up the new manufacturing processes as necessary to support supply for clinical trials. In order to progress the development of IC-100, IC-200 or any other gene therapy product candidate we may in-license or acquire, we have devoted and will need to continue to devote significant time and financial resources to establishing manufacturing processes that are sufficient for IND-enabling preclinical toxicology studies as well as clinical supplies. If we are not able to establish gene therapy manufacturing or related processes in a manner required for further development of our gene
therapy product candidates, our development plans may be delayed and our business may be materially harmed. In particular, although our CDMO produced cGMP batches for each of IC-100 and IC-200, we may encounter issues with releasing any of those batches, which could hamper us from filing an IND and initiating a human clinical trial for that product candidate.
An important part of manufacturing drug products is performing analytical testing. Analytical testing of gene therapies involves tests that are more complex in scope and take a longer time to develop and to conduct as compared to those used for traditional drugs. We, our contract manufacturers and our contract research organizations need to expend considerable time and resources to develop assays and other analytical tests for our gene therapy product candidates, including assays to assess the potency of our gene therapy product candidates. Some assays need to be lower than expected,outsourced to specialized testing laboratories. Even when assays are developed, they need to be further tested, qualified and validated, which may take substantial time and resources. Because of the lagging nature of analytical testing, we may proceed with additional manufacturing and other development activities without having first fully characterized or released our manufactured materials. If the results of the testing fail to meet our expectations or applicable requirements, we may need to delay or repeat certain manufacturing and development activities.
We are in the early stages of establishing manufacturing capabilities for IC-500. We may need to conduct additional process development and formulation development activities.
Before we can commence IND-enabling studies for IC-500, we will need to conduct process development and formulation development to determine whether we can identify a viable manufacturing process for and formulate IC-500 for intravitreal administration that is safe to advance into preclinical studies and, depending on the outcome of such studies, into clinical trials. For example, as part of formulation development, we will need to determine which inactive formulation components should be used in the preparation of IC-500, and derive a preparation that includes an adequate amount of drug substance with the necessary inactive ingredients to achieve the desired safety and efficacy profile for intravitreal injection into the eye.
We are working with a CDMO to conduct process development, scale up and cGMP manufacturing of the drug substance for IC-500 for preclinical toxicology studies and early-stage clinical trials. We are working with another CDMO to conduct formulation development activities for the drug product for IC-500. Our contract manufacturers have developed a manufacturing process for IC-500 drug substance and a formulation of this produced drug substance. However, we have not yet tested this formulation in any preclinical animal studies; the results of these studies may require us to refine or change our manufacturing process or conduct additional formulation development activities. We are in the process of engaging a contract manufacturer to manufacture finished drug product for clinical supply. Manufacturing, including process development, formulation development and drug product manufacturing, can be otherwise amenablecostly and time-consuming and our anticipated timelines for the development of IC-500 may be delayed. If we are unable to treatmentsuccessfully manufacture and formulate IC-500 in line with our productsexpectations, we may switch to a backup HtrA1 inhibitor or patients may become increasingly difficult to identify and access, all of which would adversely affectcease developing our business, financial condition, results of operations and prospects.HtrA1 inhibitor program altogether.
We face substantial competition, which may result in others developing or commercializing products before or more successfully than we do.
The development and commercialization of new drug products is highly competitive. We face competition with respect to our product candidates and other programs from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies, as well as generic and biosimilar companies, worldwide. There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of product candidates for the treatment of GA, wet AMD, Stargardt disease, non-infectious intermediate and posterior uveitis or other disease indications for which we may develop Zimura. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. We also will face similar competition with respect to any other products or product candidates that we may seek to develop or
commercialize in the future. In particular, many
Our business strategy includes a focus on developing transformative therapies for retinal diseases, including GA secondary to age-related macular degeneration and a number of orphan inherited retinal diseases. There are multiple companies are pursuing the development of therapeutics targeting the complement pathway and gene therapy approaches for age-relatedorphan and orphanage-related retinal diseases. Some of them have better name recognition, more resources and a longer history of developing therapies than we do. Competition in this field is intense and especially for many inherited retinal diseases, there is a limited number of potential patients. If any of our competitors obtains FDA, EMA or other regulatory approval for their products more rapidly than we may obtain approval for ours, our competitors could establish a strong market position before we are able to enter the relevant market, which may significantly limit the commercial opportunity for our product candidates.
Our commercial opportunity could also be reduced or eliminated if one or more of our competitors develop and commercialize products that are more effective, safer, have fewer or less severe side effects, are more convenient to use or are less expensive than our product candidates. TheFor example, the method of administration of Zimura, intravitreal injection, is commonly used to administer ophthalmic drugs for the treatment of severe diseasediseases and is generally accepted by patients facing the prospect of seversevere visual loss or blindness. A therapy that offers a less invasive or less frequent method of administration, however, might have a competitive advantage over one administered by monthly intravitreal injection,injections, depending on the relative safety of the other method of administration.
Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the relevant market. Furthermore, our ability to compete may be affected in many cases by insurers or other third-party payors, particularly Medicare, seeking to encourage the use of less expensive or more convenient products.
Competitive considerations for Dry AMD and GA:
There are a number of products in preclinical research and clinical development by third parties to treat dry AMD, including several that are in development for GA secondary to dry AMD. In general, these product candidates can be categorized based on their proposed mechanisms of action. The mechanisms of action for these product candidates include inflammation suppression, such as complement system inhibitors and corticosteroids, visual cycle modulators, antioxidants and neuroprotectants, cell and gene therapies and vascular perfusion enhancers. Based on publicly available information, we are aware that Novartis AG and MorphoSys AG, Apellis Pharmaceuticals, Inc., Hemera Biosciences, Inc., Achillion Pharmaceuticals, Inc. and Catalyst Biosciences, Inc. each have complement inhibitors in development, the most advanced of which we believe is Apellis's pegylated, synthetic peptide targeting complement factor C3. Apellis announced positive Phase 2 results for its product candidate and has announced plans to initiate a Phase 3 program during 2018. If Apellis's Phase 3 program for its complement factor C3 product candidate is successful, it is likely that Apellis may obtain marketing approval for its product candidate in advance of when we could reasonably expect marketing approval for Zimura in GA, if at all. Moreover, based on publicly available information, we are aware that several other companies have announced development programs for the treatment of dry AMD targeting different mechanisms of action outside of the complement system.
Competitive considerations for wet AMD:
There are a number of products in preclinical research and clinical development by third parties to treat wet AMD. Based on publicly available information, we are aware that multiple mechanisms of action are in clinical or pre-clinical development for wet AMD, including Angiopoietin-2 inhibitors, tyrosine kinase inhibitors, integrin inhibitors, novel VEGF inhibitors and complement inhibitors, as well as a few remaining PDGF inhibitors. Within the complement system, we are aware that Apellis is planning a Phase 2 clinical trial with their C3 inhibitor in combination with anti-VEGF therapy. Moreover, based on publicly available information, we are aware that several companies and research organizations are pursuing treatments targeting other molecular targets, potential gene therapy treatments and stem cell transplant treatments for the treatment of wet AMD. In addition, other companies are undertaking efforts to develop technologies to allow for topical dosing of therapeutic agents such as anti-VEGF agents or integrin inhibitors through eye-drops or to allow for a less frequent intravitreal dosing schedule than currently used for standard of care anti-VEGF agents.
The commercial opportunity for Zimura in wet AMD in particular also could be reduced or eliminated if our competitors develop and commercialize products that reduce or eliminate the use of anti-VEGF drugs for the treatment of patients with wet AMD, since we are only developing Zimura for wet AMD as a combination therapy with anti-VEGF agents. Moreover, we expect that if Zimura is approved for combination therapy for the treatment of wet AMD, the cost of combination treatment would be higher than the cost of treatment of wet AMD with Lucentis, Eylea or particularly Avastin monotherapy. Insurers and other third-party payors may encourage the use of anti-VEGF drugs as monotherapy and discourage the use of Zimura in combination with these drugs. This could limit sales of Zimura for this indication.
Competitive considerations for Stargardt disease:
There are a number of products in preclinical research and clinical development by third parties to treat Stargardt disease. Based on publicly available information, we are aware that Sanofi, Acucela Inc., Alkeus Pharmaceuticals, Inc., Vision Medicines, Inc., Lin BioScience, Inc., Nightstar Therapeutics plc and ProQR Therapeutics N.V. each have development programs in Stargardt disease. Four of these programs, Acucela, Alkeus, Vision Medicines and Lin BioScience, are exploring the use of oral therapeutics, while Sanofi, with technology provided by Oxford BioMedica plc, and Nightstar are each using a gene therapy approach and ProQR is using an RNA interference approach. Acucela’s, Alkeus’s and Sanofi’s product candidates are each in Phase 2 development.
In the case of orphan diseases such as Stargardt disease, should we be successful in development, our commercialization efforts may rely on non-patent market exclusivity periods under the Orphan Drug Act and the Hatch-Waxman Act. The Orphan Drug Act only provides exclusivity periods for the specific drug granted orphan designation for a specific indication. In addition, there are limited circumstances under each of the Orphan Drug Act and the Hatch-Waxman Act that could result in our loss of data and marketing exclusivity, which could allow a competitor to enter the market. Failure to maintain either data or market exclusivity period would have a material adverse effect on our ability to commercialize our product candidates.
Many of our competitors have significantly greater financial and human resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollmentenrolling patients for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our development programs. Our timelines may be delayed to the extent clinical trials conducted by our competitors are enrolling patients that would otherwise be eligible to participate in our trials at the same time we are seeking to enroll these patients, such as may be the case for the GATHER2 trial, for which a number of other companies have active clinical trials.
Based on publicly available information, we are aware of the following research and development programs that may be competitive with programs we are pursuing. Other competitive programs may exist of which we are not aware.
Competitive considerations for GA or dry AMD:
•We are aware that LumiThera, Inc. has a medical device using its LT-300 light delivery system, which is approved in the European Union for the treatment of dry AMD. In addition, there are a number of products in preclinical and clinical development programs.by third parties to treat GA or dry AMD. In general, these product candidates can be categorized based on their proposed mechanisms of action. The mechanisms of action for these product candidates include complement system and inflammation suppression, visual cycle modulators, antioxidants and neuroprotectants, cell and gene therapies and vascular perfusion enhancers. We are aware that Alexion Pharmaceuticals, Inc., Annexon Inc., Apellis Pharmaceuticals, Inc., or Apellis, Applied Genetic Technologies Corporation, or AGTC, Biogen Inc., Gemini Therapeutics, Inc., Gyroscope Therapeutics, IONIS Pharmaceuticals, Inc. (in collaboration with Roche AG), Janssen Pharmaceuticals Inc. (which acquired its program through the acquisition of Hemera Biosciences, LLC), MorphoSys AG, NGM Biopharmaceuticals Inc. and Novartis AG each have complement inhibitors in development for GA or dry AMD, including, in the cases of Gemini Therapeutics, Gyroscope Therapeutics and Janssen Pharmaceuticals, complement inhibitor gene therapies and AGTC and Gemini Therapeutics each has a research program on complement factor H gene therapy. We believe that the most advanced of these programs is Apellis's pegylated, synthetic peptide targeting complement protein C3. In July 2020, Apellis announced that it had completed patient enrollment in its Phase 3 program with a total of 1,259 patients, and expects to announce top-line data from the trials in the third quarter of 2021. If Apellis's Phase 3 program for its C3 complement inhibitor product candidate is successful, it is likely that Apellis would obtain marketing approval for its product candidate in advance of when we could reasonably expect to obtain marketing approval for Zimura in GA or IC-500 in GA, if at all. Moreover, we are aware that several other companies, including Allergan Inc., Allegro Ophthalmics, LLC, Alkeus Pharmaceuticals Inc., Astellas Pharma Inc., Boehringer Ingelheim, EyePoint Pharmaceuticals, Inc., Lineage Cell Therapeutics, Inc., Roche AG and Stealth BioTherapeutics Corp., are pursuing development programs for the treatment GA or dry AMD using different mechanisms of action outside of the complement system, including Genentech, Inc. (an affiliate of Roche AG) and Gemini Therapeutics, which are pursuing HtrA1 inhibition as a mechanism of action. We believe that the most advanced HtrA1 inhibitor program in development is Genentech's monoclonal antibody HtrA1 inhibitor, which is currently being studied in a Phase 2 clinical trial.
Competitive considerations for Stargardt disease:
•There are a number of products in preclinical research and clinical development by third parties to treat Stargardt disease. We are aware that AGTC, Alkeus Pharmaceuticals, Inc., Beam Therapeutics Inc., Generation Bio Co., Kubota Vision Inc. (formerly Acucela), Lin BioScience, Inc., Nightstar Therapeutics plc (prior to its acquisition by Biogen), or Nightstar, ProQR Therapeutics N.V., or ProQR, and Spark Therapeutics each have research or development programs in Stargardt disease. Three of these programs, Alkeus, Kubota and Lin BioScience, are exploring the use of oral therapeutics, while AGTC, Nightstar and Spark are each using a gene therapy approach, Beam is using a base editing
approach, and ProQR is using an RNA based approach. Kubota’s product candidate, to which the FDA and the EMA granted orphan drug designation in August 2020, is in Phase 3 development while Alkeus’s product candidate is in Phase 2 development. In addition, several academic organizations have early stage programs in Stargardt disease.
Competitive considerations for RHO-adRP:
•We are aware that ProQR is developing an RNA-based therapeutic for RHO-adRP, for which it is currently conducting a Phase 1/2 clinical trial. Ocugen, Inc. is developing a gene therapy for RHO-adRP, for which the FDA granted orphan drug designation in July 2020. In addition, prior to its acquisition by Biogen, Nightstar had a preclinical AAV gene therapy program in RHO-adRP. 4D Molecular Therapeutics is developing an intravitreal gene therapy for RHO-adRP. Editas Medicine, Inc. is exploring a potential gene editing program in this disease. We are also aware that multiple academic institutions have early stage gene therapy development programs in RHO-adRP.
Competitive considerations for BEST1-related IRDs:
•We are aware that, prior to its acquisition by Biogen, Nightstar had a preclinical AAV gene therapy program for one or more BEST1-related IRDs.
Competitive considerations for LCA10:
•We are aware that Editas Medicine, Inc. has a gene editing program for LCA10, for which a Phase 1/2 clinical trial is ongoing, ProQR is developing an RNA-based therapeutic for LCA10 that is currently in Phase 2/3 development, Generation Bio Co. has a preclinical program that utilizes ceDNA technology to target LCA10 and Oxford Biomedica plc is developing a lentiviral gene therapy program for LCA10 that is in preclinical development. In addition, several academic institutions have preclinical programs in LCA10.
Competitive considerations for USH2A-related IRDs:
•There are a number of products in preclinical research and clinical development by third parties to treat USH2A-related IRDs. We are aware that ProQR is pursuing two RNA based approaches for different mutations causing Usher 2A, one of which is currently in Phase 1/2 clinical development and the other of which is in preclinical development. We are also aware that Editas Medicine, Inc. and Odylia Therapeutics are exploring potential programs in USH2A-related IRDs.
If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing any of our product candidates that we develop if and when any such product candidate is approved.
As a company, we have no experience in the sale, marketing or distribution of pharmaceutical products. We currently do not have any sales, marketing or distribution infrastructure.infrastructure or dedicated personnel. To achieve commercial success for any approved product, we must either develop a sales, marketing and distribution organization or outsource those functions to third parties. We expect that our commercial strategy for any of our product candidates, including whether to retain commercial rights and market and sell the product candidate ourselves or to utilize collaboration, distribution or other marketing arrangements with third parties, would be determined based on a variety of factors, including the size and nature of the patient population, the disease area, the particular indication,indications for which the territoryproduct is approved, the territories in which the product candidate may be marketed and the commercial potential for such product candidate. We are developing Zimura and IC-500 for GA secondary to AMD, which is a condition affecting a relatively large number of individuals. In contrast, our gene therapy programs are currently being developed for orphan IRDs with a limited number of affected individuals. If any of our product candidates is approved, the size and nature of the affected patient population will be an important factor in our commercial strategy. In addition, our commercial strategy would vary depending on whether the disease is typically treated by general ophthalmology practitioners, specialists, such as retinal specialists, or sub-specialists.sub-specialists, such as retinal specialists with particular expertise in IRDs, and the likely degree of acceptance of our product candidate by the relevant physicians in various markets.
There are risks involved with establishing our own sales, marketing and distribution capabilities and entering into arrangements with third parties to perform these services.capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
Factors that may inhibit our efforts to commercialize our products on our own include:
•our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
•the inability of sales personnel to obtain access to adequate numbers of physicians who may prescribe our products;
•the lack of complementary products to be offered by our sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
•unforeseen costs and expenses associated with creating an independent sales and marketing organization.
There are also risks involved with having third parties perform sales, marketing and distribution services on our behalf. If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues and our profitability, if any, are likely to be lower than if we were to market, sell and distribute ourselves any products that we develop. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not or are unable to establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we would not be successful in commercializing our product candidates.candidates, if approved.
Even if any of our product candidates receives marketing approval, such product candidate may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for any of our product candidates may be smaller than we estimate.
The degree of market acceptance of any product candidate that we are developing or we may develop, if approved for commercial sale, will depend on a number of factors, including:
•efficacy and potential advantages compared to alternative treatments, including the existing standard of care;
•any restrictions in the label on the use of our products in combination with other medications or with certain devices;
•any restrictions in the label on the use of our products to or by a subgroup of patients, including, for example, for Zimura, if approved, restrictions on use of our product to patients with GA secondary to dry AMD (as opposed to GA secondary to any or all forms of AMD or other stages of AMD) or to patients with specific GA lesion characteristics, such as non-foveal GA, or for our gene therapy product candidates, if approved, restrictions on use of our product if a patient previously received another gene therapy product;
•for treatment regimens calling for multiple intravitreal injections on the same day, restrictions in the label imposing a waiting period in between intravitreal injections;
•our and any commercialization partner’s ability to offer our products at competitive prices;
•availability of governmental and third-party payor coverage and adequate reimbursement;
•increasing reimbursement pressures on treating physicians due to the formation of accountable care organizations and the shift away from traditional fee-for-service reimbursement models to reimbursement based on quality of care and patient outcomes;
•willingness of the target patient population to try new therapies and of physicians to prescribe these therapies, particularly in light of the existing available standard of care or to the extent our product candidates require invasive procedures for administration, such as subretinal surgery;
•prevalence and severity of any side effects or perceived safety concerns, especially for new therapeutic treatments such as gene therapy; and
•whether competing products or other alternatives are more convenient or easier to administer, including alternatives that offer a less frequent dosing regimen than monthly intravitreal injections, in the case of Zimura, or
a less invasive method of administration than subretinal injection, in the case of our gene therapy product candidates, come to market. For example, Apellis is testing its complement inhibitor product candidate for GA with both monthly and every other month dosing regimens, and may obtain a label with an every other month dosing regimen, while we expect that any label we may obtain for Zimura in GA will require monthly administrations. If so, physicians and patients may find Apellis's dosing regimen more acceptable than ours.
Our development program for Zimura in GA uses an anatomical primary endpoint, the mean rate of change in GA growth over 12 months. We believe that this efficacy assessment is most likely to demonstrate clinical relevance for an investigational product across a heterogeneous GA patient population and other potential assessments, such as comparisons of visual acuity, are not as clinically meaningful for patients with GA. However, to date there is no direct functional corollary to the anatomical measure that we are using as our primary endpoint. Although we evaluated visual acuity as a secondary endpoint in the GATHER1 trial, the trial was not designed to reliably assess differences in mean changes in visual acuity with statistical significance. Patients, physicians and payors may not recognize the value of, and we may not be able to obtain marketing or reimbursement approval for, Zimura without demonstrating a functional benefit to vision. To do so, we may need to conduct additional clinical trials or sub-studies, which may not ultimately demonstrate a functional benefit to vision.
For each of our Zimura trials where patients receive multiple intravitreal injections on the same day, including the STAR trial, we have provided for a delay in the second intravitreal injection to occur during the same office visit to minimize the risk of an unacceptable increase in intraocular pressure as a result of the volume of the multiple injections. If Zimura receives marketing approval for a particular indication, including for example, for autosomal recessive Stargardt disease, and the approved label requires a waiting period between injections administered on the same day or a dosing regimen that requires multiple office visits per month, the potential market opportunity for Zimura may be limited to the extent that physicians and patients find such a waiting period or dosing regimen unacceptable.
In addition, the potential market opportunity for any product candidate is difficult to estimate precisely. Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our expectations of the safety and effectiveness of the relevant product candidate, the expected patient population for our product candidates, our industry knowledge, the competitive landscape for the indications for which we are developing our product candidates, market response to anti-VEGF agents currently approved for treatment of wet AMD and to Spark Therapeutics's Luxturna® and Novartis AG's Zolgensma®, third-party research reports and other surveys. The potential market opportunity for our product candidates may also differ across geographies. While we believe that our internal assumptions are reasonable, any of these assumptions could prove to be inaccurate, and the actual market for such product candidates could be smaller than our estimates of our potential market opportunity.
There is a variety of factors that could contribute to the actual number of patients who receive an approved therapy being less than our estimates of the potential addressable market. With respect to our programs for orphan diseases, our understanding of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, are based on estimates. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patients in the United States, the European Union and elsewhere may turn out to be lower than expected, patients may not be amenable to treatment with our products or patients may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results of operations and prospects. Further, the severity of the progression of a disease up to the time of treatment, especially in certain degenerative conditions such as GA and certain IRDs, likely will diminish the therapeutic benefit conferred by a new drug product due to irreversible cell death. For example, certain GA patients may have experienced the loss of certain portions of retinal tissue that disproportionately affected their functional vision, and these patients may not value a treatment that can only slow the growth of additional GA lesions without providing a treatment to their loss of functional vision. Certain patients’ immune systems and prior exposure to the virus used to deliver a gene therapy might inhibit the successful delivery of certain gene therapy products to the target tissue, thereby limiting eligibility for treatment or limiting treatment outcomes. If the number of patients that may benefit from the treatments we are seeking to develop is lower than we expect, our business, financial condition, results of operations and prospects may be adversely affected.
Even if we are able to commercialize any of the product candidates that we may develop, the product may become subject to unfavorable pricing regulations, pricing dynamics, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Health care reform, including increasing scrutiny of drug prices, is an issue of intense political focus, particularly in the United States. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals or in ways that could alter the mechanism by which
pharmaceutical prices are negotiated or otherwise determined. SomeMany countries outside the United States require approval of the sale price of a drug before it can be marketed.marketed, and to apply for and obtain such an approval in certain countries, we or a commercialization partner may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control or negotiation even after initial approval is granted. In particular for Zimura in GA, we may need to demonstrate a relative benefit in functional vision in order to obtain reimbursement approval, although our clinical trials, which use an anatomic endpoint as the primary efficacy endpoint, are not designed to demonstrate a functional benefit with statistical significance. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our or any commercialization partner’s commercial launch of the product, possibly for lengthy time periods, andwhich would negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval and are widely accepted and prescribed or used by physicians.
In addition, even in countries where pharmaceuticals are not subject to strict pricing regulations through a governmental review and approval process, we may nonetheless face an unfavorable pricing environment as a result of political pressure or market dynamics. Because there are only two FDA-approved gene replacement therapy products, both of which launched in the United States within the past three years, the pricing environment for gene therapies is in the very early stages of its development. Gene therapies are generally intended to be one-time treatments or, at a minimum, to provide a benefit over an extended period lasting several years. If we are successful in obtaining marketing approval for any of our gene therapy product candidates, we will need to convince third-party payors of the value that our gene therapy product offers. Third-party payors may be unwilling to accept substantial upfront costs for a therapy where the benefits may not be realized or are realized over a period of years during which the patient may no longer be enrolled in the payor's plan. Although payors and manufacturers may be incentivized to agree to outcomes-based payment structures for gene therapies, where manufacturers provide rebates or a portion of the contract price is forgiven if an efficacy or durability threshold is not met for an individual patient, market dynamics in the United States currently do not facilitate these types of outcome-based payments, in particular because of rules that require that government payors, such as Medicaid, receive the “best price” for a drug, regardless of outcome. The perceived high cost for pharmaceutical products to treat orphan diseases, where manufacturers seek to recoup development costs and earn a profit for a therapy intended to treat a relatively small patient population, may attract increased political and public scrutiny. In particular, the $2.1 million list price for Zolgensma has generated significant public scrutiny over the prices of new pharmaceuticals coming to the market, including gene therapies, and as a result, Novartis has proposed permitting third-party payors to pay for Zolgensma in annual installments over five years instead of as a lump sum. Moreover, if we obtain marketing approval for a product candidate, such as Zimura, in more than one indication, including, for example in an orphan indication such as STGD1 and a non-orphan indication such as GA secondary to AMD, such a product candidate likely would only be sold at one price in any given country, regardless of the indications for which it is prescribed. This dynamic may result in our charging a price that does not generate profits in each indication for which the product is approved.
Our ability and the ability of any commercialization partner to commercialize a product candidate successfully also will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A major trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors, particularly Medicare, have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications and encouraging the substitution of lower cost or generic products. Pricing pressures recently experienced by the pharmaceutical industry may be further exacerbated by legislative and policy changes under consideration by the Trump Administration.new Biden Administration, the U.S. Congress and many states. For example, the newprevious Trump Administration, has expressed an interest in authorizing and/or directingthrough the Center for Medicare & Medicaid Service, or CMS, announced in late 2018 an advance notice of proposed rulemaking describing a potential mandatory reference pricing model for Medicare Part B drugs under which the prices paid for these drugs will be adjusted in relation to an international pricing index that includes prevailing prices from other agenciescountries with strict price controls. The reference pricing model has found support from some members of the U.S. governmentCongress. In September 2020, the Trump Administration issued an executive order directing the Secretary of the Department of Health and Human Services, or HHS, to negotiatepropose rulemaking that would limit the prices for drugs coveredpaid by Medicare directly with pharmaceutical companies.for certain drugs and biologics to the "most favored nation" price. If this kind of rule were to occur,be adopted, especially for wet AMD drugs where a large portion of the patient population is over the age of 65 and is therefore covered by Medicare, there could be significant downward pressure on prices charged, not only for patients covered by Medicare, but also for patients covered by private insurers who may follow the government’s lead on price. We expect the Biden Administration to pursue additional rulemaking aimed at limiting drug prices. Moreover, increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medicalpharmaceutical products. We cannot be sure that coverage and
reimbursement will be available for any product that we commercialize or any commercialization partner commercializes on our behalf, and, even if these are available, the level of reimbursement may not be satisfactory.
Reimbursement may affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician and because, in the case of Zimura for the treatment of wet AMD or IPCV, our drug would be administered in combination with other drugs that may carry high prices. In addition, physicians, patients and third-party payors may be sensitive to the addition of the cost of Zimura to the cost of treatment with anti-VEGF drugs for the treatment of wet AMD or IPCV.physician. We or any commercialization partner may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies including inthat may be on the case of Zimura for the treatment of wet AMD or IPCV, relative to monotherapy with anti-VEGF drugs.market. If coverage and adequate reimbursement are not available or reimbursement is available only toat limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. For example, several insurers have limited the subpopulation for or imposed additional eligibility criteria for paying for Zolgensma, beyond the requirements of the approved FDA label, such as requiring that any eligible patients must receive another treatment first and demonstrate that the other treatment is ineffective before using Zolgensma. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution.distribution costs. Interim reimbursement levels for new drugs, if
applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States, a policy that President Trump haswhich many members of the U.S. Congress expressed an interest in pursuing. In September 2020, HHS issued a rule permitting limited importation of drugs from Canada. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our and any commercialization partner’s inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our financial condition, or our ability to raise capital needed to commercialize products.
For a further discussion of health care reform and other political factors affecting drug prices, see the risk factor herein entitled "Current and future legislative efforts may limit the prices for our products, if and when they are licensed for marketing, which could materially impact our overall financial condition.ability to generate revenues."
Governments outside the United States tend
Ethical, legal and social issues related to impose strict price controls,genetic testing may reduce demand for any gene therapy product candidates we develop and for which may adversely affect our revenues, if any.we seek marketing approval.
The pricing
We anticipate that prior to receiving certain gene therapies, including as part of prescription pharmaceuticals is subject to governmental control outside of the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or a commercialization partner mayclinical trial, patients would be required to conductundergo genetic testing. Genetic testing has raised concerns regarding the appropriate utilization and the confidentiality of information provided by genetic testing. The ownership of and the lawfulness of using genetic data is an area of the law that is unclear and varies across jurisdictions. Genetic tests for assessing a person’s likelihood of developing a chronic disease have focused public attention on the need to protect the privacy of genetic information. For example, concerns have been raised that insurance carriers and employers may use these tests to discriminate on the basis of genetic information, resulting in barriers to the acceptance of genetic tests by consumers. This dynamic could lead to governmental authorities restricting genetic testing or calling for limits on or regulating the use of genetic testing, particularly for diseases for which there is no known cure, as well as the use of genetic data. Any of these scenarios could decrease the pool of patients willing to participate in a clinical trial that comparesfor a gene therapy and the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our productsdemand for a gene therapy once it is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.approved.
Product liability lawsuits against us or any future commercialization partner could divert resources, cause us to incur substantial liabilities and limit commercialization of any products that we may develop or in-license.
We face an inherent risk of product liability exposure related to the testing of any product candidate that we develop in human clinical trials, and we and any future commercialization partner will face an even greater risk if we commercially sell any products that we develop or in-license. Because our Zimura wet AMD and IPCV trials involve or will involve the administration of Zimura in combination with an anti-VEGF drug, we also face an inherent risk of product liability exposure related to the testing of such anti-VEGF drug. If we become subject to or otherwise cannot successfully defend ourselves against claims that our product candidates, anti-VEGF drugs administered in combination with our product candidates or our products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•decreased demand for any product candidates or products that we may develop or in-license;
•withdrawal of clinical trial participants;
•injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
•significant costs to defend the related litigation;
•substantial monetary awards to trial participants or patients;
•loss of revenue;
•reduced time and attention of our management to pursue our business strategy; and
•the inability to commercialize any products that we may develop or in-license.
We currently hold $10.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $10.0 million, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when and if we begin commercializing an approved product. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.arise, including coverage for any local jurisdictions where we conduct clinical trials. In addition, if a commercialization or collaboration partner were to become subject to product liability claims or were unable to successfully defend themselves against such claims, any such commercialization or collaboration partners could be more likely to terminate such relationship with us and therefore substantially limit the commercial potential of our products.
Risks Related to Our Dependence on Third Parties
We contract with third parties for the manufacture of and for providing starting materials for our product candidates for preclinical development activities and clinical trials and expect to continue to do so in the future, including to support potential commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or product candidates of sufficient quality, which could delay, prevent or impair our development or commercialization efforts. The COVID-19 pandemic has affected our contract manufacturers' operations and the manufacture of our product candidates.
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of any of our product candidates and have a limited number of personnel hired to supervise outside contract manufacturers. We currently rely upon and expect to continue to rely upon third-party contract manufacturers to manufacture preclinical and clinical supplies of product candidates we are developing or may develop and commercial supplies of products if and when approved for marketing by applicable regulatory authorities. Furthermore, we and our contract manufacturers currently rely upon, and for the foreseeable future expect to continue to rely upon, sole-source suppliers of certain raw materials, plasmids and other specialized components of production used in the manufacture and fill/finish of our product candidates.
We have historically relied on, and purchased on a purchase order basis from, a single third-party manufacturer, Agilent, to provide Zimura drug substance. We have engaged a new manufacturer to conduct scale up and validation activities for Zimura drug substance, and if this manufacturer is successful, we intend for this manufacturer to be our primary supplier for Zimura drug substance. However, we do not currently have any contractual commitments with the new manufacturer or Agilent for the long-term clinical or commercial supply of Zimura drug substance. We may ultimately need to rely on the new manufacturer, Agilent or both or other manufacturers for long-term supply of Zimura drug substance. We have also historically relied on a single third-party manufacturer, Ajinomoto, for Zimura drug product. We have engaged a second fill/finish service provider for additional supply of Zimura drug product for our expected needs for the GATHER2 and STAR trials. We plan to rely on Ajinomoto for long-term supply of Zimura drug product using the new vial we have selected. However, we may ultimately need to rely on other manufacturers for long-term supply of Zimura drug product. We purchase the PEG starting material on a purchase order basis from a single third-party supplier. We are in discussions with this supplier for a long-term supply agreement for the PEG starting material. For these and any other manufacturers with which we do not have any contractual commitments for supply, the pricing and other terms for supply may vary, even substantially, over time and could adversely affect our financial results and operations.
We have engaged a gene therapy CDMO for preclinical and Phase 1/2 clinical supply of IC-100 and IC-200. For IC-500, we have engaged a CDMO to conduct process development, scale-up and cGMP manufacture of the drug substance for preclinical toxicology studies and early-stage clinical trials and a different CDMO to conduct formulation development activities.
Our current and anticipated future dependence upon others for the manufacture of the product candidates that we are developing or may develop may adversely affect our business plan and future growth. For example, any performance failure or differing priorities on the part of our existing or future manufacturers could delay preclinical or clinical development or marketing approval of our product candidates. Our dependence on third party manufacturers may limit our ability to commercialize on a timely and competitive basis any products that receive marketing approval. We may not have adequate or timely visibility over issues at our third-party manufacturers, and may not become aware of any such issues until the effect on our programs, if any, has already materialized.
Agilent and our CDMO for IC-100 and IC-200 are currently undergoing rapid expansion, including ramping up for production for existing clients, bringing on additional clients, opening new facilities, installing and validating new equipment, and hiring and training new personnel. Agilent informed us that as a result of competing demands from other customers, its ability to support our future manufacturing activities for Zimura is limited. As a result, we have engaged a new contract manufacturer that may become our primary or sole supplier for Zimura drug substance, and the timing, costs, progress, quality and outcome of our planned manufacturing activities for Zimura may be negatively affected. In addition, expansion experienced by other manufacturers and suppliers that we use, including any issues that they may experience while expanding, could negatively impact the timing, costs, progress, quality and outcome of our planned manufacturing activities with those manufacturers and delay or hinder our development plans.
If any of our third-party manufacturers, fill/finish providers or sole-source suppliers fail to fulfill our contracts or purchase orders, or if any of these manufacturers or suppliers should become unavailable to us for any reason, including as a result of capacity constraints, differing priorities, regulatory compliance issues, financial difficulties or insolvency, we believe that there are a limited number of potential replacement manufacturers or sole source suppliers, and we likely would incur added costs and delays in identifying or qualifying such replacements. We may be unable to establish agreements with such replacement manufacturers, fill/finish providers or sole-source suppliers or to do so on acceptable terms.
As a result of the COVID-19 pandemic, our third-party contract manufacturers and many sole-source suppliers have limited their operations by reducing the number of staff on site and instituting restrictions on visitors and audits. These changes have affected how we work with our manufacturers and have resulted in minor delays to the progress of our manufacturing activities. For example, we were unable to perform person-in-plant (PIP) observations on a number of critical manufacturing activities at our CDMO for IC-100 and IC-200, which caused minor delays to our manufacturing timelines for both product candidates. Additionally, shortages and governmental restrictions arising from the COVID-19 pandemic have disrupted and may continue to disrupt the ability of our contract manufacturers to procure items, such raw materials, that are essential for the manufacture of our product candidates. For example, in 2020, the COVID-19 pandemic and governmental measures in response caused a delay to the process development activities at our drug substance manufacturer for IC-500 as a result of difficulty in procuring one of the critical starting materials used in the manufacture of IC-500 from China. The COVID-19 pandemic may cause additional disruptions to the supply of starting materials for our product candidates.
In addition, we and our third party manufacturers source some of the raw and starting materials used in the manufacture of our product candidates from outside the United States. We source the PEG starting material from a supplier outside the United States. Our supplier relationships could be interrupted due to international supply disruptions, including those caused by geopolitical and other issues. For example, trade disputes, trade negotiations or the imposition of tariffs between the United States and its trading partners could cause delays or disruptions in our supply of starting materials for our product candidates.
Reliance on third-party manufacturers entails additional risks, including:
•our product candidates may compete with other product candidates and products for access to a limited number of suitable manufacturing facilities that operate under cGMP conditions;
•reliance on the third party for regulatory compliance, quality assurance and quality control;
•the possible breach of the manufacturing agreement by the third party;
•the possible misappropriation of our proprietary information, including our trade secrets and know-how, or the proprietary information of third parties that we are responsible for protecting; and
•the possible termination or non renewal of the agreement by the third party at a time that is costly or inconvenient for us.
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and harm our business and results of operations.
We rely upon third parties in conducting our preclinical development activities and clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such activities. The COVID-19 pandemic has affected operations at our academic collaborators and delayed some of our sponsored research activities.
We are relying upon and expect in the future to rely upon third parties, such as contract research organizations, or CROs, clinical data management organizations, biostatisticians, medical institutions (including reading centers) and clinical investigators, in conducting our preclinical testing, analytical testing and clinical trials for our product candidates. These third parties may also have relationships with other entities, some of which may be our competitors. We or these third parties may terminate their engagements with us at any time for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, our product development activities could potentially be delayed and could potentially be very costly.
We also rely upon our university collaborators to conduct some of our preclinical studies. In particular, Penn has the canine disease models for two of the diseases we are aiming to treat: RHO-adRP and BEST1-related retinal diseases. Our preclinical development plans for IC-200 include conducting certain preclinical studies using the associated canine disease model. In 2020, we experienced some delays in the breeding of the canines for our IND-enabling study for IC-200. If we need to conduct additional preclinical studies using these canines, and these canines are not available to us for any reason, our development of IC-200 could potentially be delayed or otherwise adversely affected.
The COVID-19 pandemic has caused our university collaborators to limit the number of staff on site and the types of activities that may be conducted in their laboratories. Penn restricted their researchers from being on site in their laboratories and closed a number of research centers that our researchers use for data analysis, which has limited their ability to analyze some of the data generated during our preclinical studies. As a result, our receipt of data and reports from some of those studies have been delayed. In addition, we curtailed some of the analysis we had originally planned for one of the preclinical studies for our IC-200 program. The University of Florida, or UF, also limited staff on site in their laboratories and vector production facilities, which has delayed our obtaining certain reagents and other materials used for our gene therapy programs. In addition, UMMS suspended researcher access to their laboratories and the conduct of certain animal studies, which delayed our timelines for our miniCEP290 and miniUSH2A sponsored research programs. In late 2020, another of our academic collaborators suspended enrollment of subjects in one of our non-interventional studies for the IC-100 program for a number of months due to COVID-19 precautions. Shortages and governmental restrictions arising from the COVID-19 pandemic may also disrupt the ability of our academic collaborators, clinical trial sites and other contract research organizations to procure items that are essential for our research and development activities, including, for example, medical and laboratory supplies used in our clinical trials, including personal protective equipment for site staff, or animals that are used for preclinical studies. There is no guarantee that the COVID-19 pandemic will not further impact our supply chain, which could have a material impact on our research and development programs.
Our reliance on these third parties for preclinical testing, analytical testing and clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA and other regulatory authorities require us to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on various government-sponsored databases within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Over the past few years, there has been increasing oversight by the FDA and other regulatory authorities on data integrity, especially in the research and development of novel therapies such as gene therapies. We rely upon the practices of and systems in place at our third party collaborators in generating data to support our preclinical and clinical development programs and for quality control over this data. Their practices and systems vary in scope and effectiveness and we have a limited number of personnel to supervise, including to perform quality assurance of, those practices and systems. The COVID-19 pandemic has prevented us from performing audits on our vendors and clinical trial sites that we otherwise would have performed, which decreases the level of oversight we have over those vendors and clinical trial sites and increases the risk
of non-compliance. Any failure of such practices or systems to comply with our stated protocols or regulatory requirements could adversely affect the quality of the data generated by these studies. For a number of our analytical development and testing providers, our CDMOs subcontract and manage that work on our behalf and we have less visibility into or control over their activities. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our preclinical studies, analytical testing or clinical trials in accordance with regulatory requirements or our stated protocols, we would not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and would not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
We also rely upon other third parties to store, package, label and distribute drug supplies for our clinical trials and to store materials for our development activities. In particular, we rely on a limited number of third parties to store starting materials, drug substance and drug product for our product candidates and programs. Our product candidates are required to be stored and shipped at certain temperatures and a deviation from those requirements may result in delays or additional costs. Any performance failure on the part of these third parties could delay preclinical development, clinical development or marketing approval of our product candidates or commercialization of our products and adversely affect our results of operations.
We rely upon third-party researchers to advance our sponsored research programs. These arrangements may not ultimately yield any promising product candidates for preclinical or clinical development. We may not be able to fully realize the benefits of any intellectual property generated by these arrangements.
Part of our strategy involves collaborative sponsored research to be performed by third-party research institutions. Although we seek to direct this research and advise on the design of these projects as well as critical development decisions, this research is being performed by individuals who are not our employees and the timeline and quality of the research efforts are outside of our direct control. Academic investigators and other researchers may have different priorities than we do as a biopharmaceutical drug development company. The sponsored research agreements we enter into for these programs generally provide that any inventions resulting from the research will be owned by the research institution performing the research, and that we have an option to negotiate for a license to develop and exploit any such inventions. Confidential information and new inventions derived from these research efforts may be disclosed through publications or other means prior to our third-party research collaborators being able to protect such intellectual property through the filing of patent applications. Our third-party research collaborators may not be able to obtain or maintain full ownership of inventions that are derived from the research or associated rights, which may limit their ability to provide us with a license to all relevant intellectual property on terms and conditions that are acceptable to us. Even if our collaborative research efforts yield promising results or new technological advances, they may not ultimately result in our being able to protect, develop or exploit the resulting intellectual property.
If we are not able to establish collaborations to advance our development programs, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates is likely to require substantial additional cash to fund expenses.expenses and the hiring of additional qualified personnel. In addition, the development or commercialization of a product candidate in markets outside of the United States requires regulatory expertise and commercial capabilities that are specific to the local market. A number of countries require sponsors to perform a clinical trial in the local jurisdiction or with patients similar to the demographics of the local population as a condition to approving the drug. For some of our product candidates, we may decideseek to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials and other data we have generated for the product candidate, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, any patent or other forms of exclusivity for such product candidate and the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidate. We may also be restricted underFor our gene therapy programs, we are party to in-license agreements that limit who we can collaborate with or require the approval of our licensor for us to enter into a collaboration, and any future license agreements from enteringthat we may enter into agreements on certain terms with potential collaborators.may have similar restrictions. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical and
biotechnology companies over the past decade that have resulted in a reduced number of potential future collaborators.collaborators and this trend is likely to continue.
If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop ourthose product candidates or bring them to market and generate product revenue.revenue in line with our expectations.
We may
If we enter into collaborations with third parties for the development or commercialization of our product candidates. Thesecandidates, any such collaborations will carry numerous risks. If any of our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.
We may utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to develop or commercialize our product candidates, either in the United States, or in markets outside the United States. We also may seek third-party collaborators for development and commercialization of other product candidates we may develop. Our likely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. If we do enter into any additional arrangements with third parties, in the future, we would likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates could pose numerous risks to us, including the following:
•collaborators, including marketing and distribution collaborators, have significant discretion in determining the efforts and resources that they will apply to these collaborations and may not perform their obligations as expected;
•collaborators may deemphasizede-emphasize or not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus, changes in product candidate priorities or available funding or changes in priorities as a result of a merger, acquisition or other corporate restructuring or transaction;
•collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
•collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
•we could grant exclusive rights to our collaborators, which would prevent us from collaborating with others;
•we may be obligated to supply the collaborator with drug substance or drug product in an amount sufficient for its needs, or may be dependent on the supply of certain materials or products by the collaborator;
•disagreements or disputes with collaborators, including disagreements or disputes over proprietary rights, contract interpretation or the preferred course of development or commercialization, might cause delays or termination of the research, development or commercialization of products or product candidates, might lead to additional responsibilities for us with respect to product candidates or might result in litigation or arbitration, any of which would divert management attention and resources, be time-consuming and expensive, and be expensive;uncertain in outcome;
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution
•collaborators may not properly maintain or defend our intellectual property rights, may infringe the intellectual property rights of third parties, may misappropriate our trade secrets or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation and potential liability;
•laws or practices in certain foreign jurisdictions may require that as a condition of working with a collaborator in such jurisdiction, we agree to certain foreign ownership restrictions, use certain local services or providers, share or license certain of our proprietary information or technology or agree to other conditions that are not attractive to us; and
•collaborations may be terminated forat the convenience of the collaborator, our breach of the terms of the collaboration or other reasons and, if terminated, we may need to raise additional capital to pursue further development or commercialization of the applicable product candidates.
If a collaborator of ours were to be involved in a business combination or other transaction, the foregoing risks would be heightened, and the business combination or transaction may divert attention or resources or create competing priorities. The collaborator may delay or terminate our product development or commercialization program. If one of our collaborators terminates its agreement with us, we could find it more difficult to attract new collaborators and the perception of our company in the business and financial communities could be adversely affected.
Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all.
We rely, in part, on third-party researchers to advance our pipeline expansion efforts. These arrangements may not ultimately yield any promising product candidates for clinical development.
Part of our pipeline expansion strategy involves collaborative sponsored research to be performed by third-party research institutions. Although we seek to direct this research and advise on the design of these projects as well as critical development decisions, this research is being performed by individuals that are not our employees and the timeline and quality of the research efforts are outside of our direct control. Academic investigators and other researchers may have different priorities than we do as a biopharmaceutical drug development company. Confidential information and new inventions derived from these research efforts may be disclosed through publications or other means prior to our being able to protect such intellectual property through the filing of patent applications. Our third-party research partners may not be able to obtain or maintain full ownership of inventions that are derived from the research or associated rights, which may limit their ability to provide us with a license to all relevant intellectual property on terms and conditions that are acceptable to us. Even if our collaborative research efforts yield promising results or new technological advances, they may not ultimately result in our being able to develop or exploit the resulting intellectual property.
We rely upon third parties in conducting our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We have in the past and expect in the future to rely upon third parties, such as CROs, clinical data management organizations, biostatisticians, medical institutions (including reading centers) and clinical investigators, in conducting our pre-clinical testing and clinical trials for our product candidates. We or these third parties may terminate their engagements with us
at any time for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, our product development activities could potentially be delayed and could potentially be very costly.
Our reliance on these third parties for pre-clinical testing and clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with GCPs for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we would not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and would not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors.
We also rely upon other third parties to store, package, label and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.
We contract with third parties for the manufacture of our Zimura for clinical trials and expect to continue to do so in connection with its potential commercialization and for clinical trials and commercialization of any other product candidates that we may develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of Zimura and have limited personnel with manufacturing experience. We currently rely upon and expect to continue to rely upon third-party contract manufacturers to manufacture preclinical and clinical supplies of product candidates we are developing or may develop and commercial supplies of products if and when approved for marketing by applicable regulatory authorities. Our current and anticipated future dependence upon others for the manufacture of the product candidates that we are developing or may develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. In addition, any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.
We currently rely exclusively upon a single third-party manufacturer to provide supplies of Zimura API and a different single third-party manufacturer to provide fill/finish services for Zimura. Although we have agreements in place with Agilent for the supply of Fovista API and with Althea for clinical and commercial fill/finish services, we do not currently have any contractual commitments for the supply of Zimura API. We also do not currently have arrangements in place for redundant supply or a second source for API for Zimura or for a redundant supply or a second source for fill/finish services. We purchase the proprietary polyethylene glycol, or PEG, reagent used to modify the chemically synthesized aptamer in Zimura on a purchase order basis from a single third-party supplier. We do not currently have any contractual commitments for supply of the PEG reagent we use for Zimura. The prices for manufacturing activities that are not yet contractually committed may vary substantially over time and adversely affect our financial results. Furthermore, we and our contract manufacturers currently rely upon sole-source suppliers of certain raw materials and other specialized components of production used in the manufacture and fill/finish of each of Zimura. We currently expect to rely on third-party manufacturers for any manufacturing needs for our collaborative gene therapy research programs or future gene therapy clinical trials.
If any of our third-party manufacturers fail to fulfill our purchase orders, or if any of these manufacturers should become unavailable to us for any reason, including as a result of capacity constraints, financial difficulties or insolvency, we believe that there are a limited number of potential replacement manufacturers, and we likely would incur added costs and delays in identifying or qualifying such replacements. We could also incur additional costs and delays in identifying or qualifying a replacement manufacturer for fill/finish services if our existing third-party fill/finish provider should become unavailable for any reason. We may be unable to establish agreements with such replacement manufacturers or fill/finish providers or to do so on acceptable terms.
Reliance on third-party manufacturers entails additional risks, including:
our product candidates may compete with other product candidates and products for access to a limited number of suitable manufacturing facilities that operate under current good manufacturing practices, or cGMP, regulations;
reliance on the third party for regulatory compliance, quality assurance and quality control;
the possible breach of the manufacturing agreement by the third party;
the possible misappropriation of our proprietary information, including our trade secrets and know-how; and
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.
Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products and harm our business and results of operations.
We depend on licenses and sublicenses for development and commercialization rights to Zimura.Zimura, IC-100, IC-200 and our miniCEP290 program. These license arrangements, as well as the Inception 4 Merger Agreement, impose diligence obligations on us. We may enter into similar arrangements with respect to future product candidates.candidates or technologies. Termination of these rightslicenses or the failure by us or our licensees, including our potential future commercialization or collaboration partners, to comply with obligations under these or other agreements could materially harm our business and prevent us from developing or commercializing our products and product candidates.
We are party to a license agreement with Archemix on which we depend for rights to Zimura. ThisWe are party to two different license agreements, each with UFRF and Penn, on which we depend for rights to IC-100 and IC-200. We are also party to a license agreement imposeswith UMMS for our miniCEP290 program. These agreements generally impose diligence, development and commercialization timelines, milestone payment, royalty, insurance and other obligations on us. Generally, the diligence obligations contained in the agreementthese agreements require us to use commercially reasonable efforts to develop, seek regulatory approval for and commercialize Zimurathe applicable product candidate in the United States and certain territories outside of the United States, including the European Union, Japan and such other markets where it would be commercially reasonable to do so. Under the license agreements for our license agreement with Archemixproduct candidates, we would not be able to avoid our payment obligations even if we believed a licensed patent right was invalid or unenforceable because the license agreements provide that our licenses to all licensed patent rights would terminate if we challenge the validity or enforceability of any licensed patent right. The Inception 4 Merger Agreement, pursuant to which we acquired IC-500, also imposes specified diligence and milestone payment obligations on us. We expect tomay enter into acquisition or licensing agreements in the future that wouldcould impose similar obligations on us, particularly as we pursue our business plan to acquire or in-license additional products, product candidates or other technologies and expand our product pipeline.us.
If we fail to comply with our obligations under current or future acquisition and licensing agreements, or otherwise breach an acquisition or licensing agreement as a result of our own actions or inaction or the actions or inactions of our commercialization or collaboration partners, our counterparties may have the right to terminate these agreements, in which event we might not have the rights or the financial resources to develop, manufacture or market any product that is covered by these agreements. Our counterparties also may have the right to convert an exclusive license to non-exclusive in the territory in which we fail to satisfy our diligence obligations, which could materially adversely affect the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or restated agreements with less favorable terms, seek alternative sources of financing or cause us to lose our rights under these agreements, including our rights to Zimura, IC-100, IC-200, our miniCEP290 program, and other important intellectual property or technology. Any of the foregoing could prevent us from commercializing Zimura or otherour product candidates, we may develop, which could have a material adverse effect on our operating results and overall financial condition. In the case of our limited diligence obligation under the Inception 4 Merger Agreement, a potential breach of our obligation to use commercially reasonable efforts to develop an HtrA1 inhibitor could lead to a lawsuit with the former equityholders of Inception 4 and result in potential liability to us of up to $5.0 million.
In addition to the above risks, certain of our intellectual property rights are sublicenses under intellectual property owned by third parties, in some cases through multiple tiers. The actions of our licensors may therefore affect our rights to use our sublicensed intellectual property, even if we are in compliance with all of the obligations under our license agreements. For example, the licenses from Archemix include sublicenses to us of rights to specified technology, which we refer to as the SELEX technology, licensed by University License Equity Holdings, Inc. to Gilead Sciences, Inc., or Gilead, and sublicensed by Gilead to Archemix, as well as other technology owned by Gilead and licensed to Archemix. Should our licensors or any of their upstream licensors fail to comply with their obligations under the agreements pursuant to which they obtain the rights that are sublicensed to us, or should such agreements be terminated or amended, our ability to develop and commercialize Zimura and otherthe relevant product candidates may be materially harmed. While the applicable agreements may contain contractual provisions
that would in many instances protect our rights as a sublicensee in these circumstances, these provisions may not be enforceable and may not protect our rights in all instances. Further, we do not have the right to control the prosecution, maintenance and enforcement of all of our licensed and sublicensed intellectual property, and even when we do have such rights, we may require the cooperation of our licensors and their upstream licensors, which may not be forthcoming. Our business could be materially adversely affected if we are unable to prosecute, maintain and enforce our licensed and sublicensed intellectual property effectively.
Moreover, the license agreements for IC-100, IC-200 and our miniCEP290 program reserve for the licensing academic institutions the right to continue to practice for research and educational purposes, the inventions covered by the intellectual property rights that we have in-licensed. These licensing institutions or their collaborators may generate scientific, preclinical or clinical data with respect to our product candidates, separate from our research and development efforts, that is inconsistent with other data for such product candidates, including additional preclinical and clinical data that we develop. Investigators at these institutions may publish, present, or otherwise publicly disclose this data, which may have an adverse impact on the prospects of the development of our product candidates and may harm our business. In addition, these institutions may use these data to support new patent applications which could result in the issuance of patents that may limit our freedom to operate without our obtaining additional licenses to these newly developed inventions.
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain or do not maintain patent protection for our technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
We currently rely on and expect to continue to rely on patent rights to protect our competitive position. Once our patents expire, we may not be able to exclude competitors from commercializing products similar or identical to ours. The U.S. patent rights covering Zimura as a composition of matter are expected to expire in 2025. The U.S. patent rights covering methods of treating certain complement protein mediated disorders with Zimura are expected to expire in 2026. The European patent rights covering the composition of matter of Zimura and methods of treating certain complement protein mediated disorders with Zimura are expected to expire in 2025. We expect the clinical development of Zimura to continue for at least the next several years. If so, the patents covering Zimura may expire before the date by which we or a potential commercial partner would be able to commercialize Zimura in the United States or Europe if we seek and obtain marketing approval. Even if we are able to obtain marketing approval for and commercially launch Zimura prior to the expiration of these patents, the remaining term of those patents may be shorter than we anticipate. Although the patent rights under existing patent applications for IC-100, IC-200, IC-500 and our miniCEP290 program are not expected to expire until 2037 or after, we face the same risk with those product candidates and programs and any future product candidates that we may develop.
For our sponsored research agreements with UMMS and Penn, we are generally relying on our university collaborators to generate research and data to support new patent applications. The results of any sponsored research are uncertain and the interests of the universities and university researchers are not necessarily aligned with our interests as a commercial entity. The research may generate limited patentable results or data, or none at all. Furthermore, the universities generally control the filing, prosecution and maintenance of any patents or patent applications resulting from the sponsored research. Therefore, we may not be able to obtain any patent or other exclusivity protections as a result of our collaborative gene therapy sponsored research programs, which could materially diminish or eliminate the value of these programs.
Our licensed patent rights for IC-200 and certain of our licensed patent rights for Zimura and IC-100 are method-of-treatment patents and patent applications. Method-of-treatment patents are more difficult to enforce than composition-of-matter patents because of the risk of off-label sale or use of a drug for the patented method. The FDA does not prohibit physicians from prescribing an approved product for uses that are not described in the product’s labeling. Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties, particularly in the United States, and such infringement is difficult to detect, prevent or prosecute. Off-label sales of other products having the same drug substance as our product candidates would limit our ability to generate revenue from the sale of such product candidates, if approved for commercial sale. In addition, patent laws in Europe and some other
jurisdictions generally make the issuance and enforcement of patents that cover methods of treatment of the human body difficult in those jurisdictions. Further, once the composition-of-matter patents relating to Zimura or IC-100 in a particular jurisdiction, if any, expire, competitors will be able to make, offer and sell products containing the same drug substance as Zimura or IC-100 in that jurisdiction so long as these competitors do not infringe any of our other patents covering Zimura’s or IC-100's composition of matter or method of use or manufacture, do not violate the terms of any marketing exclusivity that may be granted to us by regulatory authorities and they obtain any necessary marketing approvals from applicable regulatory authorities. In such circumstances, we also may not be able to detect, prevent or prosecute off-label use of such competitors’ products containing the same drug substance as Zimura or IC-100, even if such use infringes any of our method-of-treatment patents.
Additionally, we do not currently have any composition-of-matter patent applications or patents covering IC-200. The method-of-treatment patent applications that Penn filed and which we in-licensed may not issue as patents. Even if they are issued as patents, any of the claims covering IC-200 may be declared unpatentable or invalid, or the patents may be declared unenforceable. An inability to secure patent coverage for IC-200 may diminish the value of IC-200 and our competitive position.
Depending on potential delays in the regulatory review process for any of our product candidates, we may be able to obtain patent term extension for one of our patents in the United States under the Hatch-Waxman Act, which permits a patent extension term of up to five years as partial compensation for the portion of the patent term effectively lost during product development and the FDA regulatory review process occurring after the issuance of a patent, but we can provide no assurances that such an extension term will be obtained. Similar to the patent term extension available in the United States, the regulatory framework in the European Union and certain other foreign jurisdictions provides the opportunity to extend the term of a patent that covers an approved drug in certain circumstances. Notwithstanding the availability of patent term extension provisions, we may not be granted patent term extensions because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements, such as using diligent efforts to develop a drug candidate. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term or scope of any such extension is less than we request, any period during which we have the right to exclusively market our product would be shorter than we would otherwise expect, and our competitors may commercialize competing products following our patent expiration, and our revenue could be reduced, possibly materially.
The Hatch-Waxman Act also permits the manufacture, use, offer for sale, sale or importation of a patented invention other than a new animal drug or veterinary biological product, if the manufacture, use, offer for sale, sale or importation is solely for uses that are reasonably related to development of information that could be submitted to the FDA. For this reason, our competitors might be able under certain circumstances to perform activities within the scope of the U.S. patents that we own or in-licensed without infringing such patents. This might enable our competitors to develop during the lifetime of these patents drugs that compete with our product candidates.
Our issued patents may not be sufficient to provide us with a competitive advantage. For example, competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. Even if our owned or licensed patent applications issue as patents, they may not issue with a scope broad enough to provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage.
The issuance of a patent is not conclusive as to its inventorship, ownership, scope, term, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. For example, if we receive marketing approval for our product candidates, other pharmaceutical companies may seek approval of generic or biosimilar versions of our products with the FDA or regulatory authorities in other jurisdictions. We may then be required to initiate proceedings against such companies in order to enforce our intellectual property rights. The risk of being involved in such proceedings is likely to increase if our products are commercially successful. In any such proceedings, the inventorship, ownership, scope, term, validity and enforceability of our patents may be challenged. These and other challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to prevent others from using or commercializing similar or identical technology and products or from launching generic or biosimilar versions of our products, or could limit the duration of the patent protection of our technology and products. The launch of a generic version of one of our products in particular would be likely to result in an immediate and substantial reduction in the demand for our product, which could have a material adverse effect on our business. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
The patent prosecution process is expensive and time-consuming, is highly uncertain and involves complex legal and factual questions. Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing in the United States and in certain foreign jurisdictions patent applications related to our novel technologies and product candidates that are important to our business.
The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify or protect patentable aspects of our research and development output before it is too late to obtain patent protection. In addition, we may not pursue or obtain patent protection in all major markets. Moreover, in some circumstances, we do not have the right to control the preparation, filing or prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties or covering technology that a collaboration or commercialization partner may develop, the eventual commercialization of which could potentially entitle us to royalty payments. In some circumstances, our licensors may have the right to enforce the licensed patents without our involvement or consent, or to decide not to enforce or to allow us to enforce the licensed patents. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If any such licensors fail to maintain such patents, or lose rights to those patents, the rights that we have licensed may be reduced or eliminated and our ability to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of the United States. For example, European patent law restrictslaws in Europe and some other jurisdictions restrict the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. Moreover, the U.S. Patent and Trademark Office, or USPTO, might require that the term of a patent issuing from a pending patent application be disclaimed and limited to the term of another patent that is commonly owned or names a common inventor. As a result, the issuance, scope, term, validity, term, enforceability and commercial value of our patent rights are highly uncertain.
Our pending and future patent applications, and any collaboration or commercialization partner’s pending and future patent applications, may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our or their ability to generate additional preclinical or clinical data that support the patentability of our proposed claims. We or any collaboration or commercialization partner may not be able to generate sufficient additional data on a timely basis, or at all. In addition, the issuance of any patents will depend on the existence of any prior art that comes to the patent examiner's attention during prosecution, sometimes through the actions of third parties, and whether our claimed invention meets the statutory criteria for being granted a patent in light of the prior art. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States or other countries may diminish the value of our or a collaboration or commercialization partner’s patents or narrow the scope of our or their patent protection.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, theThe Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S.revised United States patent law. These include provisions that affectlaw in part by changing the waystandard for patent applications are prosecuted, redefine prior art, may affect patent litigation and switch the U.S. patent systemapproval from a “first-to-invent” system“first to invent” standard, which had existed before March 2013, to a “first-to-file”“first to file” standard and developing a post-grant review system. Under a first-to-file system, assuming the other requirements for patentabilityFor example, if we are met, the first inventorto invent a new product or its use, but another party is the first to file a patent application generally willon this invention, under the new law the other party may be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The USPTO
recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will haverights on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.invention.
Moreover, we may be subject to a third-party preissuance submission of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. The Leahy-Smith Act expanded the ability of third parties to challenge the patents held by patentees through administrative reviews at the USPTO, which may facilitate others to challenge our patents. Based on available information, we believe that inter partes
review proceedings, brought by financial investors who may be selling short the stock of the patent holder, are becoming more prevalent. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights; allow third parties to commercialize our technology or products and compete directly with us, without payment to us; or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
If we are unable to obtain and maintain or do not maintain patent protection for our technology and products during the period of their commercialization, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
The U.S. patent rights covering Zimura as a composition of matter are expected to expire in 2025. The U.S. patent rights covering methods of treating certain complement protein mediated disorders with Zimura are expected to expire in 2026. The European patent rights covering the composition of matter of Zimura and methods of treating certain complement protein mediated disorders with Zimura are expected to expire in 2025. As we expect the clinical development of Zimura to continue for at least the next several years, these expiration dates may be prior to the date by which we would be able to commercialize Zimura in the United States or Europe if we seek and obtain marketing approval. Once our patents expire, we may not be able to exclude competitors from commercializing products similar or identical to ours if such competitors do not use or promote our claimed methods of treatment or do use or promote our methods of treatment after our patents expire.
Depending on potential delays in the regulatory review process for Zimura, we may be able to obtain patent term restoration for one of our patents in the United States under the Hatch-Waxman Act, which permits a patent restoration term of up to five years as partial compensation for patent term effectively lost during product development and the FDA regulatory review process occurring after the issuance of a patent, but we can provide no assurances that such a restoration term will be obtained. Similar to the patent term restoration available in the United States, the regulatory framework in the European Union and certain other foreign jurisdictions provides the opportunity to extend the term of a patent that covers an approved drug in certain circumstances. Notwithstanding the availability of patent term extension or restoration provisions, we may not be granted patent term extensions because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term or scope of any such extension is less than we request, any period during which we have the right to exclusively market our product would be shorter than we would otherwise expect, and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.
Certain of our licensed patent rights for Zimura are method-of-treatment patents. Method-of-treatment patents are more difficult to enforce than composition-of-matter patents because of the risk of off-label sale or use of a drug for the patented method. The FDA does not prohibit physicians from prescribing an approved product for uses that are not described in the product’s labeling. Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties, particularly in the United States, and such infringement is difficult to detect, prevent or prosecute. Off-label sales of other products having the same API as Zimura or any other product candidates we may develop would limit our ability to generate revenue from the sale of Zimura or such other product candidates, if approved for commercial sale. In addition, European patent law generally makes the issuance and enforcement of patents that cover methods of treatment of the human body difficult. Further, once the composition-of-matter patents relating to Zimura or any other product candidate in a particular jurisdiction, if any, expire, competitors will be able to make, offer and sell products containing the same API as Zimura or such other product candidate in that jurisdiction so long as these competitors do not infringe any other of our patents covering Zimura’s composition of matter or method of use or manufacture, do not violate the terms of any marketing or data exclusivity that may be granted to us by regulatory authorities and obtain any necessary
marketing approvals from applicable regulatory authorities. In such circumstances, we also may not be able to detect, prevent or prosecute off-label use of such competitors’ products containing the same API as Zimura, even if such use infringes any of our method-of-treatment patents.
The Hatch-Waxman Act also permits the manufacture, use, offer for sale, sale or importation of a patented invention other than a new animal drug or veterinary biological product, if the manufacture, use, offer for sale, sale or importation is solely for uses that are reasonably related to development of information that could be submitted to the FDA. For this reason, our competitors might be able under certain circumstances to perform activities within the scope of the U.S. patents that we own or under which we are licensed without infringing such patents. This might enable our competitors to develop during the lifetime of these patents drugs that compete with our product candidates, if they are ultimately approved.
Our issued patents may not be sufficient to provide us with a competitive advantage. For example, competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. Even if our owned or licensed patent applications issue as patents, they may not issue with a scope broad enough to provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. We could also fail to take the required actions and pay the necessary governmental fees to maintain our patents.
The issuance of a patent is not conclusive as to its inventorship, ownership, scope, term, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. For example, if we receive marketing approval for our product candidates, other pharmaceutical companies may seek approval of generic versions of our products with the FDA or regulatory authorities in other jurisdictions. We may then be required to initiate proceedings against such companies in order to enforce our intellectual property rights. The risk of being involved in such proceedings is likely to increase if our products are commercially successful. In any such proceedings, the inventorship, ownership, scope, term, validity and enforceability of our patents may be challenged. These and other challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to prevent others from using or commercializing similar or identical technology and products or from launching generic versions of our products, or could limit the duration of the patent protection of our technology and products. The launch of a generic version of one of our products in particular would be likely to result in an immediate and substantial reduction in the demand for our product, which could have a material adverse effect on our business. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
Competitors may infringe or otherwise violate our patents, trademarks, copyrights or other intellectual property. To counter infringement or other violations, we may be required to file claims, which can be expensive and time consuming. For some of our licensed patent rights, we may need the cooperation of our licensors to file such claims. Any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we infringe their patents or other intellectual property rights. In addition, in a patent infringement proceeding, a court may decide that one or more of the patents we assert is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to prevent the other party from using the technology at issue on the grounds that our patents do not cover the technology. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In such a case, we could ultimately be forced to cease use of such marks. In any intellectual property litigation, even if we are successful, any award of monetary damages or other remedy we receive may not be commercially valuable.valuable and we may not be able to obtain injunctive relief. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Third parties may initiate legal proceedings or take other actions alleging that we are infringing or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability and the ability of our collaborators, including our contract manufacturers and any future collaboration and commercializationcommercial partners, to develop, manufacture, market and sell our product candidates and products and use our proprietary technologies without infringing or otherwise violating the intellectual property and other proprietary rights of third parties. New patent applications in the filedfield of biotechnology and pharmaceuticals, and gene therapies in particular, are being filed at a rapid pace.
There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We or any future collaboration and commercialization partnerscollaborators may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference, derivation, re-examination, post-grant review, inter partes review, opposition, cancellation or similar proceedings before the USPTO or its foreign counterparts. The risks of being involved in such litigation and proceedings may also increase as our or their product candidates near commercialization.
Third parties may assert infringement or other claims against us or our collaboration or commercialization partnerscollaborators based on existing or future intellectual property rights. We or they may not be aware of all such intellectual property rights potentially relating to our product candidates and their manufacture, and uses.use or sale. In addition, contract manufacturers may inadvertently incorporate intellectual property belonging to third parties into our products or the manufacturing processes for these products without our knowledge. There is a lag between the filing of a patent application, which generally establishes the priority date of a patent claim, and the publication of such patent application. During the period between filing of a patent application and publication of the application, we would not otherwise have a means of discovering the existence or extent of the claimed inventions contained in a filed but unpublished patent application. Patent applications are often drafted broadly, and the scope of patent claims that may ultimately issue may not be known until several years after a patent application is filed and published. We may make development or pipeline decisions based on our belief that our product candidates can be distinguished from patent claims contained in published patent applications or issued patents, that patent claims contained in published patent applications are unlikely to issue as drafted, or that claims contained in issued patents are invalid. These positions regarding third-party intellectual property may not ultimately be successful in litigation. Thus, we do not know with certainty that our product candidates, or our intended manufacture or commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.
If we are or any of our future collaboration or commercialization partnerscollaborators is found to infringe or otherwise violate a third party’s intellectual property rights, we or they could be required to obtain a license from such third party to continue developing, manufacturing and marketing our
product candidates or their products and technology or to continue using a trademark. However, we or our future collaboration and commercialization partnerscollaborators may not be able to obtain any required license on commercially reasonable terms or at all. Even if we or they were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our collaboration and commercialization partnerscollaborators and could require us or them to make substantial licensing and royalty payments. We or our future collaboration and commercialization partnerscollaborators could be forced, including by court order, to cease using or commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us or our future collaboration and commercialization partnerscollaborators from making or commercializing our or their product candidates or force us or them to cease some of our business operations, which could materially harm our business. Claims that we or our future collaboration and commercialization partnerscollaborators have misappropriated the confidential information or trade secrets of third parties could expose us or them to similar liabilities and have a similar negative impact on our business.
We may be subject to claims by third parties asserting that we or our employees or contractors have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees and contractors were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and contractors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees or contractors have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or contractor’s former employer. Litigation may be necessary to defend against these claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. Moreover, because we acquired some of the rights to Zimuraour product candidates from Archemix,third parties, we must rely upon Archemix's and its successors'these third parties' practices, and those of itstheir predecessors, with regard to the assignment of intellectual property therein.therein, including the intellectual property rights protecting IC-500 and the other HtrA1 inhibitors we acquired in the Inception 4 acquisition transaction. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.
If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent offices, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and patent offices in foreign countries in several stages over the lifetime of the patent. The USPTO and patent offices in foreign countries require compliance with a number of procedural, documentary, fee payment and other requirements during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of a patent or patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official
actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market sooner than we expect, which would have a material adverse effect on our business.
In addition, we may decide not to pursue patent prosecution in certain markets or jurisdictions. For example, we may decide that the costs of obtaining and maintaining patent protection in a certain jurisdiction may outweigh the commercial benefits of patent protection. If so, our competitors may enter into and commercialize identical or similar products in that jurisdiction and if we choose to commercialize our products in that jurisdiction, we may not be able to exclude our competitors in the same way as if we had chosen to pursue patent prosecution in that jurisdiction.
The COVID-19 pandemic has caused the USPTO and many foreign patent offices to adjust their filing deadlines and requirements for applicants. While some of those changes may be beneficial to us, there is added uncertainty with regard to many procedural requirements, which may result in inadvertent non-compliance with those requirements that result in abandonment or lapse of patent rights. Additionally, the reduced staff and operations at many patent offices may delay the prosecution of patent rights or limit us or our patent agents' ability to interact with them.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and products, we also rely upon trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants,potential business development counterparties, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. We cannot guarantee that we have executed such agreements with each party that may have or have had access to our trade secrets. Moreover, because we acquired certain rights to Zimura from Archemix,IC-500 and our other HtrA1 inhibitors through the acquisition of Inception 4, we must relyare relying upon Archemix'sInception 4's, and its successors'prior owner's, practices and those of its predecessors, with regard to the protection of Zimura-related trade secrets before we acquired it.and intellectual property rights for the period prior to our acquisition of Inception 4. Any party with whom we or they have executed a non-disclosure and confidentiality agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not become aware of such breach or may not be able to obtain adequate remedies for such breaches.remedies. Our proprietary information may also be obtained by third parties by other means, such as breaches of our physical or computer security systems.
Detecting the disclosure or misappropriation of a trade secret and enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor,us and our competitive position would be harmed.
Risks Related to Information Technology and Data Protection
We rely significantly upon our information technology systems and any failure, inadequacy, interruption or security lapse of those systems could harm our ability to operate our business effectively. Information technology risks have become more significant over time, including as a result of widespread remote working during the COVID-19 pandemic.
In the ordinary course of business, we collect, process and maintain personal and other sensitive data on our information technology networks. These data include our intellectual property and other proprietary or confidential information relating to our business as well as proprietary or confidential information of third parties including business collaborators. These data also include personal information relating to our clinical trial participants, employees and contractors, clinical investigators and other study staff and healthcare professionals. The secure maintenance of this sensitive information is critical to our business and reputation.
We have implemented a number of measures to protect our information technology systems. These measures include, among others, creation of a cyber-security governance team and an incident response plan and other standard operating procedures for responding to any cyber-security incidents, mandatory routine cyber-security training, including social engineering training, for our employees and consultants with access to our information technology systems, and engagement of a third-party vendor to regularly assess our informational technology systems and potential vulnerabilities.
Despite the implementation of security measures, our information technology systems are vulnerable to compromise, damage, loss or exfiltration from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. In particular, companies and other entities and individuals have been increasingly subject to a wide variety of cyber and ransomware attacks, phishing scams and other attempts to gain unauthorized access to systems and information, including through social engineering. The number and complexity of these threats continue to increase over time. These threats can come from a variety of sources, ranging in sophistication from individual hackers to state-sponsored attacks. Cyber threats may be broadly targeted, or they may be custom-crafted against our information systems. In particular, there have been increasing number of cyber threats and attempts by foreign hackers targeted towards U.S. pharmaceutical and biotechnology companies and vendors they work with.
As a result of the COVID-19 pandemic, we have switched to remote working since March 2020 and as a result, have increasingly relied upon teleconferencing and cloud-based means of communication and data storage. Many other companies have done the same. There have been numerous publicized attempts of bad actors attempting to intercept proprietary communications. We may be similarly susceptible to those kinds of threats.
Cyber-attacks have become more prevalent and much harder to detect and defend against. Our networks and storage applications may be subject to unauthorized access by hackers or breached due to human error, malfeasance or other system disruptions. We may not anticipate or immediately detect such incidents and the damage caused by such incidents. System failures, data breaches and any unauthorized access, use or disclosure of our information or data could compromise our intellectual property and expose sensitive business information; lead to unauthorized exposure of personal information of our clinical trial participants, our employees or contractors, our clinical investigators or other study staff, or others we work with; and/or result in disruptions to our research and development activities and business operations, including potential product development, regulatory approval and commercialization delays.
In addition, cyber-attacks and the measures we implement to prevent, detect, and respond to them could cause us to incur significant remediation costs, including costs to recover or reproduce any compromised data, expose us to contractual damages and/or regulatory and other liability, require us to make certain breach notifications, and divert the attention of our management and key information technology resources. Any loss of preclinical data or clinical trial data could result in delays to our product development, marketing approval and commercialization efforts. We may not have adequate insurance coverage to provide compensation for any losses associated with such events and cybersecurity insurance is becoming more expensive. Any breach of security could harm our reputation and deter patients, clinical investigators, or other healthcare professionals and business collaborators from participating in our clinical trials or otherwise working with us.
We also rely significantly upon the information technology systems of our third-party service providers and any failure, inadequacy, interruption or security lapse of those systems could harm our ability to operate our business effectively. We have limited control and oversight over the information security systems and practices of third parties.
In the ordinary course of business, we rely on third parties, including clinical trial sites, CROs, CDMOs and other service providers, to collect, process and maintain personal and other sensitive data on their respective networks for our research and development activities and other business operations. These data include our intellectual property and other proprietary or confidential information relating to our business, as well as personal information relating to our clinical trial participants, employees and contractors, and clinical investigators and other study staff. The maintenance of our data by third parties does not absolve us of our responsibility for the security and integrity of this data.
We have limited control and oversight over the information security systems and practices of third parties. Those systems and practices vary widely in sophistication and robustness. We have limited personnel and resources to oversee the information security systems of third parties with whom we work.
Like our information security systems, those of our third-party service providers are vulnerable to compromise, damage, loss or exfiltration from cyber-attacks, computer viruses, unauthorized access and other causes. Our third-party service providers may not anticipate or immediately detect such incidents and the damage caused by such incidents or notify us in a timely or complete manner. System failures, data breaches and any unauthorized access, use or disclosure of our information or data maintained by our third-party service providers could lead to similar consequences for us as similar events involving our information technology systems, including compromise of our intellectual property or other sensitive personal or business information, disruptions and delays to our research and development activities and other operations, contractual and regulatory liability, data breach notifications, expenditure of significant costs and resources for remediation and harm to our reputation.
In September 2020, one of our vendors for the GATHER2 trial suffered a ransomware attack on several of its servers. While this vendor investigated and worked to mitigate the effects of the incident, we deployed a backup process for the work this vendor was performing for us. Although we do not believe this incident had a material impact on the GATHER2 trial or otherwise on our business or operations, similar kinds of incidents may occur in the future with this or our other vendors.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data in line with our expectations, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of personal information is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future. Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we must comply, and those frameworks may not be consistent. For example, the collection, use, disclosure, transfer, or other processing of personal data regarding individuals in the European Union, including personal health data, is subject to the General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities and their rights, conducting data protection impact assessments before starting certain processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches, and taking certain measures when engaging third-party data processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the European Union, including the United States, some of which are currently in flux, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. The GDPR also provides certain discretion to individual European member states, and many of them have enacted local legislation implementing the GDPR that differ from one another. The GDPR compliance framework is evolving as data protection authorities enforce applicable requirements and as European courts interpret the GDPR. We are aware that many other countries have enacted or are considering legislation similar to the GDPR.
Similar actions are either in place or under way in the United States. There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels with the authority to review our privacy and data security practices. The Federal Trade Commission and state Attorneys General have been increasingly active in reviewing companies' privacy and data security practices in relation to consumer information. New legislation and regulations are being considered, and in certain cases enacted, at both the state and federal levels. For example, the California Consumer Privacy Act, or the CCPA, which went into effect on January 1, 2020, and its replacement, the California Privacy Rights Act, which will become effective on January 1, 2023, are creating similar risks and obligations as those created by the GDPR, although the CCPA exempts certain information collected as part of a clinical trial that is subject to the Federal Policy for the Protection of Human Subjects (the Common Rule). The New York SHIELD Act, which became fully effective in March 2020, imposes certain data security and data breach notification requirements on organizations that collect personal information of New York residents. Many other states are considering similar legislation. A broad range of legislative measures are being introduced at the federal level. Accordingly, failure to comply with federal and state laws (both those currently in effect and future legislation) regarding privacy and security of personal information could expose us to fines and penalties under such laws. We also may be subject to consumer class action litigation related to alleged noncompliance with these laws. Even if we are not determined to have violated these laws, responding to government investigations and/or consumer litigation in these areas typically requires the expenditure of significant resources and has the potential to generate negative publicity, which could harm our reputation and our business.
Given the breadth and depth of changes in data protection obligations, preparing for and complying with these requirements has required and will continue to require significant time, resources and a review of our technologies, systems and practices, as well as those of any third-party collaborators, service providers, contractors or consultants that process or transfer personal data on our behalf. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, have resulted in certain changes to our business practices, such as additional consideration given to the GDPR and other relevant data protection laws in setting up clinical trial agreements and informed consent forms for our GATHER2 trial, and may require further changes to our business practices. Any non-compliance by us or our employees, consultants or contractors with the GDPR or other applicable data protection laws could lead to setbacks in the development or approval of our product candidates, government enforcement actions, private litigation, significant fines and penalties, or reputational harm and could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to Employee Matters and Managing Our Operations
We are a development-stage company with a limited number of employees to oversee our research and development programs and general and administrative functions. We may experience difficulties in recruiting necessary personnel and in retaining key employees and consultants.
We are a development-stage company with a total of 57 full-time employees as of January 31, 2021. These employees support key areas of our business and operations, including clinical operations, regulatory affairs, drug safety, data management, medical affairs, scientific research, process and analytical development, drug substance and drug product manufacturing, quality control, materials and supply chain management, and quality assurance, as well as all of our general and administrative functions and public company infrastructure.
We remain highly dependent on David R. Guyer, M.D., our executive chairman, and Glenn P. Sblendorio, our chief executive officer and president, as well as the other principal members of our management, scientific and clinical teams. We do not maintain “key person” insurance for any of our executives or other employees. Although we have entered into letter agreements with our executive officers, each of them and our non-executive employees may terminate their employment with us at any time. As a result, key employees whom we expect to retain to assist with the growth of our business may choose not to remain employees. Additionally, because of our size, we have only a small number of employees supporting some of the key areas of our business and operations. If any of those employees were to leave our company or become unavailable due to the COVID-19 pandemic or other reasons, the loss of their services could seriously disrupt our ability to carry on our operations as planned and seriously harm our ability to successfully implement our business plan.
Furthermore, replacing any of our executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. As we conduct our GATHER2 trial and the expanded STAR trial, prepare for the future development and potential commercialization of Zimura, and continue the development of IC-500 and our gene therapy programs, we have been and expect we will need to continue hiring additional clinical operations, quality assurance, manufacturing, analytical, medical, regulatory and other personnel from this limited pool. We also experience competition for the hiring of scientific, technical and clinical personnel from universities and research institutions. The COVID-19 pandemic has made interviewing and hiring qualified candidates more difficult.
In addition to our employees, we rely on consultants and advisors, including scientific, technical and clinical advisors, to assist us in formulating our research and development, manufacturing, commercialization and lifecycle management strategies. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Many consultants and advisors, especially those with gene therapy experience, are high demand and we may not be able to obtain or retain their services for any number of reasons, which could limit our ability to pursue our strategy.
As a result of the COVID-19 pandemic, our entire company has been working remotely since March 2020 and we expect to continue working remotely for the foreseeable future. Our ability to continue to work remotely and when the conditions are appropriate, transition effectively to working in our offices, may affect our operations and the success of our company going forward.
In March 2020, we instituted a company-wide working from home policy, which has remained in effect. Our working from home policy may negatively impact productivity or disrupt our business, the magnitude of which will depend, in part, on the length of this remote working arrangement and other limitations on our ability to conduct our business in the ordinary course. We expect to work from home for the foreseeable future and will closely follow the guidance from federal and state authorities, including the Centers for Disease Control and Prevention, the New York State Department of Health and the New Jersey Department of Health, in deciding if and when to transition back to working in our offices. We are also exploring new office space that may be more cost effective and suitable for working in a safe and socially distanced manner. We expect the transition to working in our offices, if any, to occur in stages, which will depend on, among other factors, the local COVID-19 situation and the degree to which our employees have received vaccines. If and when we transition back to working at company sites, there may be an increased risk to our employees and contractors, including as a result of a subsequent waves of the COVID-19 pandemic. If any of them contracts COVID-19 as a result of or while conducting services for us, we may be subject to workers compensation or other claims. Because of our small size and the importance of our employees and contractors to the success of our company, their exposure to the COVID-19 pandemic may adversely affect our ability to carry on our operations.
If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements would not be prevented or detected on a timely basis. If any material weakness in our internal control over financial reporting is discovered or occurs in the future, our financial statements may contain material misstatements and we could be required to restate our financial results. As previously disclosed, in 2015 our management concluded that we experienced a material weakness in internal controls that required us to restate the relevant financial statements and we took steps that year to address the deficiency and prevent similar deficiencies in the future. Although we have remediated this deficiency in internal control over financial reporting, we cannot be certain that the remedial measures that we took in the past or other measures we take in the future, especially in light of the decrease in staffing in our accounting and finance areas following our reduction in force during 2017, will ensure that we maintain adequate controls over our financial reporting going forward and, accordingly, additional material weaknesses could occur or be identified. The COVID-19 pandemic may also affect the effectiveness of our internal controls. Any future material weaknesses or combination of deficiencies could materially and adversely affect our ability to provide timely and accurate financial information and investors’ confidence in our internal controls and our company, which could cause our stock price to decline.
Risks Related to Regulatory Approval and Marketing of our Product Candidates and Other Legal Compliance Matters
Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue would be materially impaired.
Our product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and
distribution export and import and export, are subject to comprehensive regulation by the FDA, and by the EMA and comparable regulatory agencies in other countries.
In general, the FDA and similar regulatory authorities outside the United States require two adequate and well controlledwell-controlled clinical trials demonstrating safety and effectiveness for marketing approval for an ophthalmic pharmaceutical product. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely upon third-party CROs to assist us in this process. Securing marketing approval requires obtaining positive safety and efficacy data from required clinical trials, as well as the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the productproduct's manufacturing processprocesses to, and inspection of manufacturing facilities by, the relevant regulatory authorities. The FDA or other regulatory authorities may determine that a product candidate that we may develop is not effective, is only moderately effective or has undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. In the case of Zimura for the treatment of wet AMD or IPCV, the FDA or other regulatory authority may limit the approval of Zimura to use with only specified anti-VEGF drugs that are approved for the treatment of wet AMD or IPCV rather than with all anti-VEGF drugs. Such limitation could limit sales of Zimura for the treatment of wet AMD or IPCV.
The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical,non-clinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Marketing approval of novel product candidates such as Zimura and our gene therapy product candidates manufactured using novel manufacturing processes can be more expensive and take longer than for other, more well-known or extensively studied pharmaceutical or biopharmaceutical products, due to regulatory agencies’ lack of experience with them. We believe that the FDA has only granted marketing approval for one aptamer product and two gene replacement products to
date. This lack of experience may lengthen the regulatory review process, require us to conduct additional non-clinical studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions.
Accordingly, if we or our collaborators experience delays in obtaining approval or if we fail to obtain approval of Zimura or any otherour product candidate that we develop,candidates, the commercial prospects for such product candidate may be harmed and our ability to generate revenues would be materially impaired.
Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed in such jurisdictions. The approval requirements in foreign jurisdictions may differ significantly from those in the United States.
In order to market and sell our product candidates in the European Union and many other jurisdictions, we or our third-party commercialization partners must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional preclinicalnon-clinical or clinical testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for salesold in that country. We or our third-party commercialization partners may not obtain marketing and/or reimbursement approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We and our third-party commercialization partners may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If our third-party commercial partners fail to obtain marketing approval in certain jurisdictions, it may diminish the value of our product candidate to them and cause them to terminate their relationship with us.
Additionally, onIn June 23, 2016, the electorate in the United Kingdom, or UK, voted in favor of leaving the European Union, commonly referred to as Brexit. On March 29, 2017,“Brexit”. Following protracted negotiations, the country formally notifiedUK left the European Union of its intentionon January 31, 2020 and European Union rules and regulations ceased to withdraw pursuantapply to Article 50 of the Lisbon Treaty.UK starting on January 1, 2021. In December 2020, the UK government and the European Union agreed on a long-term trade agreement to govern economic relations going forward. Since a significant proportion of the existing regulatory framework for pharmaceutical products in the United KingdomUK is derived from European Union directives and regulations, the referendumBrexit could materially impact the future regulatory regime with respectfor pharmaceutical products in the UK, which remains uncertain. We are continuing to analyze how Brexit and the approval of our product candidatesrecently concluded trade agreement will affect the future regulatory regime for pharmaceutical products in the United Kingdom or the European Union.Kingdom. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom and/or European Union for our product candidates, which could significantly and materially harm our business.
A fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory review or approval process. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program or for other reasons.
The FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other products, for the treatment of a serious or life-threatening disease or condition, and if the product 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 application 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 application 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 or for other reasons.
In April 2020, the FDA granted fast track designation to Zimura for the treatment of GA secondary to dry AMD. Even though Zimura has received fast track designation, we must continue to follow the requirements of the program in order to maintain the fast track designation, and even if we maintain the designation, we may not ultimately experience a faster development process, review or approval compared to conventional FDA procedures. The FDA's grant of fast track designation
to Zimura for the treatment of GA secondary to dry AMD does not imply that the FDA will grant fast track designation to Zimura for another indication, such as STGD1, or that the FDA will grant fast track designation for any of our other product candidates, if we choose to apply for fast track designation.
A breakthrough therapy designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates would receive marketing approval.
In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory scheme allowing for expedited review of products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other products, 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 help design the clinical trials in an efficient manner.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead decide not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not ensure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the products no longer meet the conditions for qualification or that the time period for FDA review or approval will not be shortened.
We currently do not have orphan drug designations or orphan drug exclusivity for any product.product candidate. If our competitors are able to obtain orphan drug exclusivity for products that constitute the same or similar drug and treat the same indications as our product candidates, we may not be able to have competing productsour product candidates approved by the applicable regulatory authority for a significant period of time.
Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals 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. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union. Additionally, orphan designation is granted for products intended for theUnion and that there exists no satisfactory method of diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronicthe condition and when, without incentives, it is unlikelyin question that sales of the drughas been authorized in the European Union wouldCommunity or, if such method exists, that the medicinal product will be sufficientof significant benefit to justify the necessary investment in developing the drug or biologic product.those affected by that condition.
If we request orphan drug designation for any of our product candidates in one or more indications, there can be no assurances that the FDA or the European Commission will grant any of our product candidates such designation. Additionally, the designation of any of our product candidates as an orphan product does not guarantee that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the European Commission, as the case may be, during that marketing exclusivity period from approving another marketing application for a product that constitutes the same or similar drug treating the same indication, for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do, (regardlessregardless of our orphan drug designation),designation, we willmay be precluded from receiving marketing approval for our product forcandidate during the applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the European Union. The exclusivity period in the United States can be extended by six months if the sponsor submits pediatric data that fairly respond to a written request from the FDA for such
data. In the European Union, the exclusivity period can be extended by two years following the completion of an agreed pediatric investigation plan. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked, or a competing sponsor may be allowed on the market, if any regulatory agency determines that the request for designation was materially defective or if the manufacturersponsor having orphan drug exclusivity is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs cana competing sponsor's drug could nevertheless be approved for the same condition.condition if certain requirements are met. In the United States, even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latterlater drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In particular, the concept of what constitutes the "same drug" for purposes of orphan drug exclusivity remains in flux in the context of gene therapies, and the FDA has issued draft guidance suggesting that it would not consider two gene therapy products to be different drugs solely based on minor differences in the transgenes or vectors. In the European Union, marketing authorization may be granted to a similar medicinal product for the same orphan indication if:
•the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;
•the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or
•the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of the orphan medicinal product.
A fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory review or approval process. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program.
If a drug is intended for the treatment of a serious or life-threatening disease or condition and the drug demonstrates the potential to address unmet medical needs for this disease or condition, the drug sponsor may apply for FDA fast track designation. If a drug offers major advances in treatment, the drug sponsor may apply for FDA priority review status. The FDA has broad discretion whether or not to grant fast track designation or priority review status, so even if we believe a particular product candidate is eligible for such designation or status the FDA could decide not to grant it. Even though a product has received fast track designation and may be eligible for priority review status, a sponsor may not ultimately experience a faster development process, review or approval compared to conventional FDA procedures.
A breakthrough therapy designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that our product candidates would receive marketing approval.
We may seek a breakthrough therapy designation for some of our product candidates. A breakthrough therapy is defined as a drug that is intended, 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 drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interactions and communications between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval.
Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the products no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Any product candidate for which we obtain marketing approval could be subject to post-marketing restrictions or withdrawal from the market and we or our third-party commercialization partners may be subject to penalties if we or our third-party commercialization partners or our or their manufacturers fail to comply with regulatory requirements or if we or our third-party commercialization partners or our or their manufacturers experience unanticipated problems with our products, when and if any of them are approved.
Any product candidate for which we or our commercialization partners obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continualthe continued requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control and quality assurance, tracking of complaints and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or may be subject to significant conditions of approval or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the medicine, including the possible requirement to implement a risk evaluation and mitigation strategy.
The FDA and other agencies, including the Department of Justice, or the DOJ, closely regulate and monitor the post-approval marketing and promotion of products to ensure that they are marketed and distributed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and DOJ impose stringent restrictions on manufacturers’manufacturers' communications regarding off-label use and if we do not market our products for their approved indications, we
may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic ActFDCA and other statutes, including the False Claims Act, relating to the promotion and advertising of prescription drugs may lead to investigations and enforcement actions alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:
•restrictions on such products, manufacturers or manufacturing processes;
•restrictions on the labeling or marketing of a product;
•restrictions on distribution or use of a product;
•requirements to conduct post-marketing studies or clinical trials;
•warning letters or untitled letters;
withdrawal of the products from the market;
•refusal to approve pending applications or supplements to approved applications that we submit;
•recall of products;
•damage to relationships with any potential collaborators;
•unfavorable press coverage and damage to our reputation;
•fines, restitution or disgorgement of profits or revenues;
•suspension or withdrawal of marketing approvals;
•refusal to permit the import or export of our products;
•product seizure;
•injunctions or the imposition of civil or criminal penalties; and
litigation involving patients using our products.
•litigation.
Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with any applicable requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the European Union’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.
Our and our potential commercialization partners’ relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us and our commercialization partners to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with healthcare providers physicians and third-party payors may expose us and our commercialization partners to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we and our commercialization partners market, sell and distribute any products for which we or they obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
•the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in
return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid;
•the federal False Claims Act imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government, with potential liability including mandatory treble damages and significant per-claim penalties, currently set at $5,500 to $11,000a minimum of $11,665 and a maximum of $23,331 per false claim;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating toin connection with the delivery of or payment for benefits, items or services involving a healthcare matters;benefit program;
•HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;information, and providing notifications of the breach of such information, by covered entities and certain business partners;
•the federal Physician Payments Sunshine Act requires applicablecertain manufacturers of drugs, medical devices and biological products covered drugsby federal healthcare benefit programs to report payments and other transfers of value to physicians and teaching hospitals, with data collection beginning in August 2013;hospitals; and
•analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws and transparency statutes, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by governmental and non-governmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. State and foreign laws, such as the GDPR, also govern the privacy and security of health information in some circumstances, many of which differ from HIPAA and each other in significant ways, and often are not preempted by HIPAA, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our financial results. We are developingAs Zimura advances in clinical development and implementingtoward potential commercialization, we plan to develop and implement a corporate compliance program designed to ensure that we will market and sell any future products that we successfully develop from our product candidates in compliance with all applicable laws and regulations, but we cannot guarantee that thisany such program will protect us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws orand regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or our commercialization partners’ operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us or them, we or they may be subject to significant civil, criminal and administrative penalties, including damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our or their operations. If any of the physicians or other healthcare providers or entities with whom we are doing business or expect to do business is 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.
The efforts of the Trump Administration to pursue regulatory reformprograms, and as a result, our relationships with those healthcare providers or third parties may limit the FDA’s ability to engage in oversightbe adversely affected and implementation activities in the normal course, and that could negatively impact our business.
The Trump Administration has taken several executive actions, including the issuance of a number of executive orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. On January 30, 2017, President Trump issued an executive order, applicable to all executive agencies, including the FDA, which requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This executive order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the executive order requires agencies to identify regulations to offset any incremental cost of a new regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within the Office of Management and Budget on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business and reputation may be negatively impacted.suffer.
Current and future legislation may increase the difficulty and costcosts for us and any future collaborators to obtain marketing approvalreimbursement for any of and commercialize our product candidates that may receive marketing approval and affect the prices we, or they, may obtain.our ability to generate revenue will be materially impaired.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability or the ability of any collaborators, to profitably sell any productsproduct candidates for which we or they, obtain marketing approval. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any future collaborators, may receive for any approved products. If reimbursement of our products is unavailable or limited in scope, our business could be materially harmed.
In March 2010, President Barack H. Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA. Among the provisions of the ACA of potential importance to our business and our product candidates are the following:
an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription products and biologic agents;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;
expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices;
extension of manufacturers’ Medicaid rebate liability;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
new requirements to report certain financial arrangements with physicians and teaching hospitals;
a new requirement to annually report product samples that manufacturers and distributors provide to physicians; and
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes includeIn August 2011, the Budget Control Act of 2011, which, among other things, ledcreated measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required
goals, thereby triggering the legislation’s automatic reduction to several government programs. These changes included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, that startedwhich went into effect in April 2013 and due to subsequent legislative amendments to the statute, will stayremain in effect through 2025 unless additional congressional action is taken,2030 under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. The American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional
reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used. Further, there have been several recent U.S. congressional inquiries and proposed state and federal legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products.
We expect that these healthcare reforms, as well as other healthcare reform measures that may be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that we receive for any approved product and/or the level of reimbursement physicians receive for administering any approved product we might bring to market. Reductions in reimbursement levels may negatively impact the prices we receive or the frequency with which our products are prescribed or administered. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
Since enactment of the ACA, there have been, and continue to be, numerous legal challenges and congressionalCongressional actions to repeal and replace provisions of the law. In MayFor example, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by President Trump on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, became effective in 2019. Further, on December 14, 2018, a U.S. District Court judge in the Northern District of Texas ruled that the individual mandate portion of the ACA is an essential and inseverable feature of the ACA, and therefore because the mandate was repealed as part of the Tax Cuts and Jobs Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the Court of Appeals for the Fifth Circuit court affirmed the lower court’s ruling that the individual mandate portion of the ACA is unconstitutional and it remanded the case to the district court for reconsideration of the severability question and additional analysis of the provisions of the ACA. Thereafter, the U.S. House of Representatives passedSupreme Court agreed to hear this case. Oral argument in the case took place on November 10, 2020, and a ruling by the Court is expected sometime this year. Litigation and legislation known as the American Health Care Act of 2017. Thereafter, the Senate Republicans introduced and then updated a bill to replaceover the ACA known as the Better Care Reconciliation Act of 2017. The Senate Republicans also introduced legislationare likely to repeal the ACA without companion legislation to replace it,continue, with unpredictable and a “skinny” version of the Better Care Reconciliation Act of 2017. In addition, the Senate considered proposed healthcare reform legislation known as the Graham-Cassidy bill. None of these measures was passed by the U.S. Senate.uncertain results.
The Trump Administration has also takentook executive actions to undermine or delay implementation of the ACA. In January 2017, President Trump signed an Executive OrderACA, including directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In October 2017, theOn January 28, 2021, however, President signedBiden issued a secondnew Executive Order allowingwhich directs federal agencies to reconsider rules and other policies that limit Americans’ access to health care, and consider actions that will protect and strengthen that access. Under this Order, federal agencies are directed to re-examine: policies that undermine protections for the use of association health planspeople with pre-existing conditions, including complications related to COVID-19; demonstrations and short-term health insurance, which may provide fewer health benefits than the plans sold throughwaivers under Medicaid and the ACA exchanges. Atthat may reduce coverage or undermine the same time,programs, including work requirements; policies that undermine the Health Insurance Marketplace or other markets for health insurance; policies that make it more difficult to enroll in Medicaid and the ACA; and policies that reduce affordability of coverage or financial assistance, including for dependents.
Current and future legislative efforts may limit the prices for our products, if and when they are licensed for marketing, which could materially impact our ability to generate revenues.
The containment of healthcare costs also has become a priority of federal, state and foreign governments and the prices of pharmaceutical products have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including rebate programs, price controls, restrictions on reimbursement and requirements for substitution of generic products. Efforts to control drug pricing have garnered bipartisan support in U.S. Congress. To that end, the Trump Administration announcedpublished final rules that it will discontinue the payment of cost-sharing reduction,would allow states or CSR, paymentscertain other non-federal government entities to insurance companies until Congress approves the appropriation of funds for such CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the ACA. A bipartisan bill to appropriate funds for CSR payments was introduced in the Senate, but the future of that bill is uncertain.
More recently, with enactment of the Tax Cuts and Jobs Act of 2017, which was signed by the President on December 22, 2017, Congress repealed the “individual mandate.” The repeal of this provision, which requires most Americans to carry a minimal level of health insurance, will become effective in 2019. Accordingsubmit importation program proposals to the Congressional Budget Office, the repeal of the individual mandateFDA for review and approval. Applicants would be required to demonstrate their importation plans pose no additional risk to public health and safety and will cause 13 million fewer Americans to be insured in 2027 and premiums in insurance markets may rise. Further, each chamber of the Congress has put forth multiple bills designed to repeal or repeal and replace portions of the ACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the ACA. The Congress will likely consider other legislation to replace elements of the ACA during the next congressional session.
We will continue to evaluate the effect that the ACA and its possible repeal and replacement could have on our business. It is possible that repeal and replacement initiatives, if enacted into law, could ultimately result in fewer individuals having health insurance coverage orsignificant cost savings for consumers. Earlier, the FDA had issued draft guidance that would allow manufacturers to import their own FDA-approved drugs that are authorized for sale in individuals having insurance coverage with less generous benefits. Accordingly, such reforms, if enacted, could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our overall financial condition and abilityother countries (multi-market approved products). Further, President Trump issued five executive orders intended to develop or commercialize product candidates. Whilelower the timing and scope of any potential future legislation to repeal and replace ACA provisions is highly uncertain in many respects, it is also possible that some of the ACA provisions that generally are not favorable for the research-based pharmaceutical industry could also be repealed along with ACA coverage expansion provisions.
The costs of prescription pharmaceuticalsdrug products. Several of these orders are reflected in recently promulgated regulations, and one of these regulations is currently subject to a nationwide preliminary injunction.
The Biden Administration has frozen certain of the previous administration’s measures to reform drug prices, pending further review It remains to be seen how the Biden Administration will address this issue. The Biden Administration may pursue reference pricing policies, which is a regime that sets the price of certain drugs by reference to the average price of these drugs in other developed countries, or may seek to amend existing law that currently bans Medicare from negotiating lower prices with drug manufacturers.
At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their
prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Finally, outside the United States, has also beenin some nations, including those of the subject of considerable discussion inEU, the United States, and members of Congress and the Administration have stated that they will address such costs through new legislative and administrative measures. The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States.and access. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we or our collaborators may be required to conduct a clinical trial that compares the cost effectivenesscost-effectiveness of our product candidates to other available therapies. If reimbursement ofpricing for our products, is unavailable or limited in scope or amount, or if pricingapproved and licensed, is set at unsatisfactory levels, our business could be materially harmed.
Our operations may be dependent on the normal function of the FDA, the SEC and other government agencies. The inability of those agencies to obtain necessary funding and other effects from the political process could prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new product applications such as INDs, new drug applications and biologics license applications can be affected by a variety of factors, including government funding levels, ability to generate revenueshire and become profitableretain key personnel and to accept the payment of user fees, and statutory, regulatory, and policy changes. Government funding of the FDA, the SEC and other government agencies on which our operations rely is subject to the political process, which is fluid and unpredictable. For example, over the past decade, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical employees and stop critical activities. Additionally, the COVID-19 pandemic has caused many regulatory agencies, including the FDA, to reduce staff availability and operations. We may face impediments to scheduling or conducting regulatory meetings, inspections and approvals due to measures intended to limit in-person interactions. If a prolonged government restriction or shutdown occurs, it could be impaired. Insignificantly impact the European Union, similar political, economicability of the FDA to timely review and process our regulatory developments may affectsubmissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to profitably commercializeaccess the public markets and obtain necessary capital in order to properly capitalize and continue our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or member state level may result in significant additional requirements or obstacles that may increase our operating costs.operations.
Finally, legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or 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. 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 and any future collaborators to more stringent product labeling and post-marketing testing and other requirements.
We are subject to U.S. and foreign anti-corruption and anti-money laundering laws with respect to our operations and non-compliance with such laws can subject us to criminal and/or civil liability and harm our business.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. International Travel Act of 1961, the USA PATRIOT Act, and possibly other state and national anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, third-party intermediaries, joint venture partners and collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. We may have direct or indirect interactionsrelationships with certain officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations.organizations, including a number of public hospitals that are our clinical trial sites. In addition, we may engage third party intermediaries to promote our clinical research activities abroad and/or to obtain necessary permits, licenses, and other regulatory approvals. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize or have actual knowledge of such activities.
Noncompliance with anti-corruption and anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons or governmental programs, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas, investigations, or other enforcement actions are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even cause us to appoint an independent compliance monitor which can result in added costs and administrative burdens.
If we or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.
We and our third-party manufacturers are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and produce hazardous waste products. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our or our contractors' use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources.resources and any coverage provided by our insurance. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. We expect the new Biden Administration to pass additional such laws and regulations.
Further, with respect to the operations of our third-party contract manufacturers, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our product candidates or products, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products.
Risks Related to Employee Matters and Managing Our Operations
We recently completed a substantial reduction in personnel,the effects of which could disrupt our operations.In addition, we may experience difficulties in retaining key employees.
During the year ended December 31, 2017, our workforce was reduced by 122 employees in connection with a reduction in personnel following the failure of our pivotal trials of Fovista as well as natural attrition. Nonetheless, we are continuing to function as a development company and need to continue all or nearly all of our prior business functions to support such development, including clinical operations, regulatory affairs, drug safety, data management, outsourced manufacturing and supply chain, analytical development and quality assurance, as well as all of our general and administrative functions and public company infrastructure. Due to our limited financial resources and the inherent challenges associated with managing such a reduction in personnel, we may not be able to manage effectively the reduction in personnel and transition of operations to remaining employees.
We remain highly dependent on David R. Guyer, M.D., our Executive Chairman, and Glenn P. Sblendorio, our Chief Executive Officer and President, as well as the other principal members of our management, scientific and clinical teams. We do not maintain “key person” insurance for any of our executives or other employees. Although we have entered into letter agreements with our executive officers, each of them and our non-executive employees may terminate their employment with us at any time. As a result, key employees that we expect to retain through specific dates to assist with transition activities may choose not to remain employees. In addition, we may experience difficulties in retaining key employees, given the change in prospects for our company as well as other challenges. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business plan.
Furthermore, replacing any such executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain marketing approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development, pipeline expansion and commercialization strategies. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to strategically attract or retain high quality personnel as we implement our new business plan, our ability to pursue our development strategy would be limited.
If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements would not be prevented or detected on a timely basis. If any material weakness in our internal control over financial reporting is discovered or occurs in the future, our financial statements may contain material misstatements and we could be required to restate our financial results. As previously disclosed in July 2015, our management concluded that we experienced a material weakness in internal controls related to technical accounting expertise over the accounting for deferred tax assets and income tax accounting in general during certain prior financial reporting periods. The deficiency in the application of our controls relating to technical accounting expertise over the accounting for deferred tax assets and income tax accounting in general resulted in the audit committee of our board of directors concluding that the relevant financial statements should not be relied upon, and our subsequent restatement of the relevant financial statements.
During the year ended December 31, 2015, we took the following steps to remediate the identified material weakness: we added staffing within our finance department and engaged a nationally recognized accounting firm, in each case, with technical expertise in the area of tax accounting and financial reporting. Our management concluded that the identified material weakness in internal control over financial reporting was fully remediated as of December 31, 2015. Although we have remediated this deficiency in internal control over financial reporting, we cannot be certain that the remedial measures that we took in the past or other measures we take in the future, especially in light of our decreased size as a result of the implementation of our reduction in personnel, and the associated decrease in staffing in our accounting and finance areas, will ensure that we maintain adequate controls over our financial reporting going forward and, accordingly, additional material weaknesses could occur or be identified. Any additional material weaknesses or combination of deficiencies could materially
and adversely affect our ability to provide timely and accurate financial information, and the current and future deficiencies may impact investors’ confidence in our internal controls and our company, which could cause our stock price to decline.
Risks Related to Information Technology
We rely significantly upon information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.
In the ordinary course of our business, we and our third-party contractors maintain personal and other sensitive data on our and their respective networks, including our intellectual property and proprietary or confidential business information relating to our business and that of our clinical trial participants and business partners. In particular, we rely on contract research organizations and other third parties to store and manage information from our clinical trials. The secure maintenance of this sensitive information is critical to our business and reputation.
Despite the implementation of security measures, our internal computer systems and those of our third-party contractors are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. In particular, companies and other entities and individuals have been increasingly subject to a wide variety of security incidents, cyber-attacks and other attempts to gain unauthorized access to systems and information. These threats can come from a variety of sources, ranging in sophistication from individual hackers to state-sponsored attacks. Cyber threats may be broadly targeted, or they may be custom-crafted against our information systems or those of our third-party contractors.
For information stored with our third-party contractors, we rely upon, and the integrity and confidentiality of such information is dependent upon, the risk mitigation efforts such third-party contractors have in place. In the recent past, cyber-attacks have become more prevalent and much harder to detect and defend against. Our and our third-party contractors’ respective network and storage applications may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system disruptions. We might not anticipate or immediately detect such incidents and the damage caused by such incidents. System failures, data breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information. System failures or accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy.
A data security breach could also lead to public exposure of personal information of our clinical trial patients and others. Cyber-attacks and the measures we implement to prevent, detect, and respond to them could cause us to incur significant remediation costs, result in product development delays, disrupt key business operations, expose us to contractual damages and/or regulatory liability, divert the attention of our management and key information technology resources, harm our reputation and deter business partners from working with us. Any loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate public disclosure of confidential or proprietary information, we could incur liability and our product research, development and commercialization efforts could be delayed.
Risks Related to Our Common Stock
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove members of our currentboard of directors and management.
Provisions in our certificate of incorporation and our by-laws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
•provide for a classified board of directors such that only one of three classes of directors is elected each year;
•allow the authorized number of our directors to be changed only by resolution of our board of directors;
•limit the manner in which stockholders can remove directors from theour board of directors;
•provide for advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
•require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
•limit who may call stockholder meetings;
•authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
•require the approval of the holders of at least 75% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or by-laws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for stockholders.
Our stock price may be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general, and the market for smaller pharmaceutical and biotechnology companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.companies, including as a result of short selling by institutional and retail investors. As a result of this volatility, our stockholders may not be able to sell their shares of common stock at or above the price at which they purchased their shares. The market price for our common stock may be influenced by many factors, including:
•results of research, preclinical development activities and clinical trials for our product candidates and the timing of the receipt of such results;
•the success of products or technologies that compete with our product candidates, including results of clinical trials of product candidates of our competitors;
results of clinical trials for our product candidates and the timing of the receipt of such results;
the results of our efforts to in-license or acquire the rights to other products, product candidates and technologies for the treatment of ophthalmic diseases;
political, regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our product candidates or clinical development programs;
•actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
•the level of expenses related to any of our product candidates or development programs;
•variations in our financial results or those of companies that are perceived to be similar to us;
•the recruitment or departure of key personnel;
•the results of our efforts to in-license or acquire the rights to other product candidates and technologies for the treatment of retinal diseases;
•developments or disputes concerning patent applications, issued patents or other proprietary rights;
•relevant scientific and medical developments;
•changes in the structure of healthcare payment systems;
•market conditions in the pharmaceutical and biotechnology sectors;
•general economic, industry and market conditions;conditions, such as those caused by the COVID-19 pandemic;
•political, social, regulatory or legal developments in the United States and other countries; and
•the other factors described in this “Risk Factors” section.
For example, following our announcement of initial, top-line results from
In addition, the first twoCOVID-19 pandemic has caused significant disruptions in the financial markets, and may continue to cause such disruptions, and has also impacted, and may continue to impact, the volatility of our pivotal Fovista trials for the treatment of wet AMD, the closingstock price ofand trading in our common stock declined from $38.77 on December 9, 2016 to $5.29 on December 12, 2016 and declined further thereafter. The closing price of our common stock was $2.71 on February 28, 2017.stock. Following periods of volatility in the market price of a company’s stock, securities class-action litigation has often been instituted against that company. WeFor example, we and certain of our current and former executive officers have been named as defendants in a purported class action lawsuitslawsuit and a related shareholder derivative action following our announcement in December 2016 of the initial, top-line results.results from the first two of our Phase 3 Fovista trials for the treatment of wet AMD. See “Part II, Item 1-Legal Proceedings” and “-Risks“Risks Related to Our Business Plan, Financial Position and Need for Additional Capital-WeCapital—We and certain of our current and former executive officers have been named as defendants in lawsuits that could result in substantial costs and divert management’s attention.attention.” These proceedings and other similar litigation, if instituted against us, could cause us to incur
substantial costs to defend such claims and divert management’s attention and resources, which could seriously harm our business.business, and cause additional volatility in the price of our common stock.
If a significant portion of our total outstanding shares are sold into the market, the market price of our common stock could drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. For example, we issued 8,649,453 shares of our common stock to funds affiliated with Vivo Capital, LLC and Samsara BioCapital, LP in a private placement in June 2020. In accordance with our obligations under a stock purchase agreement executed in connection with the private placement, we have filed a registration statement on Form S-3 with the Securities and Exchange Commission for the purposes of registering for resale these shares, which has been declared effective by the SEC, pursuant to which such shares can be freely sold and traded. If the holders of these shares sell, or the market perceives that these holders will sell, the shares currently held by them, the price of our common stock may decline.
Moreover, we have filed, and expect to continue to file, registration statements on Form S-8 registering all shares of common stock that we may issue under our equity compensation plans. Once registered on Form S-8, shares underlying these equity awards can be freely sold in the public market upon issuance, subject to volume, notice and manner of sale limitations applicable to affiliates.
The ownership percentage of our stockholders may be diluted in the future, which could dilute the voting power or reduce the value of our outstanding shares of common stock.
As with any publicly traded company, the ownership percentage of our stockholders may be diluted in the future because of equity issuances for acquisitions, capital markets transactions, business development transactions or otherwise, including equity awards that we intend to continue to grant to our directors, officers and employees pursuant to our equity compensation plans. Our employees are also entitled, subject to certain conditions, to purchase our common stock at a discount pursuant to our Employee Stock Purchase Plan.
In addition, the pre-funded warrants that we issued in connection with our December 2019 and June 2020 public offerings are exercisable at any time, and any exercise of such warrants will increase the number of shares of our outstanding common stock, which may dilute the ownership percentage or voting power of our stockholders. To date, pre-funded warrants representing approximately 2.5 million shares of common stock have been exercised and as of December 31, 2020, pre-funded warrants representing 3,164,280 shares of common stock remain outstanding.
Also, our certificate of incorporation authorizes us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
For more information about the dilutive effects of financing or business development transactions we may undertake, see the risk factor above, "Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates."
We incur increasedsignificant costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives and corporate governance practices.
As a public company, we incur and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company.expenses. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish with our periodic Exchange Act reports a report by our management on our internal control over financial reporting. We are also required to include with our annual report an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404, we must document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources and engage outside consultants to assess
and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. There is a risk that our internal control over financial reporting may, in the future, be found to be ineffective under Section 404. Our identification of one or more material weaknesses could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gain.
We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements that we enter into may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
OurWe lease properties consist of office space in New York, New York, Cranbury, New Jersey and Princeton,Parsippany, New Jersey. We lease approximately 13,500 square feetJersey, all of which are used for office space in New York, New York under a lease that terminates in at the endand/or storage of 2018 and approximately 5,500 square feet of office space in Princeton, New Jersey under a sublease that terminates in March 2020.IT equipment.
Item 3. Legal Proceedings
On January 11, 2017, a putative class action lawsuit was filed against usDescriptions of legal proceedings are set forth in "Note 13-Commitments and certain of our current and former executive officersContingencies" in the United States District Court fornotes to the Southern District of New York, captioned Frank Micholle v. Ophthotech Corporation, et al., No. 1:17-cv-00210. The complaint purports to be broughtfinancial statements filed with this Annual Report on behalf of shareholders who purchased our common stock between May 11, 2015 and December 12, 2016. The complaint generally alleges that we and certain of our officers violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements concerning the prospects of our Phase 3 trials for Fovista in combination with anti-VEGF agents for the treatment of wet AMD. The complaint seeks equitable and/or injunctive relief, unspecified damages, attorneys’ fees, and other costs.
On March 9, 2017, a second putative class action lawsuit was filed against us and the same group of our current and former executive officers in the United States District Court for the Southern District of New York, captioned Wasson v. Ophthotech Corporation, et al., No. 1:17-cv-01758. The complaint purports to be brought on behalf of shareholders who purchased our common stock between May 11, 2015 and December 9, 2016. The allegations made in the complaint are similar to those made in the Micholle complaint. Putative lead plaintiffs in the Micholle action have moved to consolidate the Micholle and Wasson actions.
On February 7, 2018, a shareholder derivative action was filed against the members of our Board of Directors in the New York Supreme Court Commercial Division, captioned Cano v. Guyer, et al., No. 650601/2018. The complaint alleges that defendants breached their fiduciary duties to our company by adopting a compensation plan that overcompensates the non-employee members of the Board relative to boards of companies of comparable market capitalization and size. The complaint also alleges that defendants were unjustly enriched as a result of the alleged conduct. The complaint purports to seek unspecified damages on our behalf, as well as an order directing us to reform and improve our corporate governance and internal procedures to comply with applicable laws, attorneys’ fees, and other costs.
Form 10-K.
We deny any and all allegations of wrongdoing and intend to vigorously defend against these lawsuits. We are unable, however, to predict the outcome of these matters at this time. Moreover, any conclusion of these matters in a manner adverse to us and for which we incur substantial costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on our financial condition and business. In addition, the litigation could adversely impact our reputation and divert management’s attention and resources from other priorities, including the execution of our business plansplan and strategies that are important to our ability to grow our business, any of which could have a material adverse effect on our business.
On May 30, 2017, a shareholder derivative action was filed against the members of our Board of Directors in the United States District Court for the Southern District of New York, captioned Etelmendorf v. Bolte, et al., No. 1:17-cv-04042. The complaint alleged that defendants breached their fiduciary duties to our company by causing or permitting the company to make allegedly false and/or misleading statements concerning the prospects of our Phase 3 trials for Fovista in combination with anti-VEGF agents for the treatment of wet AMD, and by approving certain executive compensation. The complaint also alleged that defendants were unjustly enriched as a result of the alleged conduct. The complaint purported to seek unspecified damages on our behalf, as well as an order directing us to reform and comply with our governance obligations, attorneys’ fees, and other costs. The defendants moved to dismiss the action in its entirety. Rather than oppose the motion to dismiss, on October 17, 2017, the plaintiff filed a notice of voluntary dismissal without prejudice for this action.
Item 4. Mine Safety Disclosures
None.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities
Our common stock has been publicly traded on The Nasdaq Global Select Market under the symbol "OPHT" sincefrom September 25, 2013. The following table sets forth2013 to April 16, 2019, and under the high and low sale prices per share for our common stock on The Nasdaq Global Select Market for the periods indicated:
|
| | | | | | | | | | | | | | | | |
| | Year ended December 31, 2017 | | Year ended December 31, 2016 |
| | High | | Low | | High | | Low |
Quarter ended March 31, | | $ | 5.25 |
| | $ | 3.24 |
| | $ | 74.07 |
| | $ | 40.40 |
|
Quarter ended June 30, | | $ | 3.72 |
| | $ | 2.24 |
| | $ | 58.45 |
| | $ | 41.84 |
|
Quarter ended September 30, | | $ | 3.20 |
| | $ | 2.31 |
| | $ | 65.03 |
| | $ | 46.13 |
|
Quarter ended December 31, | | $ | 3.60 |
| | $ | 2.25 |
| | $ | 45.30 |
| | $ | 4.82 |
|
symbol "ISEE" since April 17, 2019.Holders
As of January 31, 2018,2021, there were approximately 10290 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name.
Dividends
We have never declared or paid cash dividends on our common stock, and we do not expect to pay any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be set forth in our Proxy Statement for the 2018 Annual Meeting of Shareholders and is incorporated in this Annual Report on Form 10-K by reference.
Recent Sales of Unregistered Securities
ThereIn April and May 2020, of the stock options we granted to new employees pursuant to our 2019 Inducement Stock Incentive Plan, options to purchase an aggregate of 68,750 shares of our common stock were not registered under the Securities Act at the time of grant. These options, and the shares issuable upon exercise, have since been registered pursuant to a Form S-8 that we filed with the SEC on May 7, 2020.
In June 2020, we completed a private placement exempt from the registration requirements of the Securities Act, in which we sold 8,649,453 shares of our common stock to affiliates of Vivo Capital, LLC and Samsara BioCapital, L.P. at a price of $4.10 per share. The gross proceeds from the private placement were approximately $35.5 million, before deducting placement agent fees of approximately $2.1 million.
Except for the foregoing, there were no issuances of equity securities that were not registered under the Securities Act of 1933, as amended, or the Securities Act during the period covered by this Annual Report on Form 10-K.
Purchase of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.
Stock Performance Graph
The following graph and chart compares the cumulative annual stockholder return on our common stock over the period commencing September 25, 2013December 31, 2015 and ending on December 31, 2017,2020, to that of the total return for the NASDAQ Composite Index and the NASDAQ Biotechnology Index, assuming an investment of $100 on AugustDecember 31, 2013.2015. In calculationcalculating cumulative total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative purposes only. They do not necessarily reflect management'smanagement’s opinion that such indices are an appropriate measure of the relative performance of our common stock and are not intended to forecast or be indicative of future performance of our common stock. The following graph and related information shall not be deemed "soliciting material"“soliciting material” or to be "filed"“filed” with the Securities and Exchange Commission,SEC, nor shall such information be incorporated by reference in any of our filings under the Securities Act, of 1933, as amended, or the Securities Exchange Act, of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. We obtained information used on the graph from Research Data Group, Inc., a source we believe to be reliable.
![opht-20201231_g8.jpg](https://files.docoh.com/10-K/0001410939-21-000007/opht-20201231_g8.jpg)
![](https://files.docoh.com/10-K/0001410939-18-000013/marketreturnchart.jpg)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/15 | | 12/16 | | 12/17 | | 12/18 | | 12/19 | | 12/20 |
IVERIC bio, Inc. | | $ | 100.00 | | | $ | 6.15 | | | $ | 3.97 | | | $ | 1.53 | | | $ | 10.93 | | | $ | 8.80 | |
NASDAQ Composite | | 100.00 | | | 108.87 | | | 141.13 | | | 137.12 | | | 187.44 | | | 271.64 | |
NASDAQ Biotechnology | | 100.00 | | | 78.65 | | | 95.67 | | | 87.19 | | | 109.08 | | | 137.90 | |
* $100$100 invested on September 25, 2013December 31, 2015 in stock or August 31, 2013 in index, including reinvestment of dividends.
Fiscal year ending December 31.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 9/25/2013 | | 9/30/2013 | | 12/31/2013 | | 3/31/2014 | | 6/30/2014 | | 9/30/2014 | | 12/31/2014 | | 3/31/2015 |
Ophthotech Corporation | | $ | 100.00 |
| | $ | 135.05 |
| | $ | 147.05 |
| | $ | 162.16 |
| | $ | 192.32 |
| | $ | 176.95 |
| | $ | 203.95 |
| | $ | 211.50 |
|
NASDAQ Composite | | 100.00 |
| | 105.46 |
| | 117.13 |
| | 118.23 |
| | 124.11 |
| | 126.29 |
| | 133.19 |
| | 137.78 |
|
NASDAQ Biotechnology | | 100.00 |
| | 108.52 |
| | 118.51 |
| | 122.37 |
| | 133.81 |
| | 147.15 |
| | 156.52 |
| | 171.61 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 6/30/2015 | | 9/30/2015 | | 12/31/2015 | | 3/31/2016 | | 6/30/2016 | | 9/30/2016 | | 12/31/2016 | | 3/31/2017 |
Ophthotech Corporation | | $ | 236.64 |
| | $ | 184.18 |
| | $ | 356.95 |
| | $ | 192.14 |
| | $ | 231.95 |
| | $ | 209.68 |
| | $ | 21.95 |
| | $ | 16.64 |
|
NASDAQ Composite | | 140.65 |
| | 130.11 |
| | 141.32 |
| | 138.82 |
| | 138.21 |
| | 151.71 |
| | 153.66 |
| | 170.53 |
|
NASDAQ Biotechnology | | 181.93 |
| | 149.90 |
| | 166.10 |
| | 135.14 |
| | 132.26 |
| | 145.41 |
| | 134.22 |
| | 146.47 |
|
|
| | | | | | | | | | | | |
| | 6/30/2017 | | 9/30/2017 | | 12/31/2017 |
Ophthotech Corporation | | $ | 11.64 |
| | $ | 12.82 |
| | $ | 14.18 |
|
NASDAQ Composite | | 177.58 |
| | 188.05 |
| | 200.33 |
|
NASDAQ Biotechnology | | 153.54 |
| | 166.61 |
| | 156.63 |
|
Item 6. Selected Financial Data
The following selected financial data should be read together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this Annual Report on Form 10-K. We have derived the statements of operations data for the years ended December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014 and 20132016 and the balance sheet data as of December 31, 2020, 2019, 2018, 2017 2016, 2015, 2014 and 20132016 from our audited financial statements, which have been audited by Ernst & Young LLP, an independent registered accounting firm. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our results for any interim period are not necessarily indicative of results to be expected for a full fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (in thousands, except per share data) |
Statements of Operations Data: | | | | | | | | | |
Collaboration revenue | $ | — | | | $ | — | | | $ | — | | | $ | 209,977 | | | $ | 50,909 | |
Operating expenses: | | | | | | | | | |
Research and development | 62,784 | | | 39,644 | | | 41,737 | | | 66,289 | | | 196,295 | |
General and administrative | 25,952 | | | 21,628 | | | 23,612 | | | 35,683 | | | 50,178 | |
Total operating expenses | 88,736 | | | 61,272 | | | 65,349 | | | 101,972 | | | 246,473 | |
Loss from operations | (88,736) | | | (61,272) | | | (65,349) | | | 108,005 | | | (195,564) | |
Interest income (expense) | 500 | | | 2,151 | | | 2,389 | | | 1,522 | | | 1,704 | |
Gain on extinguishment of royalty purchase liability | — | | | — | | | 125,000 | | | — | | | — | |
Other income (expense) | (6) | | | 151 | | | (16) | | | (34) | | | 34 | |
Income (loss) before income tax benefit | (88,242) | | | (58,970) | | | 62,024 | | | 109,493 | | | (193,826) | |
Income tax benefit | 3,695 | | | 111 | | | 1,063 | | | 4,712 | | | 406 | |
Net income (loss) | $ | (84,547) | | | $ | (58,859) | | | $ | 63,087 | | | $ | 114,205 | | | $ | (193,420) | |
| | | | | | | | | |
| | | | | | | | | |
Net income (loss) per common share: | | | | | | | | | |
Basic | $ | (1.14) | | | $ | (1.39) | | | $ | 1.70 | | | $ | 3.18 | | | $ | (5.45) | |
Diluted | $ | (1.14) | | | $ | (1.39) | | | $ | 1.70 | | | $ | 3.17 | | | $ | (5.45) | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | 74,185 | | | 42,224 | | | 37,061 | | | 35,919 | | | 35,486 | |
Diluted | 74,185 | | | 42,224 | | | 37,088 | | | 36,007 | | | 35,486 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| (in thousands) |
Balance sheets data: | | | | | | | | | |
Cash, cash equivalents, and marketable securities | $ | 210,047 | | | $ | 125,699 | | | $ | 131,201 | | | $ | 166,972 | | | $ | 289,278 | |
Total assets | $ | 216,754 | | | $ | 130,187 | | | $ | 137,165 | | | $ | 175,576 | | | $ | 299,630 | |
Deferred revenue | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 209,976 | |
Royalty purchase liability | $ | — | | | $ | — | | | $ | — | | | $ | 125,000 | | | $ | 125,000 | |
Total liabilities | $ | 25,191 | | | $ | 12,984 | | | $ | 13,206 | | | $ | 137,535 | | | $ | 394,248 | |
Additional paid-in capital | $ | 756,543 | | | $ | 597,679 | | | $ | 545,585 | | | $ | 522,759 | | | $ | 504,517 | |
Accumulated deficit | $ | (565,073) | | | $ | (480,526) | | | $ | (421,667) | | | $ | (484,754) | | | $ | (598,959) | |
Total stockholders’ equity (deficit) | $ | 191,563 | | | $ | 117,203 | | | $ | 123,959 | | | $ | 38,041 | | | $ | (94,618) | |
|
| | | | | | | | | | | | | | | | | | | |
| Years ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (in thousands, except per share data) |
Statements of Operations Data: | | | | | |
| | |
| | |
|
Collaboration revenue | $ | 209,977 |
| | $ | 50,909 |
| | $ | 51,505 |
| | $ | 41,259 |
| | $ | — |
|
Operating expenses: | | | | | | | | | |
Research and development | 66,289 |
| | 196,295 |
| | 131,012 |
| | 88,385 |
| | 33,215 |
|
General and administrative | 35,683 |
| | 50,178 |
| | 44,021 |
| | 33,387 |
| | 14,210 |
|
Total operating expenses | 101,972 |
| | 246,473 |
| | 175,033 |
| | 121,772 |
| | 47,425 |
|
Income (loss) from operations | 108,005 |
| | (195,564 | ) | | (123,528 | ) | | (80,513 | ) | | (47,425 | ) |
Interest income (expense) | 1,522 |
| | 1,704 |
| | 971 |
| | 217 |
| | (1,454 | ) |
Loss on extinguishment of debt | — |
| | — |
| | — |
| | — |
| | (1,091 | ) |
Other income (expense) | (34 | ) | | 34 |
| | 53 |
| | — |
| | (1,175 | ) |
Income (loss) before income tax benefit | 109,493 |
| | (193,826 | ) | | (122,504 | ) | | (80,296 | ) | | (51,145 | ) |
Income tax benefit | (4,712 | ) | | (406 | ) | | (16,787 | ) | | 36,476 |
| | — |
|
Net income (loss) | 114,205 |
| | (193,420 | ) | | (105,717 | ) | | (116,772 | ) | | (51,145 | ) |
Add: accretion of preferred stock dividends | — |
| | — |
| | — |
| | — |
| | (5,891 | ) |
Net income (loss) attributable to common stockholders | $ | 114,205 |
| | $ | (193,420 | ) | | $ | (105,717 | ) | | $ | (116,772 | ) | | $ | (57,036 | ) |
Net income (loss) per common share: | | | | | | | | | |
Basic | $ | 3.18 |
| | $ | (5.45 | ) | | $ | (3.06 | ) | | $ | (3.51 | ) | | $ | (6.34 | ) |
Diluted | $ | 3.17 |
| | $ | (5.45 | ) | | $ | (3.06 | ) | | $ | (3.51 | ) | | $ | (6.34 | ) |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | 35,919 |
| | 35,486 |
| | 34,580 |
| | 33,258 |
| | 9,003 |
|
Diluted | 36,007 |
| | 35,486 |
| | 34,580 |
| | 33,258 |
| | 9,003 |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (in thousands) |
Balance sheets data: | |
| | |
| | |
| | |
| | |
|
Cash, cash equivalents, and marketable securities | $ | 166,972 |
| | $ | 289,278 |
| | $ | 391,890 |
| | $ | 463,560 |
| | $ | 210,596 |
|
Total assets | $ | 175,576 |
| | $ | 299,630 |
| | $ | 428,851 |
| | $ | 479,786 |
| | $ | 217,682 |
|
Deferred revenue | $ | — |
| | $ | 209,976 |
| | $ | 213,066 |
| | $ | 209,624 |
| | $ | — |
|
Royalty purchase liability | $ | 125,000 |
| | $ | 125,000 |
| | $ | 125,000 |
| | $ | 125,000 |
| | $ | 41,667 |
|
Total liabilities | $ | 137,535 |
| | $ | 394,248 |
| | $ | 368,904 |
| | $ | 351,249 |
| | $ | 47,962 |
|
Additional paid-in capital | $ | 522,759 |
| | $ | 504,517 |
| | $ | 465,927 |
| | $ | 428,390 |
| | $ | 352,739 |
|
Accumulated deficit | $ | (484,754 | ) | | $ | (598,959 | ) | | $ | (405,539 | ) | | $ | (299,822 | ) | | $ | (183,050 | ) |
Total stockholders’ equity (deficit) | $ | 38,041 |
| | $ | (94,618 | ) | | $ | 59,947 |
| | $ | 128,537 |
| | $ | 169,720 |
|
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties and should be read together with the "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a science-driven biopharmaceutical company specializing infocused on the discovery and development of novel therapies to treat ophthalmictreatment options for retinal diseases with a focus on age-related and orphan retinal diseases. Our multi-track strategy is to leverage our clinical experience and retina expertise to develop therapiessignificant unmet medical needs. We are currently developing both therapeutic product candidates for large market, age-related retinal diseases where unmet medical needs remain for these patients, and gene therapy product candidates for orphan eyeinherited retinal diseases, with a focus on underserved patients, and to utilize a disciplined business development approach to obtain additional products, product candidates and technologies in these disease areas.or IRDs. We believe that there are advantages to pursuingboth therapeutics and gene therapy serve important roles in drug development and providing potential treatment options for orphan indications, including the potential for regulatory exclusivity, the potential forpatients suffering from retinal diseases.
Our therapeutics portfolio consists of our clinical trials with smaller sample sizes and the potential for accelerated development timelines. Our team has significant ophthalmic drug development experience and deep relationships with global ophthalmology thought leaders. We have an extensive network of ophthalmic clinical trial sites, having worked with over 250 sites worldwide. We believe that the combination of these factors, together with our experience in designing and executing IND-enabling studies and clinical trials for eye diseases, and specifically back of the eye diseases, provide us a competitive advantage.
We are developingstage product candidate Zimura® (avacincaptad pegol), oura complement C5 inhibitor, for dry and wet formsour preclinical product candidate IC-500, a High temperature requirement A serine peptidase 1 protein, or HtrA1, inhibitor. We are currently targeting the following diseases with Zimura:
•geographic atrophy, or GA, which is the advanced stage of age-related macular degeneration, or AMD, and is characterized by marked thinning or atrophy of retinal tissue, leading to irreversible loss of vision; and
•autosomal recessive Stargardt disease, or STGD1, which is a disorder ofan orphan inherited condition characterized by progressive damage to the central portion of the retina, knownor the macula, and other retinal tissue, leading to loss of vision.
We previously also evaluated Zimura in combination with Lucentis® (ranibizumab), an anti-vascular endothelial growth factor, or anti-VEGF, agent, for the treatment of wet AMD, for which we completed a Phase 2a clinical trial, referred to as the macula, that may resultOPH2007 trial, during the fourth quarter of 2018. We are developing IC-500 for GA secondary to AMD and potentially other age-related retinal diseases.
Our gene therapy portfolio consists of two product candidates in preclinical development (IC-100 and IC-200) and several ongoing collaborative sponsored research programs, each of which uses adeno-associated virus, or AAV, for gene delivery. These AAV mediated gene therapy programs are targeting the following orphan IRDs:
•rhodopsin-mediated autosomal dominant retinitis pigmentosa, or RHO-adRP, which is characterized by progressive and severe bilateral loss of central vision leading to blindness;
•IRDs associated with mutations in the BEST1 gene, including Best vitelliform macular dystrophy, or Best disease, which is generally characterized by bilateral egg yolk-like lesions in the macula, which, over time, progress to atrophy and loss of vision;
•Leber Congenital Amaurosis type 10, or LCA10, which is characterized by severe bilateral loss of vision at or soon after birth;
•autosomal recessive Stargardt disease,disease; and
•IRDs associated with mutations in the USH2A gene, which include Usher syndrome type 2A, or STDG1, which is an orphan inherited retinal disease that also may result in loss of centralUsher 2A, and peripheral vision. In connection with our Stargardt clinical trial, which we recently initiated, we have expanded our network of thought leaders and clinical trial sites for orphan ophthalmic indications to include leading research university hospitals around the world, where patients with orphan retinal diseases are often referred.USH2A-associated non-syndromic autosomal recessive retinitis pigmentosa.
We are actively engaged in extensive businessdeveloping IC-100 for RHO-adRP and IC-200 for BEST1-related IRDs.
Research and Development Pipeline
We have summarized the current status of our ongoing research and development efforts to identify, evaluate and potentially obtain rights to and develop additional therapeutic and gene therapy product candidates that would complement our strategic goals and leverage our competitive advantages. We believe that our strategy will provide multiple potential opportunities to bring ophthalmic therapies to market.
Zimura
Based on our Zimura development experience to date, as well as scientific literatureprograms in the field, we believe there is a strong rationaletable below.
*We have an option to pursue the development ofexclusively in-license intellectual property resulting from ongoing sponsored research.
Therapeutic Development Programs
Zimura
Zimura, our complement C5 complement inhibitor, Zimura, in multiple ophthalmic diseases. Zimura is a chemically-synthesized, pegylated RNA aptamer. Aptamers are short molecules made up of a single stranded nucleic acid sequence or an amino acid sequence that bindbinds molecular targets with high selectivity and specificity. We have multiple clinical development programsIn April 2020, we received fast track designation from the U.S. Food and Drug Administration, or FDA, for Zimura ongoing or plannedfor the treatment of GA secondary to initiate bydry AMD. The following are brief descriptions of the endstatus of 2018. Ourthe GATHER1 trial, which we completed in June 2020, and our ongoing and planned clinical trials for Zimura all of which are designed to obtain data to guide potential future development efforts, include the following:and our manufacturing activities for Zimura.
OPH2003 (geographic atrophy (GA)GATHER1 (GA secondary to dry AMD):AMD - Completed)
GATHER1 is an ongoing,international, randomized, double–masked,double-masked, sham controlled, multi-center Phase 2b2/3 clinical trial evaluating the safety and efficacy of Zimura monotherapy in patients with geographic atrophy, or GA, secondary to dry AMD. GA, the end stage of dry AMD, is a disease characterized by retinal cell death and degeneration of retinal tissue.
OPH2007 (wet AMD): an ongoing, randomized, dose-ranging, open-label, multi-center Phase 2a clinical trial of Zimura in combination with the anti-vascular endothelial growth factor, or anti-VEGF, agent Lucentis® (ranibizumab) for the treatment of wet AMDGA secondary to AMD. We enrolled 286 patients in this trial across multiple treatment groups, including various Zimura doses and sham control groups, and patients who have not previously beenwere treated with anti-VEGF agents, referred toand followed for 18 months. In October 2019, we announced positive 12-month data from this trial and in June 2020, we completed this trial and announced 18-month data from this trial, which supported the 12-month data. We believe that the GATHER1 trial qualifies as treatment-naïve patients. Wet AMD is characterizedthe first of two Phase 3 trials typically required by the presence and growthFDA for marketing approval of abnormal new blood vessels under and through the retina.
a pharmaceutical product.
GATHER2 (GA secondary to AMD - Ongoing)
OPH2006 (IPCV): an ongoing, randomized, dose-ranging, open-label Phase 2a clinical trial of Zimura in combination with the anti-VEGF agent Eylea® (aflibercept) for the treatment of idiopathic polypoidal choroidal vasculopathy, or IPCV, in patients who have not responded to Eylea monotherapy. IPCVGATHER2 is an age-related retinal
disease involving the choroidal vasculature characterized by the presence of polypoidal lesions, which leads to vision loss. We are at a very early stage of site initiation and patient recruitment for this trial.
OPH2005 (autosomal recessive Stargardt disease (STGD1)): an ongoing,international, randomized, double-masked, sham controlled, multi-center Phase 2b3 clinical trial evaluating the safety and efficacy of Zimura monotherapy for the treatment of autosomal recessive Stargardt disease, referredGA secondary to AMD. In this trial, we plan to enroll approximately 400 patients, who will be randomized to receive either monthly administration of Zimura 2 mg or sham during the first 12 months of the trial, at which time the primary efficacy analysis of the mean rate of change of GA growth over 12 months, as STGD1.measured by fundus autofluorescence based on readings at three time points: baseline, month 6 and month 12, calculated using the square root transformation of the GA area, which is the same primary efficacy endpoint we used for the GATHER1 trial, will be performed. At month 12, we plan to re-randomize patients in the Zimura 2 mg arm to receive either monthly or every other month administration of Zimura 2 mg. The final evaluation will take place at month 24.
In June 2020, we dosed the first patient in this trial. We are at a very early stagecontinuing to recruit and enroll patients and expect to complete patient enrollment during the third quarter of 2021. Meanwhile, we continue to monitor the COVID-19 pandemic closely and may need to slow down or stop patient enrollment in certain geographies depending on the local situation. We have
added sites to this trial due to the ongoing and variable nature of the COVID-19 pandemic and its potential impact on patient recruitment for this trial.
and retention.
STAR (STGD1 - Ongoing)
Non-infectious intermediate and posterior uveitis: a planned open-label Phase 2a
STAR, also known as OPH2005, is an international, randomized, double-masked, sham controlled, multi-center clinical trial evaluating the safety and efficacy of Zimura monotherapy for the treatment of non-infectious intermediate and posterior uveitis,STGD1. STAR, similar to GATHER1, was designed to be a rare inflammatory diseasePhase 2b screening trial, with the potential to demonstrate statistically significant results depending on the magnitude of the backpotential benefit observed. If the results are positive and statistically significant, we believe this trial could potentially serve as a clinical trial that can support an application for marketing approval. We initially enrolled 95 patients in the STAR trial. All of these initially enrolled patients had completed their scheduled visits as of September 2020.
In July 2020, we reopened enrollment in this trial in the eye.
United States. We plan to enroll approximately 25 additional patients, with the goal of enrolling a total of approximately 120 patients. Similar to GATHER2, we continue to monitor the COVID-19 pandemic closely and may need to slow down or stop patient enrollment in certain geographies depending on the local situation. Newly enrolled patients will be randomized on a 1:1 basis to be treated with either Zimura 4 mg or sham for 18 months. We have been and plan to remain masked to the treatment condition of all patients in the trial. In addition, we have not reviewed and do not plan to review or analyze efficacy data for any patients in the trial, until the 18-month data has been collected and analyzed for all patients enrolled in the trial. AAV vectors are generally limited as a delivery vehicle by the size of their genetic cargo, which is restricted to approximately 4,700 base pairs of genetic code. The use of "minigenes" as a novel therapeutic strategyminigenes seeks to deliver a shortenedsmaller but still functional form of a larger gene packaged into a standard-size AAV delivery vector. The "minigene" strategy may offer an innovative solutiongoal of minigene therapy is to deliver a gene expressing a protein that, although smaller than the naturally occurring protein, is nonetheless functional for diseases that would otherwise be difficultpurposes of treating the associated disease.
us an option to obtain an exclusive license to any patents or patent applications that result from any of these sponsored research programs.
In December 2016 and August 2017, we received initial top-line data from our three pivotal clinical trials, referred to as OPH1002, OPH1003 and OPH1004, evaluating the anti-platelet derived growth factor, or anti-PDGF, aptamer Fovista® (pegpleranib) administered in combination with anti-VEGF agents for the treatment of wet AMD, indicatingAMD. These top-line data indicated that thesethe trials failed to achieve their pre-specified primary endpoints. We have terminated these trials, as well as several other smaller Fovista trials in wet AMD which wein 2017. We have referred to as the Fovista Expansion Studies. The National Eye Institute and an academic pre-clinical program are evaluating various uses of Fovistano plans for the treatment of retinal capillary hemangiomas associated with the orphan disease Von-Hippel-Lindau Syndrome, and for the treatment of retinoblastoma, a rare cancer of the eye in children, respectively. We have completed our commitments to these two programs, which primarily involved providing Fovista drug product and drug substance that we had on hand for use in the studies.
Research and development expenses also include costs of acquired product licenses, in-process research and development, and related technology rights where there is no alternative future use, costs of prototypes used in research and development, consultant fees and amounts paid to collaborative partners. We expect that research and development expenses in the future will also include the costs of our