☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2018
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Inotek
Inc.
Delaware | 04-3475813 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
350 Fifth Avenue,
New York, NY |
| |
(Address of Principal Executive Offices) | (Zip Code) |
(781) 676-2100
Title of each class | Name of each exchange on which registered | |
Common Stock, $0.01 par value |
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Large accelerated filer | ☐ | Accelerated filer |
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Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ |
| Emerging growth company | ☒ |
held by each officer and director and by each person who is known to own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the Company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
EXPLANATORY NOTE
quarterlythis annual report on Form 10-Q10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant’s definitive proxy statement for the 2017 fiscal year and thus remains eligibleits 2019 Annual Meeting of Stockholders or an amendment to use the scaled disclosure requirements applicable to smaller reporting companies under Item 10 of Regulation S-K under the Securities Act of 1933, as amended, in this Annual Report on Form 10-K.
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PART III | |||
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PART IV | |||
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our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing;
• federal, state, and non-U.S. regulatory requirements, including regulation of our current or any other future product candidates by the U.S. Food and Drug Administration (the “FDA”(“FDA”);
the success, timing and cost of our current Phase 3 program for trabodenoson as a monotherapy and planned Phase 3 and other clinical trials and anticipated Phase 2 program for our fixed-dose combination product candidate, including statements regarding the timing of initiation and completion of the trials;
• the timing of and our ability to submit regulatory filings with the FDA and to obtain and maintain FDA or other regulatory authority approval of, or other action with respect to, our product candidates;
• our commercialization, marketingcompetitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing and manufacturing capabilities and strategy, including with respect to our potential sales force in the United States and our partnering and collaboration efforts outside the United States;discounting;
third-party payor reimbursement for our current product candidates or any other potential products;
our expectations regarding the clinical• whether safety tolerability and efficacy results of our clinical trials and other required tests for approval of our product candidates and resultsprovide data to warrant progression of our clinical trials;
the glaucoma patient market size and the rate and degreetrials, potential regulatory approval or further development of market adoptionany of our product candidates;
• our ability to develop, acquire and advance product candidates by ophthalmologists, optometristsinto, and patients;
the timing, costsuccessfully complete, clinical studies, and our ability to apply for and obtain regulatory approval for such product candidates, within currently anticipated timeframes, or other aspects of a potential commercial launch ofat all;
• our ability to establish key collaborations and vendor relationships for our product candidates and potential future sales of our current product candidates or any other potential products if any are approved for marketing;
our expectations regarding licensing, acquisitions and strategic operations;
the potential advantages of ourfuture product candidates;
our competitors and their product candidates, including our expectations regarding those competing product candidates;
• our ability to protectsuccessfully develop and enforcecommercialize any technology that we may in-license or products we may acquire;
• unanticipated delays due to manufacturing difficulties, supply constraints or changes in the regulatory environment;
• our intellectual property rights,ability to successfully operate in non-U.S. jurisdictions in which we currently or in the future do business, including our patentedcompliance with applicable regulatory requirements and trade secret protected proprietary rights inlaws;
• uncertainties associated with obtaining and enforcing patents to protect our product candidates;candidates, and our ability to successfully defend ourselves against unforeseen third-party infringement claims;
• anticipated trends and challenges in our business and the markets in which we operate.operate;
• our estimates regarding our capital requirements; and
• our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities.
We are
Term | Definition | Optimal Ranges | |||
| LVV Therapy (hematopoietic disorders) | |||||
| CD34+ cell(s) | Hematopoietic Stem Cell (most CD34+ cells are not true stem cells, but this continues to be the most clinically useful measure) | Will depend on underlying disorder, generally > 1 million CD34+ cells/kg. | |||
Vector copy number (VCN) [product] | The average number of gene copies per infused stem cell (as determined by DNA analysis; this is an average ratio, not a precise value) | 2.0 (“normal” value) 0.5 to 2 has been target in some LVV clinical studies (5.0 considered maximum) | |||
Vector copy number (VCN) [in vivo, post-treatment] | The average number of gene copies per peripheral blood or bone marrow cell (as determined by DNA analysis; this is an average ratio, not a precise value) | Will depend on underlying disorder, but many disorders may be correctable with in vivo VCNs << 1.0 | |||
| AAV Therapy | |||||
Vector copy number (VCN) [in vivo, post-treatment] | The average number of gene copies per cell in the organ of interest (as determined by DNA analysis; this is an average ratio, not a precise value) | Will depend on underlying disorder, but many disorders may be correctable with in vivo VCNs << 1.0 | |||
Our product pipeline includes trabodenoson monotherapy delivereddisorder, HSCT is associated with both acute and long-term risks, including transplant-related mortality, graft versus host disease (“GVHD”), a sometimes fatal side effect of allogeneic transplant characterized by painful ulcers in an eye drop formulation,the GI tract, liver toxicity and skin rashes, as well as increased risk of subsequent cancers. Rocket’s gene therapy program in FA is designed to enable a fixed-dose combination,minimally toxic hematologic correction using a patient’s own stem cells during the early years of life. Rocket believes that the development of a broadly applicable autologous gene therapy can be transformative for these patients.
| 1. | The ability of HSCT to cure the hematologic component of FA is proof-of-principle that gene therapy will work in FA. If a sufficient number of hematopoietic stem cells (“HSCs) with a correct (non-FA) gene are able to engraft in the bone marrow of an FA patient, the blood component of FA can be eradicated, including both the risk of bone marrow failure and of leukemia. Rocket believes that gene therapy with a patient’s own gene-corrected blood stem cells will work in a similar manner, but likely with fewer side effects than those resulting from an allogeneic transplant and with reduced long-term treatment cost burden. |
| 2. | Mosaicism in FA patients: this is a condition in which a second mutation enables formation of a functional FA protein and leads to stabilization or correction of blood counts, in some cases enabling decades of bone-marrow-failure free survival. Mosaicism occurs because gene-corrected FA stem and progenitor cells have a selective advantage over uncorrected FA cells; this phenomenon demonstrates that a modest number of gene corrected HSCs can repopulate a patient’s blood and bone marrow with corrected (non-FA) cells. This selective advantage also has been demonstrated by the results of the initial FANCOLEN-I gene therapy study in Madrid, Spain, in which patients received gene-corrected cells without any chemotherapy conditioning; the percentage of blood and bone marrow cells containing the corrected FA gene has increased progressively over time. These increases have been accompanied by increases in the percentage of cells that are resistant to DNA-damaging agents, indicating a reversal of the FA phenotype in the blood and bone marrow of these patients. |
| 3. | Improved vector design, stem cell selection methods, cell harvest and transduction procedures have the potential to substantially improve the quality of autologous gene therapy cell products; many of these improvements have been included in Rocket’s programs. As a result, Rocket believes that there is reliable potential to confer disease correction at levels comparable to allogeneic transplant, but without the chemotherapy conditioning and additional side effects associated with a transplant. For example, stem cell selection methods utilized by Rocket’s academic partners have increased both CD34+ cell yield and purity, while retaining select non-CD34+ populations that may be essential for successful engraftment of gene-corrected cells in the bone marrow. |
a cell dose considered below the ideal target level of at least 500,000K CD34+/kg.
Statistically significant results2019. Both the FDA and the EMA have granted orphan drug designation for the primary endpoint of our completed Phase 2 clinical trial, and secondary endpoints of our completed MATrX-1 Phase 3 trial (Daily IOP Change from Diurnal Baseline and Analysis of Responders (subjects whose IOP decreased by >= 5 mmHg from baseline)), indicate that trabodenoson monotherapy has IOP-lowering effects, with a favorable safety and tolerability profile.
Our completed Phase 2 trial of trabodenoson co-administered with latanoprost, a prostaglandin analogue, or PGA, demonstrated IOP-lowering in patients who have previously had inadequate responses to treatment with latanoprost. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require“Lentiviral vector carrying the addition of a second drug to further lower IOP.
Upon successful completion of additional Phase 3 studies, we plan to submit a New Drug Application, or NDA, to the FDA for marketing approval of trabodenosonFanconi anemia-A (FANCA) gene for the treatment of glaucomaFanconi anemia type A.”
AccordingU.S. and Spain.
Additionally, no existing treatments offer the potentialdefined criteria to directly treat the underlying cause of glaucoma associated vision loss: the death of retinal ganglion cells, or RGCs, the nerve tissue in the retina that relays the visual signal to the brain.identify target diseases. We believe that this approach to asset development differentiates us as a druggene therapy company and potentially provides us with a first-mover advantage.
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Complete clinicalresearch and development costs. Rocket is obligated to make aggregate milestone payments of up to €0.1 million (approximately $0.1 million) to Lund University and Dr. Richter upon the achievement of specified development and seek marketingregulatory milestones. With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances.
Complete clinicalmake aggregate milestone payments of up to $1.5 million to UCSD upon the achievement of specified development and seek marketing approval of a fixed-dose combination product that includes both trabodenoson and latanoprost. As many as half of glaucoma patients, typically those with more severe disease, need to use two or more glaucoma drugs to sufficiently reduce their IOP. The initial treatment for glaucoma patients is usually the use of a prescription eye drop from the PGA drug class. However, as PGAs are often unable to lower IOP sufficiently to reach the patient’s medically targeted level, non-PGA products are used either as an add-on therapy to the PGA or as an alternative monotherapy in place of PGAs. There are currently no FDC products approved for use in the United States that include a PGA. We intend to formulate and conduct clinical development in order to seek marketing approval for an FDC product that includes both trabodenoson and latanoprost, the best-selling PGA. We believe that the favorable safety and tolerability profile and complementary mechanism of action of trabodenoson could, if approved, make an FDC with latanoprost a highly effective, well-tolerated and more convenient QD regimen for treating glaucoma in patients who have a less functional TM and therefore need additional help lowering their IOP. Our completed Phase 2 trial of trabodenoson co-administered with the PGA, latanoprost, demonstrated IOP-lowering in patients who have previously had inadequate responses to the PGA, latanoprost. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP.
Establish a specialty sales force to maximize the commercial potential of trabodenoson in the United States. We have retained worldwide commercial rights to trabodenoson. If trabodenoson receives marketing approval in the United States, we plan to commercialize it by establishing a glaucoma-focused specialty sales force of approximately 150 people targeting ophthalmologists and optometrists throughout the United States. For markets outside the United States, we intend to explore partnership opportunities through collaboration and licensing arrangements.
Evaluate the potential of trabodenoson and other assets to slow the loss of vision associated with glaucoma and degenerative retinal diseases or for additional ophthalmic indications. Based on an animal model that indicated trabodenoson’s potential to directly protect RGCs, the nerve tissue in the retina that relays the visual signal to the brain, we plan to conduct clinical trials to measure the rate of vision loss over time, rather than IOP control, in patients treated with trabodenoson. Should the results of these trials be positive, we plan to seek labeling indicative of trabodenoson’s potential to change the course of glaucoma-related vision loss, beyond that of IOP-lowering effect alone. In addition, this effect, if proven, could address the subset of glaucoma patients that do not have high IOPs, but still suffer from vision loss over time. We are also evaluating other potential indications where therapy with trabodenoson may be beneficial. To begin this process, we are conducting pre-clinical trials for optic neuropathies and degenerative retinal diseases. In addition, we are evaluating other preclinical assets in additional ocular indications.
Glaucoma Overview
Glaucoma is a disease of the eye in which damage to the optic nerve leads to progressive, irreversible vision loss. Its characteristics can include structural evidence of optic nerve damage, vision loss and consistently elevated IOP.
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The eye is a fibrous sack which must stay “inflated” with a fluid that maintains the eye’s form, known as aqueous humor, at the proper pressure in order to maintain its shape and effectively focus light to the retina where the light stimulus is then relayed to the brain and converted into a visual image. To maintain the eye’s pressure—and therefore its shape—and as a means to provide nutrients to eye tissue, aqueous humor is constantly produced inside the eye by a tissue known as the ciliary body. The ciliary body sits just behind the iris, which is the colored part of the eye. Aqueous humor flows forward through a hole in the center of the iris, called the pupil, and down into the angle defined by the front of the iris and the back of the cornea, which is the clear covering on the front of the eye. This angle is the same angle referred to in Primary Open Angle Glaucoma, or POAG, the most common form of glaucoma. Below is a diagram depicting certain parts of the eye, including the ciliary body, iris and the angle defined by the front of the iris and the back of the cornea:
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In this angle, in front of the outer rim of the iris, is the TM, a natural, pressure-regulating drain. It is here that in a healthy, well-functioning eye, approximately 70% of the aqueous humor exits and flows into a drainage canal known as Schlemm’s canal, which empties back into the venous drainage system. The remaining approximately 30% of the aqueous humor leaves the eye through a secondary pathway called the uveoscleral pathway. The diagram below reflects the TM and the uveoscleral pathway, the two pathways for the aqueous humor to leave the eye.
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Development of High IOP and its Effects on Glaucoma
In a typical glaucoma patient, there is resistance to drainage of the aqueous fluid (i.e., not enough aqueous humor exits the eye), creating excess pressure and compressing the retina, the layer of tissue covering the inside of the back half of the eye that actually converts light into nerve impulses. For people to “see,” these impulses—the visual signal—must be relayed through the optic nerve back to the brain for processing. The cells in the retina require nutrients and oxygen that are delivered via blood vessels entering and exiting the eye through the same opening as the nerve fibers carrying the visual signal. However, when IOP is too high, it is more difficult to pump blood enriched in oxygen and nutrients into the retina. The diagram below reflects the anatomy of the eye and how elevated IOP can impair the nerve tissue in the retina and the optic nerve head.
The deprivation of blood supply to the retina may damage RGCs, the nerve tissue in the retina that relays the visual signal to the brain. These RGCs have long tails called axons that extend back to the brain to carry the visual image. In fact, the optic nerve is nothing more than a bundle of these axons extending to the vision processing center of the brain. When an RGC dies, one of the connections between the retina and the brain is lost, and like most cases when a nerve is damaged or cut—like in a spinal cord injury—there is no known way to repair the damage and, as a result, some portion of vision is permanently lost. Therefore, the root cause of vision loss in glaucoma is not high IOP per se, but the impact of high IOP on the retina, and specifically the RGCs.
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Clinical Definition of Glaucoma
There are two key elements to the clinical definition of glaucoma: structural evidence of optic nerve damage and vision loss. Common risk factors include age, family history, corneal thickness and high IOP, commonly measured in millimeters of mercury, or mmHg. Currently, the only known way to treat glaucoma and slow the progression of vision loss is to reduce IOP. While treatment approaches are based on an assessment of the patient’s risk factors for vision loss, elevated IOP is by far the best understood contributor to development of glaucoma. We believe that the general treatment patterns in the figure below, relative to a patient’s IOP, are typical.
The Ocular Hypertension Treatment Study, or the OHTS, was a large, randomized academic trial published in 2002 that followed a total of 1,636 participants who initially had no evidence of glaucoma-related damage. The OHTS found that higher IOPs generally indicate a higher risk for progression to glaucoma. An IOP of 10 to 21 mmHg is generally considered in the normal range. Individuals with IOPs greater than 21 and up to 25 mmHg will often not be prescribed drug therapy unless they have evidence of both structural changes and some vision loss, or some combination of these and other risk factors for future vision loss. In fact, the United Kingdom’s National Institute of Health and Care Excellence Guidelines, or NICE Guidelines,regulatory milestones for the treatment of suspected glaucoma (structural changes but without vision loss) plus elevated IOP, does not recommend treatmentDanon disease. A reduced schedule of eyesmilestone payments applies to achieving the same milestones for additional indications. With respect to any commercialized products covered by the agreement, we are obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments. If we enter into a sublicense agreement with corneal thicknessa sublicensee, we will be obligated to pay a portion of 555-590 nm and IOPany consideration received from such sublicensees in specified circumstances. We are also subject to certain diligence milestones for development of 25 mmHg or below. Drug treatmenta product using the intellectual property licensed from UCSD under this agreement.
Glaucoma Market
According tothrough the British Journalexpiration of Ophthalmology, there were an estimated 2.8 million Americans with glaucoma in 2010. According to the Archiveslicensed patents, some of Ophthalmology, that number will reach approximately 3.4 million by 2020. Approximately 120,000 of these patientswhich are suffering from blindness as a result of destruction to their optic nerve. Glaucoma can affect patients of all ages and ethnicities. However, according to the Archives of Ophthalmology, the prevalence rate (the proportion of peoplestill in the population that have glaucoma) increasespending application phase.
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According to IMS Health, sales of glaucoma drugs in 2013 were approximately $2.0 billion in the United States and $5.6 billion worldwide and 31.2 million prescriptions were written for glaucoma medications in the United States. According to IMS Health, approximately two-thirds of these prescriptions were for generic drugs, including latanoprost and timolol, which are the top two selling drugsRGNX’s NAV AAV-9 vector for the treatment of glaucoma. Due to the lack of innovationDanon disease in medications for glaucoma, most of the drugs used to treat glaucoma are generic drugs. IMS Health projects U.S. sales of glaucoma drugs to be $3.1 billion in 2018, an increase of approximately 54% over 2013 sales.
Existing Glaucoma Treatments
The initial treatment for glaucoma patients is typically the use of a prescription eye drop from a class of drugs called PGAs. According to IMS Health, prescriptions for PGAs make up more than half of all prescriptions for glaucoma medications. The PGAs’ primary mechanism of action for treating glaucoma is thought to be increasing fluid outflow through the uveoscleral pathway. A number of adverse effects are known to occur in all drugs in the PGA class and, as a result, these side effects are assumed to be associated with the mechanism of action. Most notable of these side effects is eye redness, or conjunctival hyperemia.
When PGAs are insufficient to control IOP or are poorly tolerated, non-PGA products are used either as an add-on therapy to the PGA or as an alternative monotherapy in place of a PGA. Non-PGAs can include a beta-blocker, an alpha (adrenergic) agonist or a carbonic anhydrase inhibitor alone. FDC products containing these non-PGAs are dominatedhumans by beta-blocker combinations, which can take the form of a beta-blocker combined with an alpha agonist (Combigan®), or a beta-blocker combined with a carbonic anhydrase inhibitor (Cosopt® or generic equivalent). Finally, there is a non-PGA combination (Simbrinza®) which consist solely of an alpha agonist and a carbonic anhydrase inhibitor. Non-PGA drugs generally have poorer tolerability in the eye than PGA drugs, and some have systemic adverse effects that limit the patient population in which they can be used safely. Moreover, their IOP-lowering effect is generally less than that of PGAs and the vast majority of non-PGAs are required to be dosed multiple times daily.
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The existing classes of treatment available for glaucoma each have varying mechanisms of action, levels of IOP-lowering, side effects and other adverse effects, as described in the following table.
Summary of Existing Glaucoma Treatments:
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The chart below illustrates the respective proportions of glaucoma prescriptions issued in 2013 by class, according to IMS Health.
Glaucoma Treatments Currently in Development.
We believe there are currently two leading classes of new drugs in clinical development for glaucoma: Rho kinase inhibitors and adenosine mimetics.
A Rho kinase inhibitor is currently in Phase 3 clinical trials and is the furthest along of the potential new glaucoma drug therapies: Aerie Pharmaceuticals, Inc.’s AR-13324. Like with PGAs, conjunctival hyperemia has been reported with the Rho kinase inhibitor class.
Adenosine mimetics are compounds that mimic or simulate some of the actions or effects of adenosine, a naturally-occurring molecule with many, diverse biologic effects. There are four known subreceptors that are specific to adenosine: A1, A2a, A2b and A3. These subreceptors can cause many effects if stimulated. In the adenosine mimetic group, there are compounds targeting three different adenosine subreceptors: A1, A2a and A3. We believe that A1 selectivity is necessary for optimal IOP-lowering effect. To our knowledge, the two compounds being developed by other companies that were selective for the A2a subreceptor have been discontinued from clinical development for glaucoma. A third compound being developed that we believe targets both the A1 (IOP-lowering) and the A3 (IOP-increasing) subreceptors is still being studied. We believe that because this third compound is dosed orally, it is challenging to isolate its pharmacologic effects solely to the eye. We believe we are the only company to be developing an adenosine mimetic highly selective for the A1 subreceptor for ophthalmic indications.
Market Opportunity
Since 1996, there have been no new drug classes approved in the United States for glaucoma. As a result, there are persistent inadequacies in the tools that ophthalmologists use to manage patients with glaucoma. Thus, we believe there is a need for an innovative glaucoma treatment that offers:
significant IOP-lowering;
a favorable safety and tolerability profile;
a novel mechanism of action that complements existing therapies; and
convenient dosing.
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Trabodenoson is a first-in-class selective adenosine mimetic that is designed to lower IOP with a mechanism of action that we believe augments the natural function of the TM. In addition, by enhancing a naturally occurring process to make the eye function more like that of a younger, healthier eye, rather than changing the fundamental dynamics of pressure regulation in the eye, we believe there is a lower risk of unintended side effects that could result in safety or tolerability issues in the long term. We believe trabodenoson enhances metabolic activity in the TM, which helps clear the pathway for the aqueous humor, the fluid in the eye, to flow out of the eye, thereby lowering IOP. We believe that trabodenoson’s mechanism of action improves the function of the eye, and that trabodenoson has the potential to be used as a monotherapy in place of current glaucoma treatments. In addition, we expect that trabodenoson’s purported mechanism of action in the TM should complement the activity of all currently-approved glaucoma drugs that work in other ways to lower IOP.
We believe the following elements of trabodenoson’s product profile will drive its adoption, if approved, in the glaucoma market:
Meaningful IOP-Lowering.After three months of monotherapy treatment in a Phase 3 clinical trial, MATrX-1, in glaucoma patients who had discontinued any other medications, trabodenoson (500 mcg) lowered IOP by an average of 4.25 mmHg from diurnal baseline. Moreover, daily average IOP reduction was statistically significantly greater than placebo at days 84, 42, and 14, with marginal significance at day 28. MATrX-1 did not meet its primary endpoint because it did not demonstrate a statistically significant difference in absolute IOP from placebo at every single one of the 12 time points comprising the primary endpoint. This was due to a larger than expected treatment effect in the placebo/vehicle group, as compared to both our prior Phase 2 data and a recent meta-analysis examining placebo responses from 10 placebo-controlled trials, which showed a placebo/vehicle result of -2.01 mmHg (Raber, et al). During analysis of the IOP data from the trial, a treatment-by-site interaction was found where a small number of sites (4 sites out of a total of 55) caused an important change in the expected vehicle results. The review of the MATrX-1 data is ongoing and upon completion of all analyses, we plan to request a meeting with the FDA in the first half of 2017 to discuss these findings.
Favorable Safety Profile. Prior to MATrX-1, in four completed trabodenoson clinical trials over a wide range of doses, no patients had been withdrawn due to a trabodenoson-related side effect in the eye. In our multiple-dose Phase 3 MATrX-1 monotherapy clinical trial, drug-related dropouts were 1.1 % of patients across all doses tested. Furthermore, in our completed multiple-dose Phase 2 trial of trabodenoson co-administered with latanoprost in a populationvivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of PGA poor-responders, there also was no change in the rate of hyperemia from study baseline after four, eight or 12 weeks of treatment. No systemic effects of the drug have been identified, despite rigorous monitoring including cardiac and renal function, when administered as an eye drop. We believe this safety profile could be important in the potential for trabodenoson to become a preferred treatment alternative for patients that experience undesired side effects with existing therapies.
Unique, Complementary Mechanism of Action. We believe that trabodenoson’s mechanism of action augments a naturally occurring process by clearing the path for aqueous humor outflow in the TM. We expect that this mechanism of action should complement all currently-approved glaucoma drugs which work in other ways to lower IOP, including by reducing aqueous humor production and increasing outflow through the uveoscleral pathway. This complementary mechanism was confirmed in patients already receiving latanoprost therapy in a recently completed multiple-dose Phase 2 trial. In this Phase 2 trial of trabodenoson co-administered with latanoprost in a population of PGA poor-responders, patients on latanoprost experienced an additional 5.8 mmHg IOP lowering from their study baseline and 4.3 mmHg from their diurnal baseline after 12 weeks treatment (eight weeks BID plus four weeks QD). These results make trabodenosonLAMP2 transgene isoforms (the “Field”), with its favorable safety profile, a candidate to add to other glaucoma medications when a further reduction of the IOP is desirable.
Convenient Dosing. Current Phase 2 clinical data indicate that QD dosing with trabodenoson in PGA poor-responders is well tolerated and lowers IOP significantly. We believe a QD dosing regimen minimizes the burden on patients to remember to take their medication, thus, we believe, potentially improving compliance with the therapy. If confirmed and approved in our Phase 3 program, QD dosing would make trabodenoson easier to use than most non-PGA products, and trabodenoson’s dosing frequency would match the best-in-class PGAs, which would facilitate an FDC with a PGA that could be dosed QD.
We believe that trabodenoson’s IOP-lowering results, complementary mechanism of action, dosing and safety profile make it well suited for use in an FDC with a PGA, which could be a convenient option for patients currently using two or more glaucoma drugs to lower IOP.
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Trabodenoson Discovery—Background
Adenosine is a naturally occurring molecule that has a broad array of biological effects. Its effects are mediated through activity at four known adenosine-specific subreceptors: A1, A2a, A2b and A3. These subreceptors are present throughout the body on the cells of different tissues, and at different concentrations. When adenosine binds and activates these different subreceptors, it can cause many diverse effects.
In 1995, a study was published in the Journal of Pharmacology and Experimental Therapeutics describing how adenosine mimetics can lower IOP by activating adenosine A1 subreceptors in rabbits. In 2001, an animal study published by the University of Pennsylvania School of Medicine confirmed that stimulation of A1 lowered IOP, but that stimulating A2a or A3 subreceptors increased IOP.
Our scientists began a rational deconstruction of this complex biology in order to isolate the protective activity of adenosine and to incorporate it into novel therapeutics. Beginning with the structure of adenosine, we created a series of molecules to bind with, and therefore induce the biological effects associated with stimulation of a single adenosine subreceptor. In this way, the undesired biological actions of native adenosine were systematically removed, one by one by eliminating the activity at non-target subreceptors. This rational drug design process relied heavily on our understanding of structure activity relationships, which relate the variation in the structure of the adenosine mimetics and their ability to bind and activate ideally just one adenosine subreceptor. Ultimately, a number of molecules emerged from these efforts with isolated and specialized activity, including some adenosine mimetics that only targeted the A1 subreceptor, leading to the discovery of trabodenoson.
The high affinity binding of trabodenoson to the A1 subreceptor is shown by the small Ki in the table below, and its selectivity for this IOP-lowering activity is indicated by much higher Ki’s for A2a and A3 receptors where its binding is relatively weak.
Trabodenoson is a Potent and Selective A1 Adenosine Mimetic
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| A2a/A1 |
| A3/A1 | |||
Trabodenoson |
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| 0.97 |
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| 4,690 |
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| 704 |
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| 4,835x |
| 725x |
Trabodenoson’s key characteristics include:
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We believe that trabodenoson is the only adenosine mimetic with high selectivity for the single desired target of action, the A1 subreceptor, and that stimulation of this subreceptor in the TM effects a meaningful improvement in the metabolic activity in the TM that helps to clear the pathway for the aqueous humor to flow out of the eye, lowering IOP. This metabolic activity takes the form of an increase or up-regulation of proteases—such as Protease A or MMP-2—that digests and removes accumulated proteins that can block the healthy flow of the aqueous humor out of an eye with glaucoma. This metabolic activity is a naturally occurring or endogenous process that is enhanced by treatment with trabodenoson. We believe this process does not radically change the way the TM controls eye pressure, but rather restores the natural process of pressure control in the TM, which is different from other therapies that decrease aqueous humor production or increase the permeability of the eye to increase outflow.
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Our product pipeline includes trabodenoson, as a monotherapy delivered in an eye drop formulation, as well as an FDC that includes trabodenoson plus latanoprostexclusive option to license (the “Option Right”) all U.S. patents and patent applications for two additional NAV AAV vectors in an eye drop formulation, which we refer to as our FDC product candidate. We are also evaluating the potentialField (each, a “LicensedPatent” and collectively, the “Licensed Patents”).
Trabodenoson
Our first product candidate, trabodenoson, is a monotherapy dosed in an eye drop. Our clinical trials have shown that trabodenoson has significant IOP-lowering effects, convenient dosing and a favorable safety profile when comparedthe rights granted to the currently available glaucoma treatments, such as PGAs and non-PGAs. MATrX-1 did not meet its primary endpoint because it did not demonstrate a statistically significant difference in absolute IOP from placebo at every single oneCompany under the License Agreement, the Company made an upfront payment to RGNX of the 12 time points comprising the primary endpoint. This$7.0 million which was dueexpensed to a larger than expected treatment effectR&D costs in the placebo/vehicle group, as comparedconsolidated financial statement. A fee of $2.0 million per additional vector would be due if the Company exercises its Option Right to both our prior Phase 2 data and a recent meta-analysis examining placebo responses from 10 placebo-controlled trials, which showed a placebo/vehicle result of -2.01 mmHg (Raber, et al). During analysis of the IOP data from the trial, a treatment-by-site interaction was found where a small number of sites (4 sites out of a total of 55) caused an important changepurchase additional vectors. The License Agreement provides for royalties payable to RGNX in the expected vehicle results. The reviewhigh-single digits to low-teens on net sales levels of products incorporating the MATrX-1 data is ongoingLicensed Patents (the “Licensed Products”) during the royalty term. If successful, the Company will be required to make milestone payments to RGNX of up to $13.0 million for each Licensed Product upon the achievement of specified clinical development and upon completion of all analyses, we plan to request a meeting with the FDAregulatory milestones in the first half of 2017 to discuss these findings.
Trabodenoson-Latanoprost Fixed-Dose Combination
Our second product candidate is a combination of trabodenoson with a PGA, latanoprost, to create an FDC. As many as half of glaucoma patients, typically those with more severe disease, need to use two or more glaucoma drugs to sufficiently reduce their IOP. The available FDC products increase IOP-lowering but also have unpleasant tolerability challenges in the eye, as well as the adverse effects, safety warnings, precautionsU.S. and contraindications that the two individually-dosed drugs carry in their FDA-approved package inserts. An FDC product containing a PGA plus a non-PGA has not yet been approved in the United States. We believe that none have gained FDA approval because the modest incremental benefit in IOP-lowering seen when a non-PGA is added to a PGA is too small in the context of the added side effects and clinical risks that come with the combined drugs. In contrast, based on our completed Phase 2 study in which trabodenoson therapy was co-administered with latanoprost, we believe that an FDC containing a PGA and trabodenoson would be well received in the glaucoma market, especially for use in patients with higher IOPs that currently use two or more glaucoma drugs to lower IOP.
We expect that trabodenoson will not adversely affect the safety profile of latanoprost, or any other currently-approved PGA, because of its favorable safety and tolerability profile from our completed Phase 2 trial in which trabodenoson and latanoprost were co-administered. We believe that trabodenoson’s mechanism for lowering IOP complements the mechanism of action of latanoprost and other PGAs, which work primarily on the secondary uveoscleral outflow, because trabodenoson is believed to act through the TM, the largest aqueous humor outflow path in the eye. In fact, our IOP-lowering studies in cynomolgus monkeys have shown that IOP-lowering is significantly better when the eye is treated with both trabodenoson and latanoprost, as compared to treatment with latanoprost alone.
Our completed Phase 2 trial of trabodenoson co-administered with latanoprost also demonstrated IOP-lowering in patients who have previously had inadequate responses to latanoprost. These patients represent PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP. The safety profile of trabodenoson co-
12
administered with latanoprost is similar to that of trabodenoson monotherapy. Moreover, trabodenoson had a sufficiently long duration of action, allowing it to be effectively dosed QD in conjunction with latanoprost. Assuming the trabodenoson safety profile remains favorable, a trabodenoson-latanoprost FDC therapy could present a much improved risk/benefit profile over other combinations of currently-approved PGAs and non-PGAs. Currently, a Phase 2 dose-ranging, fixed-dose combination trial investigating combinations of trabodenoson and latanoprost in a single eye drop is ongoing. Results are anticipated in mid-2017.
Trabodenoson for Optic Neuropathy and Degenerative Retinal Diseases
The neuroprotective potential of trabodenoson is supported by the basic biology of adenosine, which has shown that the stimulation of the A1 receptor can protect tissues of the central nervous system. A pre-clinical study of the impact of high IOP on RGCs showed that trabodenoson could protect this key population of cells in the retina that, when lost, result in the irreversible vision loss associated with glaucoma. While we have not yet conducted a formal program of studies to prove neuroprotection, we plan to study the potential of trabodenoson monotherapy and our FDC product candidate to slow the loss of vision significantly more than attributable to IOP lowering alone, either in glaucoma patients or in other rarer forms of optic neuropathies.
Clinical Data and Development Strategy
Our Phase 3 program for trabodenoson as a monotherapy incorporates the FDA-acceptable clinical endpoint of IOP, in studies with three months of treatment. We had an End-of-Phase 2 meeting with the FDA in 2015 to discuss our Phase 3 program for trabodenoson monotherapy, and to confirm the design and endpoints for the Phase 3 pivotal trials. At the meeting, we reached agreement on the design for our initial Phase 3 study, as well as the overall regulatory path for trabodenoson. The trial design for the initial Phase 3 study was a five-arm superiority trial including three doses of trabodenoson. The primary endpoint of the study was IOP, determined at four timepoints during the day, after 4, 6 and 12 weeks of treatment. The IOP of the trabodenoson treated subjects was statistically compared to those of placebo treated subjects. A timolol arm was included for study validation, but not for statistical comparison.
We initiated our Phase 3 program for trabodenoson monotherapy in October 2015 and reported top-line data from the first pivotal trial in the program on January 3, 2017. While MATrX-1 did not meet its primary endpoint, it did demonstrate efficacy as compared to placebo. We are planning to complete the analyses of this trial, then request a meeting with the FDA in the first half of 2017 to discuss these findings.
We are planning to commence our Phase 3 program for the FDC of trabodenoson and latanoprost in 2018.
Clinical Results
MATrX-1 Trabodenoson Phase 3 Tolerability, Safety and Efficacy of Monotherapy in Glaucoma Patients
MATrX-1 was a Phase 3 randomized, double-masked, placebo-controlled trial of trabodenoson in approximately 300 subjects diagnosed with POAG or OHT. MATrX-1 assessed the efficacy, safety and tolerability of trabodenoson over three months of treatment. The primary endpoint was reduction of IOP as compared to the placebo treatment arm.EU. In addition, the study contained a timolol 0.5% arm to validate the sensitivityCompany shall pay RGNX 20% of the patient populationpayment fees received from a priority review voucher issued in connection with or otherwise related to a Licensed Product. These royalty obligations are subject to specified reductions if additional licenses from third parties are required. The Company must also pay RGNX a portion of all non-royalty sublicense income (if any) received from sublicensees.
In early 2017 we announced the results of MATrX-1. The results showed a skewed distribution of the IOP data resulting from outliers, as identified from histogram and distribution statistics. To minimize their effects, a statistical approach using medians was considered more appropriate than an approach primarily based on means. Therefore, the analyses of IOP were performed using median data.
Results
Total subjects randomized and treated was 300. The demographics of the trial were well balanced with a distribution of roughly 2/3rd POAGs to 1/3rd OHT subjects. Mean baseline IOPs ranged from 26.3 to 26.8 mmHg for all groups except for the timolol group which had a baseline IOP of 27.4 mmHg, as shown below.
Efficacy
The data showed that trabodenoson 6% once-a-day (QD) was the most effective dose, with IOP lowering that was comparable to that observed in Phase 2. Average Daily IOPs Change from Diurnal baseline at all days tested were statistically significantly lower than placebo, and the overall efficacy of the 6% QD dose was approximately 4.25 mmHg at the end of the study. While the trial did not meet its primary endpoint of demonstrating statistical separation from placebo/vehicle on three days (each with four IOP time points) for a total of twelve time points throughout the trial (see below); this was primarily due to two factors: a placebo response that was substantially greater than that observed in Phase 2 (see below), and 4 ‘outlier’ sites out of a total 55 sites that had results well outside of the range of other sites.
These 4 ‘outlier’ sites had a few subjects (n=5) randomized to the placebo arm with extreme placebo/vehicle responses that were clearly outside the norm or expected physiology. When all the data (from active as well as placebo subjects) from these 4 ‘outlier’ sites were removed from the analyses, despite a reductionpharmaceutical industries, including in the overall sample size by 29 subjects, statistical significance was greatly increased, as shown below. This indicates the strong confounding effectfield of these few, but extreme placebo/vehicle outliers on the efficacy results.
Safety
All doses of trabodenoson were well-tolerated, with approximately 1.6% of patients discontinuing the study due to drug-related side effects. There were no serious adverse events, or SAEs, related to trabodenoson. Consistent with prior trials, no evidence of significant systemic effects was observed. Notably, hyperemia was comparable between the trabodenoson and placebo arms. Also, there were no reports of drug-related eye pain, itching or irritation in any of the trabodenoson arms.
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Trabodenoson Phase 2 Tolerability, Safety and Efficacy of Monotherapy in Glaucoma Patients
In 2012, we completed a successful Phase 2 dose-ranging clinical trial in 144 patients with OHT (ocular hypertension with no visual field loss) or POAG, which demonstrated a clear dose response to trabodenoson. Statistically significant results for the primary endpoint of our Phase 2 clinical trials indicate that trabodenoson has IOP-lowering effects in line with the best existing therapies, with a favorable safety and tolerability profile at all doses tested. The trial was randomized, double-masked, placebo-controlled, and evaluated the efficacy, tolerability, safety, and pharmacokinetics of trabodenoson over two or four weeks of BID dosing with eye drops. Separate groups of patients received trabodenoson doses of 50, 100 or 200 mcg for two weeks, or 500 mcg for four weeks, and their IOP-lowering efficacy and safety data were compared to groups of patients dosed concurrently with placebo eye drops, also BID.
The primary efficacy endpoint was IOP (measured throughout the day). The primary efficacy analysis calculated the reduction in IOP from the patients’ IOP at the beginning of the study (recorded before active drug was administered at the study 8 AM baseline). A second analysis calculated the reduction in IOP from a time-matched diurnal baseline. The IOP drop from baseline for each dose group (50, 100, 200 and 500 mcg) was then compared statistically to the IOP drop of a matched placebo group treated concurrently.
Results
Patient Population: The characteristics of the patients in the dose groups were similar, including their ages, baseline IOPs, and diagnoses (OHT or POAG). The table below reflects information regarding the demographics of the patient populations that participated in the study, and shows that both diagnoses groups had similar baseline IOPs, and that groups treated with trabodenoson had characteristics that were similar to the placebo groups to which they were compared.
Baseline Demographics and IOP
|
|
|
|
|
| Trabodenoson Dose |
|
|
|
|
| |||||||||||||
|
| Placebo |
|
| 50 mcg |
|
| 100 mcg |
|
| 200 mcg |
|
| 500 mcg |
|
| Total Active |
| ||||||
Mean Age |
|
| 59 |
|
|
| 56.6 |
|
|
| 55.6 |
|
|
| 53.8 |
|
|
| 57.6 |
|
|
| 56.3 |
|
n |
|
| 59 |
|
|
| 17 |
|
|
| 17 |
|
|
| 17 |
|
|
| 34 |
|
|
| 85 |
|
Baseline IOP (mmHg) |
|
| 26.6 |
|
|
| 26.1 |
|
|
| 25.6 |
|
|
| 26.1 |
|
|
| 26.2 |
|
|
| 26 |
|
OHT n(%) |
| 22(37.3) |
|
| 6(35.3) |
|
| 8(47.1) |
|
| 6(35.3) |
|
| 14(41.2) |
|
| 34(40.0) |
| ||||||
Baseline IOP (mmHg) |
|
| 26.7 |
|
|
| 27.2 |
|
|
| 25 |
|
|
| 27.1 |
|
|
| 26.3 |
|
|
| 26.3 |
|
POAG n(%) |
| 37(62.7) |
|
| 11(64.7) |
|
| 9(52.9) |
|
| 11(64.7) |
|
| 20(58.8) |
|
| 51(60.0) |
| ||||||
Baseline IOP (mmHg) |
|
| 26.5 |
|
|
| 25.5 |
|
|
| 26.1 |
|
|
| 25.5 |
|
|
| 26.1 |
|
|
| 25.9 |
|
16
Both the 200 mcg dose and the 500 mcg doses at day 14, and the 500 mcg dose at day 28, met the primary endpoint demonstrating statistically significant improvements in IOP relative to the matched placebo (p<0.05 indicating a greater than 95% probability that the result was not a random event). Moreover, a clear increase in IOP-lowering efficacy was seen with increasing doses of trabodenoson (i.e. a dose response), and the most efficacious trabodenoson dose tested was the highest dose of 500 mcg. Trabodenoson’s primary efficacy endpoint (IOP drop from baseline) measured after four weeks of treatment (at day 28) had improved significantly from the same endpoint when measured after two weeks of treatment (at day 14). This improvement with additional treatment time was statistically significant (p=0.016). In the figure below, a clear trend for increasing IOP-lowering efficacy with increasing dose is evident. For the 500 mcg dose, the statistically significant increase in efficacy between day 14 and day 28 is illustrated on the right side of the figure.
On average, doubling doses between 50 and 500 mcg increases IOP lowering from diurnal baseline by approximately 0.7 mmHg.
17
The IOP-lowering at the highest and most efficacious dose (500 mcg) was evaluated in various patient sub-populations to gain a sense of the ability to generalize the results over a diverse patient population. The figure below compares the IOP drop from study baseline (the primary endpoint analysis) for all patients (far left) to various sub-populations to the right of that. All of these patient subgroups responded to trabodenoson’s IOP-lowering effect.
When we rationally designed trabodenoson, our primary objective was to restore pressure regulation in eyes with high IOP, a risk factor for glaucoma. A healthy eye has a natural circadian rhythm that dictates a pattern of IOP over the day. We found that this pattern, or the shape of the IOP circadian rhythm curve throughout the day, is relatively unchanged by trabodenoson treatment, except that the overall IOP during the day is reduced by trabodenoson treatment as intended. We believe this indicates that the TM has been restored to an improved function resulting in a more normal average pressure, and that this normal daily IOP pattern indicates that the fundamental biology of pressure management in the eye has been preserved. The natural daily changes in IOP still exist, but at a significantly lower average pressure that we believe is less damaging to RGCs and the optic nerve. The figure below shows the primary efficacy parameter for the trial, IOP, at several timepoints throughout the day (diurnal IOP) for the highest dose tested and the placebo group at day 28.
Furthermore, after 28 days of BID dosing, the IOP-lowering effect persisted for an additional 24 hours after the last dose of medication, which we believe indicates the potential for trabodenoson monotherapy to be dosed QD.
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There were no SAEs or patients that withdrew due to safety findings that occurred once the drug was given. There were no signs of systemic safety issues in any of the non-ocular examinations, ECG evaluations or laboratory tests performed. Systemically, administration of trabodenoson eye drops was found to be well-tolerated. There were no changes noted from internal eye examinations or visual testing during drug treatment. The rate of conjunctival hyperemia in patients treated with trabodenoson was unchanged from the placebo run-in period (study baseline). There was no maximum tolerated dose determined because all doses tested were well-tolerated.
Trabodenoson Phase 2 Co-Administered with Latanoprost in Glaucoma Patients
In October 2014, we received top-line results from a Phase 2 trial in patients with POAG or OHT, in which trabodenoson eye drops were co-administered with latanoprost eye drops. The objective of the study was to evaluate the safety and additional IOP-lowering effect of trabodenoson when added either BID or QD to latanoprost. This trial enrolled 101 patients who had IOPs of greater than or equal to 24 mmHg despite one month of previous treatment with latanoprost. These patientsgene therapy, are considered PGA poor-responders, as evidenced by persistently elevated IOP at levels that typically require the addition of a second drug to further lower IOP. The trial was randomized, double-masked, placebo- and active- controlled.
Following four weeks of latanoprost eye drops, otherwise healthy patients with an IOP greater than 24 mmHg and a diagnosis of either OHT or POAG were randomized for Part 1 of the study. In Part 1, the study arm consisted of BID-dosed trabodenoson (1.5%; 500 mcg nominal dose) plus latanoprost 0.005%, at the approved dose, QD. The control arm consisted of timolol 0.5%, an approved BID dose plus latanoprost 0.005% QD. Patients in both arms were treated for a total of eight weeks in Part 1 of the study to evaluate the additive effects of trabodenoson BID to latanoprost QD, with an active control consisting of timolol BID.
At the end of Part 1, after eight weeks of treatment, patients began Part 2 of the study. In Part 2, the study arm was switched to a QD dose of trabodenoson (3.0%, 1,000 mcg nominal dose) plus latanoprost 0.005% QD, and patients in the control arm were switched to placebo QD plus latanoprost 0.005% QD. Part 2 was designed to measure the additive effects of trabodenoson QD to latanoprost QD over an additional four weeks. The number of patients planned for enrollment was ~100 (50 patients per arm) for Part 1 and ~80 (40 patients per arm) for Part 2. This trial is outlined below.
The primary efficacy endpoint was IOP, measured throughout the day. The efficacy analyses calculated the reduction in IOP from the patients’ IOP at study baseline and diurnal baseline (recorded after taking latanoprost for four weeks but before trabodenoson or timolol were added). In Part 1, these IOP drops from baseline, on latanoprost, were compared to the IOP drops of the control arm treated concurrently with timolol. In Part 2, the IOP drop from baseline in patients receiving trabodenoson QD plus latanoprost QD was compared to patients receiving placebo QD plus latanoprost QD.
Safety evaluations included recording of withdrawals or terminations and adverse events, or AEs. In each patient, both eyes were evaluated at regular intervals with internal eye exams (including pupil dilation with slit lamp examination of the inside of the eye) and external eye examinations (of the outside surface of the eye, eye lids and surrounding tissue). Visual function was also assessed. Overall health was assessed by physical exam, vital signs (including heart rate and blood pressure), electrocardiograms, or ECGs, for heart function and analysis of urine and blood samples (clinical chemistry). Plasma samples were collected to analyze the pharmacokinetic parameters, such as the half-life of any drug detected in the systemic circulation.
19
Patient Population: The characteristics of the patients in the dose groups were similar, including their age, and baseline IOPs, which were not adequately controlled following a four-week run-in using latanoprost therapy. The table below includes information on the demographics of the patients that participated in the study.
Baseline Demographics and IOP
|
| Part 1 |
|
| Part 2 |
| ||||||||||
ITT population |
| Trabodenoson BID |
|
| Timolol BID |
|
| Trabodenoson QD |
|
| Placebo QD |
| ||||
n |
|
| 50 |
|
|
| 51 |
|
|
| 37 |
|
|
| 43 |
|
Mean Age |
|
| 62 |
|
|
| 61 |
|
|
| 63 |
|
|
| 61 |
|
Baseline IOP using latanoprost (mmHg) |
|
| 25.71 |
|
|
| 25.86 |
|
|
| 25.68 |
|
|
| 25.86 |
|
OHT n (%) |
| 23(46%) |
|
| 13(25.5%) |
|
| 15(40.5%) |
|
| 12(28%) |
| ||||
Baseline IOP using latanoprost (mmHg) |
|
| 25.78 |
|
|
| 25.65 |
|
|
| 25.93 |
|
|
| 25.29 |
|
POAG n (%) |
| 27(54%) |
|
| 38(74.5%) |
|
| 22(59.5%) |
|
| 31(72%) |
| ||||
Baseline IOP using latanoprost (mmHg) |
|
| 25.65 |
|
|
| 25.93 |
|
|
| 25.50 |
|
|
| 26.08 |
|
Discontinuations:
In Part 1, there were four discontinuations due to either protocol violations or exclusionary criteria (three patients were in the trabodenoson group and one was in the timolol group). In Part 2, there were two discontinuations; one was discontinued due to an AE and the other did not to return during follow-up, but provided no explanation (both were in the placebo group).
Efficacy
After eight weeks of BID dosing in Part 1, patients treated with trabodenoson co-administered with latanoprost experienced further mean reductions of IOP of 3.4 and 4.9 mmHg from diurnal and study baselines, respectively, beyond the IOP-lowering of latanoprost. After switching to QD trabodenoson in Part 2, and treating for an additional four weeks, QD dosing with trabodenoson resulted in a mean reduction in IOP of 4.3 and 5.8 mmHg from diurnal and study baseline, respectively, from the IOP on latanoprost alone. At the end of Part 2 (after 12 weeks), the IOP-lowering seen in the Study Eye (the eye treated with trabodenoson) was statistically significantly greater than the IOP drop of the patient’s Control Eye (the patient’s other eye that only received QD latanoprost).
20
In Part 1 the IOP drop at the end of 8 weeks of treatment, in this population of latanoprost poor-responders, was less than timolol BID (0.5%) which dropped pressure 6.1 and 7.6 mmHg, on average from diurnal and study baselines, respectively.
In Part 2 of the trial, QD trabodenoson lowered IOP an additional 4.3 and 5.8 mmHg from diurnal and study baseline, respectively, beyond the effect of latanoprost alone in this population of latanoprost poor-responders.
Consistency of Results across Phase II Studies
Mean reductions in IOP from study baseline ranging from 5.0 mmHg after four weeks of BID treatment to 5.8 mmHg after four weeks of QD treatment in the trial were similar to the 6.5 mmHg IOP reduction seen at the end of the four week Trabodenoson Phase 2 Tolerability, Safety and Efficacy of Monotherapy in Glaucoma Patients trial (the monotherapy trial). In the monotherapy trial, patients received only trabodenoson. The patients in the 2014 additivity trial represented a different patient population than those studied in the monotherapy trial. These patients had inadequate responses to latanoprost, as evidenced by persistently high IOP, despite latanoprost treatment for four weeks prior to randomization. This patient population typically requires the addition of a second drug to their PGA therapy to further lower IOP. Patients in the monotherapy trial, by contrast, were removed from all glaucoma medications, and thus represented a typical patient population studied in a Phase 3 glaucoma trial. Despite these differences in the patient populations, the efficacy of trabodenoson was consistent across trials, suggesting that trabodenoson’s mechanism of action is effective across a wide-range of glaucoma disease severity.
21
Both OHT and POAG patients responded to trabodenoson with POAG subjects showing the largest IOP drops.
Safety and Tolerability
With the exception of a single patient who received placebo plus latanoprost, no patients dropped out of the trial as a result of a drug-related adverse effect or due to drug intolerability. Trabodenoson was well tolerated in the eye, with no drug related hyperemia detectable by ocular exam at four, eight or 12 weeks. Mild hyperemia seen on the first day of dosing in a minority of patients was back to baseline by the 10-week post dose ocular exams. Trabodenoson had no detectable systemic effects in any of the non-ocular examinations, ECG evaluations or laboratory tests performed. Overall AEs were similar in the BID phase (Trabodenoson 36%; Timolol 29%), with the trabodenoson rate dropping to 26% without the first-day hyperemias, and were also similar in the QD phase (Trabodenoson 16%; Placebo 14%) between treatment groups. However, timolol (dosed in one eye only) had systemic AEs associated with systemic beta blockade, including: dizziness, headache, fatigue and symptomatic sinus bradycardia.
Patients randomized to timolol also had lower pulse rates than in the trabodenoson group (the pulse rate was measured 30 minutes and one hour after dosing). This difference was statistically significant in the overall data (p=0.033) as well as at the individual timepoints (p=0.041 and p=0.030 at the 30 minute and one hour post-dose timepoints, respectively).
22
The pulse rates for both groups are shown in the boxplot below, which includes the minimum and maximum values, median (white line), and the boundaries of the upper and lower quartiles (top and bottom of the box).
Trabodenoson Repeat-Dose Safety and Tolerability in Adult Healthy Volunteers
We conducted a randomized, double-masked, placebo-controlled, dose-escalation trial in healthy volunteers, aged 35-65, with the primary objective of characterizing the safety and tolerability profile of trabodenoson and identifying a maximum tolerated dose (a dose that was associated with limiting or intolerable side effects).
Ten subjects were assigned to each of seven consecutive cohorts (six to active trabodenoson and four to matched placebo). Cohorts 1 through 6 consisted of sequential, escalating doses (200, 400, 800, 1600, 2400 and 3200 mcg of trabodenoson) which were given topically to a single eye, BID, for 14 days. The 3200 mcg dose was the highest dose that could be administered to a single eye at one time due to, among others, the limitations of the formulation. Cohort 7 included eight step-wise escalating doses of trabodenoson, given in both eyes. Doses given to this cohort ranged from 200-3200 mcg in a single eye and totaled 1800-6400 mcg for both eyes combined. Dose escalation to the next dose level proceeded only after masked review of the safety data from the preceding dose level.
Systemic safety assessments included: AEs, other medications used, physical examinations, vital signs, clinical laboratory tests of blood and urine samples, extensive monitoring of cardiac function and health (12-lead ECG tracings, continuous cardiac monitoring and cardiac troponin concentrations), lung function testing (FEV1), sleep (Karolinska Sleepiness Scale), kidney function and withdrawals or terminations. No systemic safety signals were found at any of the doses tested.
Ocular safety assessments included vision tests (visual acuity), IOP measurements, as well as internal and external eye examinations. No significant changes were seen in IOP measurements and examination of the periorbital area, eyelids, eyelashes, pupils, cornea, iris and sclera. The only ocular finding was short-lived, self-limited conjunctival hyperemia that was dose-related, usually mild in severity, decreased with continuing exposure, and was not accompanied by evidence that it was related to inflammation, such as persistent anterior chamber cells or flare. The incidence of clinically significant eye redness reported as an AE was extremely low (1 of 42) in subjects randomized to trabodenoson.
Early Terminations and Withdrawals
Three subjects randomized to placebo were terminated early from the study for reasons unrelated to the study drug. Only one subject assigned to active study drug was withdrawn. The study subject’s laboratory tests revealed findings consistent with gallbladder disease (chronic cholecystitis), so the subject was withdrawn from the clinical trial (without unmasking the subject’s treatment assignment) and referred for a surgical consult resulting in the subject having chronic gallbladder stones removed.
23
The pharmacokinetics data indicated that the exposure to trabodenoson generally increased in a dose-dependent manner. At the highest three doses, there were no apparent increases in systemic exposure with increasing dose. This plateau effect suggests that little additional drug is absorbed into systemic circulation following doses above 4800 mcg (2400 mcg per eye), as reflected in the figure below.
Conclusions
In conclusion, no safety or tolerability issues were identified in either the eye or the body as a whole. Due to the lack of clinically significant findings following in depth safety testing for systemic and ocular effects of trabodenoson, no maximum tolerated dose could be identified. Systemic exposure to trabodenoson appeared to be limited above ocular doses totaling 4800 mcg, indicating an apparent limitation to the amount of drug that can be delivered to the body by dosing in the eye.
Trabodenoson Monotherapy Tolerability, Safety and Efficacy
We conducted a Phase 1/2 multi-center, randomized, double-masked, placebo-controlled, dose-escalation trial in 70 adults with POAG and OHT with the primary objective of characterizing the safety and tolerability of increasing doses of a pilot formulation of trabodenoson monotherapy.
Subjects were sequentially assigned to one of seven consecutive cohorts (eight to active trabodenoson and four to matched placebo); consisting of sequential, escalating single-doses of 2.5, 7.5, 20, 60, 180, 350 or 700 mcg of trabodenoson given topically to a single study eye.
Efficacy (IOP-lowering), tolerability, safety and pharmacokinetics assessments were performed following study drug administration, and dose escalation from one cohort to the next cohort proceeded only after masked review of the safety data from the preceding cohort.
Conclusions
In conclusion, trabodenoson monotherapy ophthalmic solution up to and including 700 mcg were well-tolerated. This preliminary formulation of trabodenoson demonstrated activity at lowering IOP following single doses of 350 mcg and 700 mcg in patients with POAG or OHT.
24
Trabodenoson
We had an End-of-Phase 2 meeting with the FDA in 2015 to discuss our Phase 3 program for trabodenoson monotherapy and to confirm the design and endpoints for the Phase 3 pivotal trials. At the meeting, we reached agreement on the design of our initial Phase 3 study, as well as the overall regulatory path for trabodenoson. We commenced our Phase 3 program for trabodenoson monotherapy in October 2015 and reported top-line results in January 2017. The recently completed Phase 3 pivotal trial, MATrX-1, did not meet its primary endpoint because it did not demonstrate a statistically significant difference in absolute IOP from placebo at every single one of the 12 time points comprising the primary endpoint. This was due to a larger than expected treatment effect in the placebo/vehicle group, as compared to both our prior Phase 2 data and a recent meta-analysis examining placebo responses from 10 placebo-controlled trials, which showed a placebo/vehicle result of -2.01 mmHg (Raber, et al). During analysis of the IOP data from the trial, a treatment-by-site interaction was found where a small number of sites (4 sites out of a total of 55) caused an important change in the expected vehicle results. The review of the MATrX-1 data is ongoing and upon completion of all analyses, we plan to request a meeting with the FDA in the first half of 2017 to discuss these findings.
The overall program will encompass a total subject exposure to trabodenoson of at least 1,300 patients. The final design of the second Phase 3 trial will be impacted by the findings of the initial Phase 3 trial. Following a run-in period, the second Phase 3 trial is expected to run for at least 12 weeks of active treatment with the primary endpoint of IOP-lowering over the day.
The initial Phase 3 trial was a three-month study with five treatment arms, for a total of approximately 300 patients with 3 trabodenoson treatment arms. The trabodenoson doses evaluated were 1,000 mcg QD, 2,000 mcg QD, and 1,500 mcg BID. The trial investigated both once-daily (QD) and twice-daily (BID) dosing, as some patients may benefit from a twice daily dosing regimen. The primary efficacy endpoint of the study was IOP, measured at four time points during the day after 4, 6 and 12 weeks of treatment. The IOP of the trabodenoson treated subjects was statistically compared to those of placebo treated subjects. A timolol arm was included for study validation, but not for statistical comparison.
The FDA requires that a total of at least 1,300 patients be exposed to at least a single dose of trabodenoson, and the complete submission package must also contain safety data from at least 300 patients treated with trabodenoson for at least six months, and at least 100 patients treated for at least a year. These longer-term treatments will be accomplished in a long-term safety trial conducted at the highest anticipated trabodenoson dose. If the primary objectives of all trials in our Phase 3 program are met, we plan to submit an NDA to the FDA for marketing approval of trabodenoson for the treatment of glaucoma in the United States.
Fixed-Dose Combination of Trabodenoson and Latanoprost
We are also developing an FDC of trabodenoson and latanoprost. We have not filed a separate investigational new drug application, or IND, for the FDC, as we expect to be able to rely on the existing trabodenoson IND. Similarly, we have not conducted a Phase 1 trial for the FDC as we were able to rely on the safety and tolerability data generated in our completed trials for trabodenoson as a monotherapy.
The results of the Phase 2 trial that evaluated the efficacy and safety of the combination of latanoprost and trabodenoson, at two dose levels, and when given QD and BID, informed the design and format of the currently ongoing study which was structured to evaluate the safety and efficacy of various dose combinations and dosing patterns of an FDC of latanoprost and trabodenoson. The commencement of our Phase 2 program for the FDC product candidate as well as future FDC trials will depend on successful cGMP manufacturing of stable FDC dosage forms. We initiated our Phase 2 program in 2016 and plan to start our Phase 3 FDC program in 2018. We expect our FDC product candidate to benefit many patients with higher IOPs and more severe disease that typically require more aggressive medical treatment. For this reason, the patient population for the FDC program is expected to carry a higher disease burden. As with the monotherapy product development, the FDA requirements for long-term dosing data (at least 300 patients treated with the FDC for at least six months, and at least 100 patients treated for at least a year) will require the program to include a long-term safety study.
Neuroprotection and Degenerative Retinal Diseases
We plan to study the neuroprotective potential of trabodenoson monotherapy and our FDC product candidate to slow the loss of vision significantly more than attributable to IOP-lowering alone either in glaucoma patients or other rarer forms of optic neuropathy. While supported by the basic biology of adenosine, we have not yet conducted a formal program of studies to prove neuroprotection and have not filed an IND related to this program. This evaluation may include longer longitudinal studies in glaucoma patients, as potentially smaller patient groups with rapidly-progressing optic nerve damage. Although treatment times will be measured in years rather than months, this effort can run in parallel to the normal development trials, or may be included in the objectives of the planned long-term safety trials. The regulatory path for such an indication is thus far uncharted, so significant regulatory as well as clinical risk
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is anticipated for such a program and close interaction with regulatory agencies will be required. Due to the speculative nature of the development, it is difficult at this time to predict if or when an NDA submission in support of neuroprotection indication may be submitted. We plan to continue pre-clinical and proof-of-concept trials for optic neuropathies and degenerative retinal diseases in 2017.
Competition
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products.products and novel therapies. While we believeRocket believes that ourits experience and scientific knowledge provide usprovides it with competitive advantages, we faceRocket faces potential competition from established brandedmany different sources, including larger and genericbetter-funded pharmaceutical and biotechnology companies, such as Novartis International AGnew market entrants and its subsidiary Alcon Labs, Pfizer/Allergan Inc., Bausch + Lomb, Inc. (now a unit of Valeant Pharmaceuticals International, Inc.), Merck & Co., Inc., Santen Inc., Aerie Pharmaceuticals, Inc. and smaller biotechnology and pharmaceutical companies,new technologies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat glaucoma.the indications targeted by Rocket’s pipeline that have not yet been conceived. Any product candidates that weRocket successfully developdevelops and commercializecommercializes will compete with existing therapies such as bone marrow transplantation and new therapies that may become available in the future. We believeRocket believes that the key competitive factors affecting the success of ourRocket’s product candidates, if approved, are likely to be efficacy, safety, convenience, price, pharmaco-economic value, tolerability and the availability of coverage and adequate reimbursement from governmental authorities and other third-party payors.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Glaukos Corporation recently commercialized a trabecular micro-bypass stent that is implanted in the eye during cataract surgery and allows fluid to flow from the anterior of the eye into the collecting channels, bypassing the TM. In addition, early-stage companies that are also developing glaucoma treatments, such as Aerie Pharmaceuticals, Inc., which is developing a Rho kinase/norepinephrine transport inhibitor, may prove to be significant competitors. We expect that our competitors will continueRocket intends to develop new glaucoma treatments,single treatment curative therapies for clinical indications that address mortality or high morbidity, which could differentiate Rocket from potential competitors developing alternative competitive therapies that may include eye drops, oral treatments, surgical procedures, implantable devicesrequire chronic or laser treatments.
repetitive treatment.
Our
Manufacturing
Trabodenoson is a small molecule that is capable of being manufactured in reliable and reproducible synthetic processes from readily available starting materials. We believe the chemistry used to manufacture trabodenoson is amenable to a scale up anddrug product. Rocket does not require unusual equipment in the manufacturing process. We do not currently operate manufacturing facilities for clinical or commercial production of ourits product candidates. WeIn the future, Rocket may supplement or replace current supply arrangements with its own direct manufacturing capabilities. Rocket currently relyrelies on third-party manufacturers to produce the active pharmaceutical ingredientplasmids, vectors, cell banks and final drug product for ourits clinical trials. We manageRocket manages such production with all ourits vendors on a purchase order basis in accordance with applicable master service and supply agreements. We doRocket has not haveyet entered into long-term agreements with these manufacturers or any other third-party suppliers. Latanoprost and timolol, usedsuppliers, as it is customary in our clinical trials, are available inthe industry to enter into commercial quantities from multiple reputable third-party manufacturers. We intendsupply agreements upon either achievement of proof-of-concept or as a company approaches registration trials. Rocket, however, intends to procure quantities on a purchase order basis from redundant and multiple sources for ourRocket’s clinical and commercial production.production to mitigate risk. If any of ourRocket’s existing third-party suppliers should become unavailable to usRocket for any reason, we believeRocket believes that there are a number of potential replacements, although weRocket might experience a delay in ourits ability to obtain alternative suppliers. WeRocket also dodoes not have any current contractual relationships for the manufacture of commercial supplies of ourits product candidates if they are approved.become registered. With respect to commercial production of ourRocket’s product candidates in the future, we planRocket plans to outsourcepursue multiple options including outsourcing production of the active pharmaceutical (drug substance) ingredients andas well as final drug product manufacturing (drug product) to contract manufacturing organizations if theythese products are approved and registered for marketing authorization by the applicable regulatory authorities.
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advertising, promotion, sampling and import and export of our products. OurRocket’s drugs must be approved by the FDA through the NDABLA process, before they may be legally marketed in the United States. See “The NDA Approval Process” below.
U.S.
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authorities, including the FDA, an IRB, a data safety monitoring board or the sponsor, may suspend or terminate a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable health risk or that the clinical trial is not being conducted in accordance with FDA requirements.
For purposes of NDA approval, human
overlap or be combined. Phase 1–1, the initial clinical evaluations, consists of administering the drug is initially given to healthy human subjects or patients and testedtesting for safety dosage tolerance, absorption, metabolism, distribution and excretion. These trials may also provide earlytolerated dosages and in some indications such as rare disease, as preliminary evidence on effectiveness. During Phase 1 clinical trials, sufficient information about the investigational drug’s pharmacokinetics and pharmacologic effects may be obtained to permit the design of well-controlled and scientifically validefficacy in humans. Phase 2 clinical trials.
Phase 2– trials are conducted ininvolves a limited numberstudy to evaluate the effectiveness of patients in the target populationdrug for a particular indication and to determine optimal dosage and dose interval and to identify possible adverse side effects and safety risks to determine thein a larger patient group. When a product is found safe, and initial efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Multipleis established in Phase 2, clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more expensiveit is then evaluated in Phase 3 clinical trials.
Phase 3– when Phase 2 evaluations demonstrate that a dosage range of the product appears effective and has an acceptable safety profile, and provide sufficient information for the design of Phase 3 trials Phase 3 trials are undertaken to provide statistically significant evidenceconsist of clinicalexpanded multi-location testing for efficacy and to further test for safety in an expanded patient population at multiple clinical trial sites. They are intended to further evaluate dosage, effectiveness and safety to establishevaluate the overall benefit-risk relationshipbenefit-to-risk index of the investigational drug in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to provide an adequate basis for product labeling and approval by the FDA. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trialsin the form of an NDA for approval to demonstrate the efficacy of the drug.
An investigational drug product that is a combination of two different drugs in a single dosage form must comply with an additional rule that requires that each component make a contribution to the claimed effects of the drug product and the dosage of each component (amount, frequency, duration) is such that the combination is safe and effective for a significant patient population requiring such concurrent therapy as defined in the labeling of the drug product. This typically requires larger studies that test the drug against each of its components. In addition, typically, if a drug product is intended to treat a chronic disease, as is the case with our products, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more.
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requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the End-of-Phase 2 meetings to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 trials that they believe will support approval of the new drug.
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including safety labeling or imposition of a REMS, the requirement to conduct post-market studies or clinical trials or even complete withdrawal of the product from the market. Delay in obtaining, or failure to obtain, regulatory approval for our products, or obtaining approval but for significantly limited use, would harm our business. In addition, we cannot predict what adverse governmental regulations may arise from future United StatesU.S. or foreign governmental action.
The Hatch-Waxman Amendments
orphan product has exclusivity. Orphan medicinal product status in the EU has similar, but not identical, benefits.
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In particular, our success may depend on our ability to obtain coverage and adequate reimbursement through Medicare Part D plans for our products that obtain regulatory approval. The Medicare Part D program provides a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. In general, Part D prescription drug plan sponsors have flexibility regarding coverage of Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class, with certain exceptions. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutics committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive regulatory approval. However, any negotiated prices for our future products covered by a Part D prescription drug plan will likely be discounted, thereby lowering the net price realized on our sales to pharmacies. Moreover, while the Part D program applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from Medicare Part D may result in a similar reduction in payments from non-government payors.
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recommending the purchase, lease or order of, any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value. The Federal Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Additionally, the intent standard under the Federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act or collectively(collectively, the ACA,“ACA”), to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the Federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, and the potential for additional legal or regulatory change in this area, it is possible that our future business activities, including our sales and marketing practices and/or our future relationships with ophthalmologistsphysicians and optometriststhe medical community might be challenged under anti-kickback laws, which could harm us.
| · | the timing of enrollment, commencement, completion and results of our clinical trials; |
| · | the production of LVV and AAV gene therapy products to support preclinical and clinical needs |
| · | the results of our preclinical studies for our current product candidates and any subsequent clinical trials; |
| · | the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials, if any, for our internal product candidates; the costs associated with building out additional laboratory and research capacity; |
| · | the costs, timing and outcome of regulatory review of our product candidates; |
| · | the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; |
| · | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; |
| · | our current licensing agreements or collaborations remaining in effect; |
| · | our ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all; |
| · | the extent to which we acquire or in-license other product candidates and technologies; and |
| · | the costs associated with being a public company. |
| · | completing research and preclinical and clinical development of our product candidates; |
| · | seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical studies; |
| · | developing a sustainable, commercial-scale, reproducible, and transferable manufacturing process for our vectors and product candidates; |
| · | establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for our product candidates, if approved; |
| · | launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales force, marketing and distribution infrastructure; |
| · | obtaining sufficient pricing and reimbursement for our product candidates from private and governmental payors |
| · | obtaining market acceptance of our product candidates and gene therapy as a viable treatment option; |
| · | addressing any competing technological and market developments; |
| · | identifying and validating new gene therapy product candidates; |
| · | negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; and |
| · | maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how. |
| · | failure of patients to enroll in the studies at the rate we expect; |
| · | ineffectiveness of our product candidates; |
| · | patients experiencing unexpected side effects or other safety concerns being raised during treatment; |
| · | changes in governmental regulations or administrative actions; |
| · | failure to conduct studies in accordance with required clinical practices; |
| · | inspection of clinical study operations or study sites by the FDA, the EMA or other regulatory authorities, resulting in a clinical hold; |
| · | insufficient financial resources; |
| · | insufficient supplies of drug product to treat the patients in the studies; |
| · | political unrest at foreign clinical sites; |
| · | a shutdown of the U.S. government, including the FDA; or |
| · | natural disasters at any of our clinical sites. |
| · | difficulty in establishing or managing relationships with CROs, and physicians; |
| · | different standards for the conduct of clinical trials; |
| · | absence in some countries of established groups with sufficient regulatory expertise for review of LVV and AAV gene therapy protocols; |
| · | our inability to locate qualified local partners or collaborators for such clinical trials; and |
| · | the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology products and treatment. |
| · | severity of the disease under investigation; |
| · | design of the study protocol; |
| · | size of the patient population; |
| · | eligibility criteria for the study in question; |
| · | perceived risks and benefits of the product candidate under study, including as a result of adverse effects observed in similar or competing therapies; |
| · | proximity and availability of clinical study sites for prospective patients; |
| · | availability of competing therapies and clinical studies; |
| · | efforts to facilitate timely enrollment in clinical studies; |
| · | patient referral practices of physicians; and |
| · | ability to monitor patients adequately during and after treatment. |
| · | issue a warning letter asserting that we are in violation of the law; |
| · | seek an injunction or impose civil or criminal penalties or monetary fines; |
| · | suspend any ongoing clinical studies; |
| · | refuse to approve a pending marketing application, such as a BLA or supplements to a BLA submitted by us; |
| · | seize products; or |
| · | refuse to allow us to enter into supply contracts, including government contracts. |
| · | regulatory authorities may suspend or withdraw approvals of such product candidate; |
| · | regulatory authorities may require additional warnings on the label; |
| · | we may be required to change the way a product candidate is administered or conduct additional clinical trials; and |
| · | our reputation may suffer. |
| · | our product candidates, if safe and effective, may nonetheless not be able to be developed into commercially viable products; |
| · | it may be difficult to manufacture or market our product candidates on a scale that is necessary to ultimately deliver our products to end-users; |
| · | proprietary rights of third parties may preclude us from marketing our product candidates; |
| · | the nature of our indications as rare diseases means that the potential market size may be limited; and |
| · | third parties may market superior or equivalent drugs which could adversely affect the commercial viability and success of our product candidates. |
| · | the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms; |
| · | reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities; |
| · | the risk that these activities are not conducted in accordance with our study plans and protocols; |
| · | termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and |
| · | disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier. |
| · | the efficacy and safety of such product candidates as demonstrated in preclinical studies and clinical trials; |
| · | the potential and perceived advantages of product candidates over alternative treatments; |
| · | the cost of our treatment relative to alternative treatments; |
| · | the clinical indications for which the product candidate is approved by the FDA or the EMA; |
| · | patient awareness of, and willingness to seek, gene therapy; |
| · | the willingness of physicians to prescribe new therapies; |
| · | the willingness of physicians to undergo specialized training with respect to administration of our product candidates; |
| · | the willingness of the target patient population to try new therapies; |
| · | the prevalence and severity of any side effects; |
| · | product labeling or product insert requirements of the FDA, the EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling; |
| · | relative convenience and ease of administration; |
| · | the strength of marketing and distribution support; |
| · | the timing of market introduction of competitive products; |
| · | publicity concerning our products or competing products and treatments; and |
| · | sufficient third-party payor coverage and reimbursement. |
| · | different regulatory requirements for approval of drugs and biologics in foreign countries; |
| · | reduced protection for intellectual property rights; |
| · | unexpected changes in tariffs, trade barriers and regulatory requirements; |
| · | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| · | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| · | foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
| · | workforce uncertainty in countries where labor unrest is more common than in the United States; |
| · | shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; |
| · | business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires, or from economic or political instability; |
| · | compliance with foreign laws, regulations, standards and regulatory guidance governing the collection, use, disclosure, retention, security and transfer of personal data, including the European Union General Data Privacy Regulation (“GDPR”); and |
| · | greater difficulty with enforcing our contracts in jurisdictions outside of the United States. |
The ACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”).
| • | The ACA expanded the types of entities eligible to receive discounted 340B pricing, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible to receive discounted 340B pricing on orphan drugs used in orphan indications. In addition, because 340B pricing is determined based on AMP and Medicaid drug rebate data, the revisions to the Medicaid rebate formula and AMP definition described above could cause the required 340B discounts to increase. The ACA imposed a requirement on manufacturers of branded drugs and biologic agents to provide a 50% discount off the negotiated price of branded drugs dispensed to Medicare Part D beneficiaries in the coverage gap (i.e., “donut hole”). |
The ACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications.
| • | The ACA imposed an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee would not apply to sales of certain products approved exclusively for orphan indications. |
The ACA included the Federal Physician Payments Sunshine Act, which requires certain pharmaceutical manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exception, to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers were required to begin collecting data on August 1, 2013 and submit reports on aggregate payment data to CMS for the first reporting period (August 1, 2013—December 31, 2013) by March 31, 2014, and were required to report detailed payment data for the first reporting period and submit legal attestation to the completeness and accuracy of such data by June 30, 2014. Thereafter, covered manufacturers must submit reports by the 90th day of each subsequent calendar year. The information reported was made publicly available on a searchable website in September 2014.
| • | The ACA included the Federal Physician Payments Sunshine Act, which requires certain pharmaceutical manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exception, to track certain financial arrangements with physicians and teaching hospitals, including any “transfer of value” provided, as well as any ownership or investment interests held by physicians and their immediate family members. Covered manufacturers were required to begin collecting data on August 1, 2013 and submit reports on aggregate payment data to CMS for the first reporting period (August 1, 2013—December 31, 2013) by March 31, 2014, and were required to report detailed payment data for the first reporting period and submit legal attestation to the completeness and accuracy of such data by June 30, 2014. Thereafter, covered manufacturers must submit reports by the 90th day of each subsequent calendar year. The information reported was made publicly available on a searchable website in September 2014. |
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| • | The ACA created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings. |
| • | The ACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to improve quality of care and lower program costs of Medicare, Medicaid and the Children’s Health Insurance Program, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019. |
The ACA created the Independent Payment Advisory Board which has the authority to recommend certain changes to the Medicare program to reduce expenditures by the program that could result in reduced payments for prescription drugs. Under certain circumstances, these recommendations will become law unless Congress enacts legislation that will achieve the same or greater Medicare cost savings.
The ACA established the Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models to improve quality of care and lower program costs of Medicare, Medicaid and the Children’s Health Insurance Program, potentially including prescription drug spending. Funding has been allocated to support the mission of the Center for Medicare and Medicaid Innovation through 2019.
Many of the details regarding the implementation of the ACA are yet to be determined, and at this time, it remains unclear the full effect that the ACA wouldwill have on our business.
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National MAA can be recognized in another Member States through the Mutual Recognition Procedure. If the product has not received a National MAA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MAA is sought, one of which is selected by the applicant as the Reference Member State or RMS.(“RMS”). If the RMS proposes to authorize the product, and the other Member States do not raise objections, the product is granted a national MAA in all the Member States where the authorization was sought. Before granting the MAA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.
Employees
We had twenty-four employees as of March 1, 2017. None of our employees are represented by any collective bargaining unit. We believe that we maintain good relations with our employees.
Corporate Information
We were incorporated in Delaware in 1999. Our principal executive offices are located at 91 Hartwell Avenue, Lexington, MA 02421, and our telephone number is (781) 676-2100. Our internet address is www.inotekpharma.com. We use our website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We make available on our website, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC reports can be accessed through the Investors section of our website. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D. C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this report or any other report we file with or furnish to the SEC. Our common stock is listed on the NASDAQ Global Market under the symbol “ITEK.”
Research and Development
For the years ended December 31, 2016, 2015 and 2014, our research and development expenses were $32.0 million, $12.6 million and $5.6 million, respectively.
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We operate in an industry that involves numerous risks and uncertainties. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report on Form 10-K, including our financial statements and related notes hereto. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. The risks and uncertainties described below may change over time and other risks and uncertainties, including those that we do not currently consider material, may impair our business. In these circumstances, the market price of our common stock could decline.
Risks Related to Our Financial Position and Need for Additional Capital
We currently have no source of revenue and may never become profitable.
We are a clinical-stage biopharmaceutical company with a limited operating history. Our ability to generate revenue and become profitable depends upon our ability to successfully complete the development of our product candidates for the treatment of glaucoma and obtain the necessary regulatory approvals for our product candidates. We have never been profitable, have no products approved for commercial sale and to date have not generated any revenue from product sales. Even if we receive regulatory approval for the sale of our product candidates, we do not know when such product candidates will generate revenue, if at all. Our ability to generate product revenue depends on a number of factors, including our ability to:
successfully complete clinical development, and receive regulatory approval, for our product candidates, including trabodenoson monotherapy and trabodenoson with latanoprost as a fixed-dose combination, or FDC;
set an acceptable price for our product candidates and obtain coverage and adequate reimbursement from third-party payors;
establish sales, marketing and distribution systems for our product candidates;
add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and planned future commercialization efforts;
have commercial quantities of our product candidates manufactured at acceptable cost levels;
successfully market and sell our product candidates in the United States and enter into partnerships or other arrangements to commercialize our product candidates outside the United States; and
maintain, expand and protect our intellectual property portfolio.
In addition, because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses, or when, or if, we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, and comparable non-U.S. regulatory authorities, or other regulatory authorities to perform studies or clinical trials in addition to those that we currently anticipate. Even if our product candidates are approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of these products.
Our ability to become and remain profitable depends on our ability to generate revenue. Even if we are able to generate revenues from the sale of our product candidates, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise capital, expand our business or continue our operations. A decline in the value of our Company could also cause you to lose all or part of your investment.
We have a history of net losses and anticipate that we will continue to incur net losses for the foreseeable future.
We have a history of losses and anticipate that we will continue to incur net losses for the foreseeable future. Our net losses were $42.9 million, $68.0 million and $9.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, we had an accumulated deficit of $238.9 million.
Investment in pharmaceutical product development is highly speculative because it entails substantial upfront expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. We have devoted most of our financial resources to research and development, including our non-clinical development activities and clinical trials. We are not currently generating revenues, and we cannot estimate with precision the extent of our future losses. We do not currently have any products that are available for commercial sale and we may never generate revenue from selling products or achieve profitability. We
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expect to continue to incur substantial and increasing losses through the projected commercialization of our product candidates. None of our product candidates have been approved for marketing in the United States and may never receive such approval. As a result of these factors, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. Our ability to produce revenue and achieve profitability is dependent on our ability to complete the development of our product candidates, obtain necessary regulatory approvals, and have our products manufactured and successfully marketed. We cannot assure you that we will be profitable even if we successfully commercialize our products. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
In February 2015, we completed our initial public offering of 6,667,000 shares of our common stock at a price of $6.00 per share and a concurrent offering of $20.0 million aggregate principal amount of 5.0% Convertible Senior Notes due in 2020, or the 2020 Convertible Notes. In March 2015, the underwriters exercised 299,333 shares of common stock at $6.00 per share and $1.0 million of the 2020 Convertible Notes pursuant to their overallotment options. We received net proceeds of approximately $36.5 million, after deducting underwriting discounts and offering-related costs, from our equity issuances and approximately $18.9 million in net proceeds, after deducting underwriting discounts and offering-related costs, from our debt issuances.
In August 2015, we completed an underwritten public offering of our common stock, or the Follow-on Offering. We issued 6,210,000 shares of our common stock at a price of $12.75 per share, including 810,000 shares from the underwriters’ full exercise of their overallotment option, and we received net proceeds of $74.0 million, after deducting underwriting discounts and offering-related costs.
In 2016, we sold 482,689 shares of common stock pursuant to our ATM and received net proceeds of $4.0 million.
In August 2016, we closed an underwritten public offering of $52.0 million aggregate principal amount of 5.75% Convertible Senior Notes due 2021, including $2.0 million from an exercise of the underwriters’ overallotment option, or the 2021 Convertible Notes, and received net proceeds of approximately $48.7 million after deducting underwriting discounts and offering-related costs. (See Note 5 in the accompanying notes to the financial statements).
We expect our research and development expenses to continue to be significant in connection with our product development activities, including our Phase 2 clinical trial for our FDC product candidate which commenced in July 2016, and our planned Phase 3 programs. In addition, if we obtain regulatory approval for our product candidates, we expect to incur increased sales and marketing expenses. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have had and will continue to have a material adverse effect on our stockholders’ deficit, financial position, cash flows and working capital.
We will need to obtain additional financing to fund our operations and, if we are unable to obtain such financing, we may be unable to complete the development and commercialization of our primary product candidates.
Our operations have consumed substantial amounts of cash since inception. As of December 31, 2016, our cash and cash equivalents and short-term investments aggregated $126.5 million. We estimate that these funds will be sufficient to fund our projected operating requirements into 2019. We will need to obtain additional financing to conduct additional trials for the approval of our drug candidates and complete the development of any additional product candidates we might acquire. Moreover, our fixed expenses such as rent and other contractual commitments are substantial and may increase in the future.
Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future potential commercialization efforts. Our forecast of the period of time through which our financial resources will be adequate to support our operating requirements is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this forecast on a number of assumptions that may prove to be wrong, and changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate.
Our future funding requirements will depend on many factors, including, but not limited to:
the progress, timing, scope and costs of our clinical trials, including the ability to enroll patients in our planned and potential future clinical trials in a timely manner;
the time and cost necessary to obtain regulatory approvals that may be required by regulatory authorities;
our ability to successfully commercialize our product candidates;
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selling and marketing costs associated with our product candidates, including the cost and timing of expanding our marketing and sales capabilities;
the terms and timing of any potential future collaborations, licensing or other arrangements that we may establish;
cash requirements of any future acquisitions and/or the development of other product candidates;
the costs of operating as a public company;
the time and cost necessary to respond to technological and market developments;
the costs of maintaining and expanding our existing intellectual property rights; and
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
Until we can generate a sufficient amount of revenue, we may finance future cash needs through public or private equity offerings, license agreements, debt financings, collaborations, strategic alliances, marketing or distribution arrangements or a combination thereof. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. General market conditions or the market price of our common stock may not support capital raising transactions such as an additional public or private offering of our common stock or other securities. In addition, our ability to raise additional capital may be dependent upon our stock being quoted on The NASDAQ Global Market, or NASDAQ, or upon obtaining shareholder approval. There can be no assurance that we will be able to satisfy the criteria for continued listing on NASDAQ or that we will be able to obtain shareholder approval if it is necessary. If adequate funds are not available, we may be required to delay or reduce the scope of or eliminate one or more of our research or development programs or our commercialization efforts.
We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. In addition, 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 or product candidates or to grant licenses on terms that may not be favorable to us. Our inability to obtain additional funding when we need it could seriously harm our business.
Additional capital that we may need to operate or expand our business may not be available.
We may require additional capital to operate or expand our business. If we raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of our common stock could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of holders of our common stock. Furthermore, volatility in the credit or equity markets may have an adverse effect on our ability to obtain debt or equity financing or the cost of such financing. If we do not have funds available to enhance our solution, maintain the competitiveness of our technology and pursue business opportunities, this could have an adverse effect on our business, operating results and financial condition.
The indenture governing our 2021 Convertible Notes contain restrictions that will limit our operating flexibility, and we may incur additional debt in the future that may include similar or additional restrictions.
The indenture governing our 2021 Convertible Notes contain covenants that, among other things, restrict our and our subsidiaries’ ability to take specific actions, even if we believe them to be in our best interest. These covenants include restrictions on our ability and the ability of our future subsidiaries to incur additional indebtedness and issue certain types of preferred stock, other than certain permitted indebtedness and preferred stock. In addition, the indenture governing our 2021 Convertible Notes will include a covenant that limits our ability to merge or consolidate with other entities in certain circumstances. These covenants and restrictions limit our operational flexibility and could prevent us from taking advantage of business opportunities as they arise, growing our business or competing effectively.
A breach of any of these covenants or other provisions in our future debt agreements could result in an event of default, which if not cured or waived, could result in the 2021 Convertible Notes or such debt becoming immediately due and payable. This, in turn, could cause any of our other debt existing at such time to become due and payable as a result of cross-default or cross-acceleration provisions contained in the agreements governing such other debt. In the event that some or all of our debt is accelerated and becomes immediately due and payable, we may not have the funds to repay, or the ability to refinance, such debt.
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Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
We currently have no source of revenue. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2021 Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors, most of which are beyond our control. Our business has not historically generated cash flow from operating activities and may not in the future generate cash flow from operating activities sufficient to service our obligations under our 2021 Convertible Notes and any future indebtedness we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
We may not have the ability to raise the funds necessary to repurchase our 2021 Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to repurchase the 2021 Convertible Notes.
Holders of our 2021 Convertible Notes have the right to require us to repurchase their 2021 Convertible Notes upon the occurrence of a fundamental change, the occurrence of certain change of control transactions or delisting events, at a fundamental change repurchase price equal to 100% of the principal amount of the 2021 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but not including, the fundamental change repurchase date. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of 2021 Convertible Notes surrendered therefor. In addition, our ability to repurchase the 2021 Convertible Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase 2021 Convertible Notes at a time when the repurchase is required by the indenture would constitute a default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our future indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2021 Convertible Notes.
The fundamental change repurchase feature of our 2021 Convertible Notes may delay or prevent an otherwise beneficial attempt to take over our company.
The terms of our 2021 Convertible Notes require us to repurchase the 2021 Convertible Notes in cash in the event of a fundamental change. A takeover of our company, if such takeover constituted a “fundamental change,” would trigger an option of the holders of the 2021 Convertible Notes to require us to repurchase the 2021 Convertible Notes. This may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors in the 2021 Convertible Notes.
Risks Related to Development, Potential Regulatory Approval and Commercialization
We depend substantially on the success of our product candidates, particularly trabodenoson monotherapy and trabodenoson FDC, which are still in development. We may be unable to successfully develop and commercialize our product candidates, especially in light of our MATrX-1 clinical trial’s failure to meet its primary endpoint, or may experience significant delays in doing so, which would materially harm our business.
Our business and the ability to generate revenue related to product sales, if ever, will depend on the successful development, formulation and manufacturing, regulatory approval and commercialization of our product candidates trabodenoson monotherapy and trabodenoson FDC, which are still in development, and other potential products we may develop or license. In January 2017, we announced top-line data from our MATrX-1 pivotal Phase 3 clinical trial, which failed to meet its primary endpoint. MATrX-1 did not meet its primary endpoint because it did not demonstrate a statistically significant difference in absolute IOP from placebo at every single one of the 12 time points comprising the primary endpoint. This was due to a larger than expected treatment effect in the placebo/vehicle group, as compared to both our prior Phase 2 data and a recent meta-analysis examining placebo responses from 10 placebo-controlled trials, which showed a placebo/vehicle result of -2.01 mmHg (Raber, et al). During analysis of the IOP data from the trial, a treatment-by-site interaction was found where a small number of sites (4 sites out of a total of 55) caused an important change in the expected vehicle results. The review of the MATrX-1 data is ongoing and upon completion of all analyses, we plan to request a meeting with the FDA in the first half of 2017 to discuss these findings. While we believe these results, along with further exploratory analyses, will be integral in determining the path forward for our trabodenoson monotherapy, there can be no assurance that we will be able to pursue further development efforts or obtain regulatory approval.
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We have invested a significant portion of our efforts and financial resources in the development of our existing product candidates. The success of our product candidates will depend on several factors, including:
successful completion of clinical trials, and the supporting non-clinical toxicology, formulation development, and manufacturing of supplies for the clinical program in accordance with current Good Manufacturing Practices, or cGMP;
receipt of regulatory approvals from the FDA and other applicable regulatory authorities outside the United States;
maintenance of existing relationships and establishment of arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity;
protecting our rights in our intellectual property;
launching commercial sales of our product candidates, if and when approved;
acceptance of any approved product by the medical community and patients;
obtaining coverage and adequate reimbursement from third-party payors for product candidates, if and when approved;
effectively competing with other products; and
achieving a continued acceptable safety and efficacy profile for our product candidates following regulatory approval, if and when received.
If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business and we may not be able to earn sufficient revenues and cash flows to continue our operations.
Our product candidates are trabodenoson as a monotherapy and as an FDC consisting of trabodenoson with a prostaglandin analog, or PGA. We have no other product candidates in our near term product pipeline. As a result, we are substantially dependent on the successful development and commercialization of trabodenoson. The results of our chronic toxicology program could identify a safety problem, or our current and upcoming pivotal trials of trabodenoson monotherapy or our current Phase 2 program for the FDC product candidate could fail to demonstrate efficacy in lowering IOP, especially in light of our Phase 3 results, or could identify safety issues related to trabodenoson, which would materially and adversely affect our development strategy.
Our MATrX-1 pivotal Phase 3 trial of trabodenoson for the treatment of primary open-angle glaucoma or ocular hypertension did not meet the primary endpoint, which could continue to harm our business and further disappoint our stockholders and cause the trading price of our common stock to continue to decrease.
Our lead product candidate in development is trabodenoson for the treatment of primary open-angle glaucoma or ocular hypertension. In January 2017, we announced top-line data from our MATrX-1 pivotal Phase 3 clinical trial, which failed to meet its primary endpoint. Currently, management in conjunction with its clinical and regulatory advisors are evaluating the clinical and regulatory pathway forward, although this is subject to ongoing review and evaluation. No assurance can be given that a clinical and regulatory pathway forward will be possible without significantly more capital invested in the Company or will otherwise be successful. Further, no assurance can be given that additional capital would be available or that such capital would be available at acceptable terms.
We have not obtained regulatory approval for any of our product candidates in the United States or in any other country.
We currently do not have any product candidates that have gained regulatory approval for sale in the United States or in any other country, and we cannot guarantee that we will ever have marketable products. Our business is substantially dependent on our ability to complete the development of, obtain regulatory approval for and successfully commercialize product candidates in a timely manner. We cannot commercialize product candidates in the United States without first obtaining regulatory approval to market each product from the FDA; similarly, we cannot commercialize product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. We have completed a Phase 2 trial in which we tested trabodenoson co-administered with latanoprost. We attended an End-of-Phase 2 meeting with the FDA for trabodenoson monotherapy in the first half of 2015 and initiated a pivotal Phase 3 program in the fourth quarter of 2015, which consists of two Phase 3 monotherapy pivotal trials and a long-term safety study. We completed our initial Phase 3 trial and reported top-line data on January 3, 2017. Because the primary endpoint of the trial was not met, we plan to discuss with the FDA the subsequent necessary steps needed to attain marketing approval of trabodenoson monotherapy for the treatment of glaucoma in the United States. We cannot predict whether any of our future trials, including our planned long-term safety trial of trabodenoson, will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date or
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will conduct. Moreover, any determination of changes in a study design and its confirmation with the FDA could result in a significant range of costs for the Phase 3 pivotal and long-term safety trials.
Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate in preclinical studies and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction of the FDA, that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. In the United States, we have not submitted a New Drug Application, or NDA, for any of our product candidates. An NDA must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. The NDA must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of an NDA is a lengthy, expensive and uncertain process, and approval may not be obtained. If we submit an NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and reviewed by the FDA or, if accepted and reviewed, will be approved.
Regulatory authorities outside of the United States, such as in Europe and Japan and in emerging markets, also have requirements for approval of drugs for commercial sale with which we must comply prior to marketing in those areas. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our product candidates. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and obtaining regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking non-U.S. regulatory approval could require additional non-clinical studies or clinical trials, which could be costly and time consuming. The non-U.S. regulatory approval process may include all of the risks associated with obtaining FDA approval or additional risks. For all of these reasons, we may not obtain non-U.S. regulatory approvals on a timely basis, if at all.
The process to develop, obtain regulatory approval for and commercialize product candidates is long, complex and costly both inside and outside of the United States, and approval is never guaranteed. Even if our product candidates were to successfully obtain approval from the regulatory authorities, any approval might significantly limit the approved indications for use, or require that precautions, contraindications, or warnings be included on the product labeling, or require expensive and time-consuming post-approval clinical trials or surveillance as conditions of approval. Following any approval for commercial sale of our product candidates, certain changes to the product, such as changes in manufacturing processes and additional labeling claims, will be subject to additional FDA review and approval. Also, regulatory approval for any of our product candidates may be withdrawn. If we are unable to obtain regulatory approval for our product candidates in one or more jurisdictions, or any approval contains significant limitations, our target market will be reduced and our ability to realize the full market potential of our product candidates will be harmed. Furthermore, we may not be able to obtain sufficient funding or generate sufficient revenue and cash flows to continue the development of any other product candidate in the future.
We are reevaluating our clinical and regulatory pathway forward for our trabodenoson monotherapy product candidate, and our product candidate might not be approved by regulatory authorities or introduced commercially for at least several years, if at all.
In January 2017, we announced disappointing top-line data from our MATrX-1 pivotal Phase 3 clinical trial, which failed to meet its primary endpoint. Currently, management in conjunction with its clinical and regulatory advisors are evaluating the clinical and regulatory pathway forward based on the data from the MATrX-1 trial. Going forward, trabodenoson will require further development and clinical testing and investment prior to obtaining required regulatory approvals, if ever, and commercialization in the United States and abroad. We cannot provide assurance that a new clinical and regulatory pathway will be successful or that trabodenoson will be developed successfully. Even if a viable clinical and regulatory pathway forward is identified, we cannot provide assurance that trabodenoson will:
prove to be safe and effective in clinical studies;
meet applicable regulatory standards or obtain required regulatory approvals;
demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease;
be capable of being produced in commercial quantities at reasonable costs;
obtain coverage and favorable reimbursement rates from insurers and other third-party payors; or
be marketed successfully or achieve market acceptance by physicians and patients.
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Regulatory approval may be substantially delayed or may not be obtained for one or all of our product candidates if regulatory authorities require additional time or studies to assess the safety and efficacy of our product candidates.
We may be unable to initiate or complete development of our product candidates on schedule, if at all. To complete the studies for our product candidates, we will require additional funding. In addition, if regulatory authorities require additional time or studies to assess the safety or efficacy of our product candidates, we may not have or be able to obtain adequate funding to complete the necessary steps for approval for any or all of our product candidates. Preclinical studies and clinical trials required to demonstrate the safety and efficacy of our product candidates are time consuming and expensive and together take several years or more to complete. Delays in regulatory approvals or rejections of applications for regulatory approval in the United States, Europe, Japan or other markets may result from many factors, including:
our inability to obtain sufficient funds required for a clinical trial;
requests from regulatory authorities for additional analyses, reports, data, non-clinical and preclinical studies and clinical trials;
questions from regulatory authorities regarding interpretations of data and results and the emergence of new information regarding our product candidates or other products;
clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;
failure to reach agreement with the FDA or comparable non-US regulatory authorities regarding the scope or design of our clinical trials;
our inability to manufacture in a timely manner or obtain from third parties sufficient quantities or quality of the product candidates or other materials required for a clinical trial;
our inability to enroll a sufficient number of patients who meet the inclusion and exclusion criteria in our clinical trials. For example, we are seeking patients with elevated levels of IOP for our clinical trials, which are more difficult to find;
our inability to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
our inability to reach agreements on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
our inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates;
any determination that a clinical trial presents unacceptable health risks;
lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions;
our inability to obtain approval from Institutional Review Boards, or IRBs, to conduct clinical trials at their respective sites;
difficulty in maintaining contact with patients after treatment, resulting in incomplete data; and
unfavorable or inconclusive results of clinical trials and supportive non-clinical studies, including unfavorable results regarding the effectiveness of product candidates during clinical trials.
Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols submitted to applicable regulatory authorities to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial.
If the FDA requires us to change the design of our planned pivotal trials, the actual costs of these trials may be greater than what we estimated based on our current expectations regarding the design of these trials. If we are required to conduct additional clinical trials or other studies with respect to any of our product candidates beyond those that we initially contemplated, if we are unable to successfully complete our clinical trials or other studies or if the results of these studies are not positive or are only modestly positive, we may be delayed in obtaining regulatory approval for that product candidate, we may not be able to obtain regulatory approval at all or we may obtain approval for indications that are not as broad as intended. Our product development costs will also increase if we experience delays in testing or approvals and we may not have sufficient funding to complete the testing and approval process. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products if and when approved. If any of this occurs, our business will be materially harmed.
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We have successfully formulated our fixed-dose combination product candidate in a way that is suitable for Phase 2 clinical use. However, we have not successfully manufactured the product at commercial scale, nor completed stability testing to confirm its acceptability for commercial use. Any such delay or failure could materially harm our commercial prospects, result in higher costs and deprive us of product candidate revenues.
We completed a Phase 2 trial and are currently conducting an additional Phase 2 trial to evaluate the efficacy, tolerability and safety of trabodenoson when co-administered with commercially-available latanoprost eye drops. We have formulated our FDC product candidate to include these two drugs in a single eye drop. However, we may never be able to formulate or manufacture our FDC product candidate at commercial scale, or be able to demonstrate that the product is stable enough to commercialize. Any delay or failure to develop a suitable product formulation or manufacturing process for our FDC product candidate could materially harm our commercial prospects, result in higher costs or deprive us of potential product revenues.
Failure can occur at any stage of clinical development. If the clinical trials for our product candidates are unsuccessful, we could be required to abandon development.
A failure of one or more clinical trials can occur at any stage of testing for a variety of reasons. The outcome of preclinical testing and early clinical trials may not be predictive of the outcome of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. In addition, adverse events may occur or other risks may be discovered in any clinical trials that will cause us to suspend or terminate our clinical trials. In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including but not limited to changes in or adherence to trial protocols, differences in size and type of the patient populations and the rates of dropout among clinical trial participants. We have exposed 414 clinical trial subjects to trabodenoson. The FDA expects that a total of at least 1,300 patients will be exposed to at least a single dose of trabodenoson before submission of an NDA, and the complete NDA submission package must also contain safety data from at least 300 patients treated with trabodenoson for at least six months, and at least 100 patients treated for at least a year. Our future clinical trial results therefore may not demonstrate safety and efficacy sufficient to obtain regulatory approval for our product candidates. Moreover, we still need to evaluate the long-term safety effects of our product candidates, the results of which could adversely affect our clinical development program.
Flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. In addition, clinical trials often reveal that it is not practical or feasible to continue development efforts. Further, we have never submitted an NDA for any product candidates.
We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. Further, regulatory agencies and IRBs may at any time order or data safety monitoring boards may at any time recommend to the sponsor the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants.
If the results of our clinical trials for our current product candidates or clinical trials for any future product candidates do not achieve the primary efficacy endpoints or demonstrate unexpected safety issues, the prospects for approval of our product candidates will be materially adversely affected. Moreover, preclinicalU.S. and clinicalforeign privacy and data are often susceptible to varying interpretationsprotection laws and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have failed to achieve similar results in later clinical trials, including longer term trials, or have failed to obtain regulatory approval of their product candidates. Many compounds that initially showed promise in clinical trials or earlier stage testing have later been found to cause undesirable or unexpected adverse effects that have prevented further development of the compound. In addition, we have typically only tested our product candidates in a single eye, which may not accurately predict the efficacy or safety of our product candidates when dosed in both eyes. Our recently completed Phase 3 did not produce the results that we expected, and potential future Phase 3 pivotal trials and long-term safety studies of trabodenoson monotherapy may not produce the results that we expect or desire. Our current and planned clinical trials are also designed to test the use of trabodenoson in combination with latanoprost in a single dosage form. Accordingly, the efficacy of our primary product candidates may not be similar or correspond directly to their efficacy when used as a monotherapy. Our current product candidates remain subject to the risks associated with clinical drug development as indicated above.
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In addition to the circumstances noted above, we may experience numerous unforeseen events that could cause our clinical trials to be delayed, suspended or terminated, or which could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:
clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or implement a clinical hold;
the number of patients required for clinical trials of our product candidates 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;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
we may elect or be required to suspend or terminate clinical trials of our product candidates based on a finding that the participants are being exposed to health risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
our product candidates may have undesirable adverse effects or other unexpected characteristics.
If we elect or are required to suspend or terminate a clinical trial of any of our product candidates, our commercial prospects will be adversely impacted and our ability to generate product revenues may be delayed or eliminated.
Our product candidates may have undesirable adverse effects, which may delay or prevent regulatory approval or, if approval is received, require our products to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Unforeseen adverse effects from any of our product candidates could arise either during clinical development or, if approved, after the approved product has been marketed. In particular, we are aware of the known potential of adenosine and adenosine-like drugs to affect the heart if present in the systemic circulation at high enough levels.
Any undesirable adverse effects that may be caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA and comparable non-U.S. regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing our product candidates and generating revenues from their sale. In addition, if any of our product candidates receives regulatory approval and we or others later identify undesirable adverse effects caused by the product, we could face one or more of the following consequences:
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication, or other labeling changes;
regulatory authorities may withdraw their approval of the product;
regulatory authorities may seize the product;
we may be required to change the way that the product is administered, conduct additional clinical trials or recall the product;
regulatory authorities nay impose a REMS;
regulations, we may be subject to litigation or product liability claims, fines, injunctions, or criminal penalties; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its sale.
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Trabodenoson is an adenosine mimetic. Adenosine is used therapeutically to manage cardiovascular arrhythmias, such as paroxysmal supraventricular tachycardia, a type of accelerated heart rate. All of our data to date reflectsliabilities thattrabodenoson does not have systemic effects, including no impact on the cardiovascular system when dosed in the eye. However, we are still conducting additional trials for trabodenoson and systemic effects may arise in future trials. Furthermore, if trabodenoson has the perception of having potential adverse effects because it is an adenosine mimetic, it may be negatively viewed by ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community which would adversely affect the market acceptance of our product candidates. In addition, the use of our product candidates outside the indications approved for use, or off-label use, or the use of our product candidate in an inappropriate manner,business, operations and financial performance.
If our product candidates receive regulatory approval, we will be subject to ongoing regulatory requirements and we may face future development, manufacturing and regulatory difficulties.
Our product candidates, if approved, will also be subject to ongoingor affected by foreign laws and regulation, including regulatory guidance, governing the collection, use, disclosure, security, transfer and storage of personal data, such as information that we collect about patients and healthcare providers in connection with clinical trials and our other operations in the U.S. and abroad. For example, the E.U. has adopted the GDPR, which introduces strict requirements for labeling, packaging, storage, advertising, promotion, sampling, record-keeping, submissionprocessing personal data. The GDPR is likely to increase the compliance burden on us, including by mandating potentially burdensome documentation requirements and granting certain rights to individuals to control how we collect, use, disclose, retain and leverage information about them. The processing of safetysensitive personal data, such as physical health conditions, may impose heightened compliance burdens under the GDPR and other post-market approval information, importation and exportation.is a topic of active interest among foreign regulators. In addition, approved products, manufacturersthe GDPR provides for breach reporting requirements, more robust regulatory enforcement and manufacturers’ facilities are requiredfines of up to 20 million euros or up to 4% of annual global revenue. While the GDPR affords some flexibility in determining how to comply with extensive FDAthe various requirements, significant effort and European Medicines Agency, or EMA, requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to cGMP requirements. As such, we and our potential future contract manufacturers will be subject to continual review and periodic inspections to assess compliance with cGMP. Accordingly, we and others with whom we work will be required to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, EMA and other similar foreign agencies and to comply with certain requirements concerning advertising and promotion for our product candidates. Promotional communications with respect to prescription drugs also are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Accordingly, once approved, we may not promote our products, if any, for indications or uses for which they are not approved.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
issue warning letters or untitled letters;
require product recalls;
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
require us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include shutdown of manufacturing facilities, imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
impose other administrative or judicial civil or criminal penalties or pursue criminal prosecution;
withdraw regulatory approval;
refuse to approve pending applications or supplements to approved applications filed by us or by our potential future collaborators;
impose restrictions on operations, including costly new manufacturing requirements; or
seize or detain products.
If we are unable to effectively establish a direct sales force in the United States, our business may be harmed.
We currently do not have an established sales organization and do not have a marketing or distribution infrastructure. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. If trabodenoson receives marketing approval in the United States, we plan to commercialize it by establishing a glaucoma-focused specialty sales force of approximately 150 people targeting high-prescribing ophthalmologists and optometrists throughout the United States. We will need to incur significant additional expenses and commit significant additional time and management resources to establish and train a sales force to market and sell our products. We may not be able to successfully establish these capabilities despite these additional expenditures.
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Factors that may inhibit our efforts to successfully establish a sales force include:
our inability to compete with other pharmaceutical companies to recruit, hire, train and retain adequate numbers of effective sales and marketing personnel with requisite knowledge of our target market;
the inability of sales personnel to obtain access to adequate numbers of ophthalmologists and optometrists to prescribe any future approved products;
unforeseen costs and expenses associated with creating an independent sales and marketing organization; and
a delay in bringing products to market after efforts to hire and train our sales force have already commenced.
In the event we are unable to successfully market and promote our products, our business may be harmed.
We currently intend to explore the licensing of commercialization rights or other forms of collaboration outside of the United States, which will expose us to additional risks of conducting business in international markets.
The non-U.S. markets are an important component of our growth strategy. If we fail to obtain licenses or enter into collaboration arrangements with selling parties, or if these parties are not successful, our revenue-generating growth potential will be adversely affected. Moreover, international business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:
efforts to enter into collaboration or licensing arrangements with third parties in connection with our international sales, marketing and distribution efforts may increase our expenses or divert our management’s attention from the acquisition or development of product candidates;
changes in a specific country’s or region’s political and cultural climate or economic condition;
differing regulatory requirements for drug approvals and marketing internationally, which could result in our being required to conduct additional clinical trials or other studies before being able to successfully commercialize our product candidates in any jurisdiction outside the United States;
differing reimbursement regimes and price controls in certain non-U.S. markets;
difficulty of effective enforcement of contractual provisions in local jurisdictions;
potentially reduced protection for intellectual property rights;
potential third-party patent rights in countries outside of the United States;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several countries in Europe;
compliance with tax, employment, immigration and labor laws for employees traveling abroad;
the effects of applicable foreign tax structures and potentially adverse tax consequences;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incidental to doing business in another country;
workforce uncertainty in countries where labor unrest is more common than in the United States;
the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;
failure of our employees and contracted third parties to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
These and other risks may materially adversely affect our ability to attain or sustain revenue from international markets.
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We face competition from established branded and generic pharmaceutical companies and if our competitors are able to develop and market products that are preferred over our products, our commercial opportunity will be reduced or eliminated.
The development and commercialization of new drug products is highly competitive. We face competition from established branded and generic pharmaceutical companies, smaller biotechnology and pharmaceutical companies, as well as from academic institutions, government agencies and private and public research institutions, which may in the future develop products to treat glaucoma. 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 resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Glaukos Corporation recently commercialized a trabecular micro-bypass stent that is implanted in the eye during cataract surgery and allows fluid to flow from the anterior of the eye into the collecting channels, bypassing the TM. In addition, early-stage companies that are also developing glaucoma treatments may prove to be significant competitors, such as Aerie Pharmaceuticals, Inc., which is developing a Rho kinase/norepinephrine transport inhibitor. We expect that our competitors will continue to develop new glaucoma treatments, which may include eye drops, oral treatments, surgical procedures, implantable devices or laser treatments. Other early-stage companies may also compete through collaborative arrangements with large and established companies. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer adverse effects, are more convenient or are less expensive than our product candidates. The market for glaucoma prescriptions is highly competitive and is currently dominated by generic drugs, such as latanoprost and timolol, and additional products are expected to become available on a generic basis over the coming years. If any of our product candidates are approved, we expect that they will be priced at a premium over competitive generic products and consistent with other branded glaucoma drugs.
If our competitors market products that are more effective, safer, have fewer side effects or are less expensive than our product candidates or that reach the market sooner than our potential future products, if any, we may not achieve commercial success.
The commercial success of our product candidates will depend on the degree of market acceptance among ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community.
Our product candidates may not gain market acceptance among ophthalmologists and optometrists, patients, patient advocacy groups, third-party payors and the medical community. There are a number of available therapies marketed for the treatment of glaucoma. Some of these drugs are branded and subject to patent protection, but most others, including latanoprost and many beta blockers, are available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by ophthalmologists and optometrists, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. Additionally, in patients with normal tension glaucoma whose IOP falls into the normal range, IOP is generally much more difficult to reduce. In these patients, trabodenoson may offer little or no clinical benefit, which may ultimately limit its utility in this subpopulation of glaucoma patients. The degree of market acceptance of our product candidates will depend on a number of factors, including:
the market price, affordability and patient out-of-pocket costs of our product candidates relative to other available products, which are predominantly generics;
the degree to which our product candidates obtain coverage and adequate reimbursement;
the effectiveness of our product candidates as compared with currently available products and any products that may be approved in the future;
patient willingness to adopt our product candidates in place of current therapies;
varying patient characteristics including demographic factors such as age, health, race and economic status;
changes in the standard of care for the targeted indications for any of our product candidates;
the prevalence and severity of any adverse effects or perception of any potential side effects;
limitations or warnings contained in a product candidate’s FDA-approved labeling;
limitations in the approved clinical indications for our product candidates;
relative convenience and ease of administration;
the strength of our selling, marketing and distribution capabilities;
the quality of our relationship with patient advocacy groups;
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product liability claims.
In addition, the potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. If any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of our potential market opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited, and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the United States and abroad, our revenue will be more limited and it will be more difficult to achieve profitability.
If we fail to obtain and sustain coverage and an adequate level of reimbursement for our product candidates by third-party payors, potential future sales would be materially adversely affected.
The course of treatment for glaucoma patients primarily includes older drugs, and the leading products for the treatment of glaucoma currently in the market, including latanoprost and timolol, are available as generic brands. There will be no commercially viable market for our product candidates without coverage and adequate reimbursement from third-party payors, and any coverage and reimbursement policy may be affected by future healthcare reform measures. We cannot be certain that coverage and adequate reimbursement will be available for our product candidates or any other future product candidates we develop. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.
Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. A current trend in the U.S. healthcare industry is toward cost containment. Large public and private payors, managed care organizations, group purchasing organizations and other similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for our product candidates, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistently with current branded drugs. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to cover or provide adequate reimbursement for our drugs, which would significantly reduce the likelihood of them gaining market acceptance. In the United States, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor.
We expect that private insurers will consider the efficacy, cost effectiveness, safety and tolerability of our product candidates in determining whether to approve coverage and set reimbursement levels for such products. Obtaining these approvals can be a time consuming and expensive process. Our business and prospects would be materially adversely affected if we do not receive approval for coverage and reimbursement of our product candidates from private insurers on a timely or satisfactory basis. Limitations on coverage and reimbursement could also be imposed by government payors, such as the local Medicare carriers, fiscal intermediaries, or Medicare Administrative Contractors. Further, Medicare Part D, which provides a pharmacy benefit to certain Medicare patients, does not require participating prescription drug plans to cover all drugs within a class of products. Our business could be materially adversely affected if private or governmental payors, including Medicare Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.
Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. For example, reimbursement in the European Union must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.
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If the prices for our product candidates decrease or if governmental and other third-party payors do not provide coverage and adequate reimbursement levels, our revenue, potential for future cash flows and prospects for profitability will suffer.
Recently enacted and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain.
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 prevent or delay regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell our product candidates for which we obtain regulatory approval.
In March 2010, President Obama signed into law the ACA, a sweeping law intended to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Among other changes that affect the pharmaceutical industry, the ACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of average manufacturer price, or AMP, which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates, which previously had been payable only on fee-for-service utilization, to Medicaid managed care utilization, and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. Further, the ACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and requires manufacturers to provide a 50% point-of-sale discount off the negotiated price of applicable branded drugs dispensed to beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Substantial new provisions affecting compliance have also been enacted, including the Physician Payments Sunshine Act, as described above. Although it is too early to determine the full effect of the ACA, the new law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2012 through 2021, was unable to reach the required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.
Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not 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 to more stringent product labeling and post-marketing approval testing and other requirements.
There haveexpense has been, and likely will continue to be, invested to ensure continuing compliance. Moreover, the requirements under the GDPR may change periodically or may be modified by EU national law and could have an effect on our business operations if compliance becomes substantially more costly than under current requirements.
Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.
The pricing of prescription pharmaceuticals is also 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 may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be harmed, possibly materially.
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If we are found in violation of federal or state “fraud and abuse” laws or other healthcare laws, we may face penalties, which may adversely affect our business, financial condition and results of operation.
In the United States, we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The Federal Anti-Kickback Statute makes it illegal for any person or entity, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward the referral of business, including the purchase, lease, order or arranging for or recommending the purchase, lease or order of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, many healthcare fraud and abuse laws are broadly written, and it may be difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, itfuture.
Additionally, the federal Physician Payments Sunshine Act within the Patient Protection and Affordable Care Act, as amendedperceived failure by the Health Care Education and Reconciliation Act, or collectively the ACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to certain payments or other transfers of value provided to physicians and teaching hospitals, and certain ownership and investment interests held by physicians and their immediate family members.
Many states have adopted laws similar to the aforementioned laws, including state anti-kickback and false claims laws, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companiesus to comply with the April 2003 U.S. Departmentfederal, state, or foreign laws or self-regulatory standards could result in negative publicity, diversion of Healthmanagement time and Human Services Office of Inspector General Compliance Program Guidanceeffort and proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for Pharmaceutical Manufacturers and/or the Pharmaceutical Researchnoncompliance are rising. As we continue to expand into other foreign countries and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There may be ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.
In addition,jurisdictions, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information on certain types of individuals and organizations. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other and from HIPAA in significant ways and may not have the same effect, thus complicating compliance efforts.
Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcareadditional laws and regulations will involve substantial costs. It is possible that the government could allege violations of, or convict us of violating, these laws. Ifmay affect how we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from governmental funded federal or state healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or
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restructuring of our operations. Were this to occur, our business, financial condition and results of operations and cash flows may be materially adversely affected.
If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and our products could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenues from our products. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our company and our operating results will be adversely affected. Additionally, if we are unable to generate revenues from our product sales, our potential for achieving profitability will be diminished and the capital necessary to fund our operations will be increased.
We may not be able to identify additional therapeutic opportunities for our product candidates or to expand our portfolio of products.
We may explore other therapeutic opportunities with trabodenoson and seek to develop and commercialize a portfolio of new ophthalmic drugs or explore non-ophthalmic opportunities in addition to our product candidates that we are currently developing. We have no potential products in our research and development pipeline other than those potential products that are formulations of trabodenoson or that apply trabodenoson for the treatment of glaucoma, other neuropathies and degenerative retinal diseases.
Research programs to pursue the development of our product candidates for additional indications and to identify new potential products or product candidates and disease targets require substantial technical, financial and human resources whether or not we ultimately are successful. Our research programs may initially show promise in identifying potential indications and/or potential products, yet fail to yield results for clinical development for a number of reasons, including:
the research methodology used may not be successful in identifying potential indications and/or potential products;
product candidates may, after further study, be shown to have harmful adverse effects or other characteristics that indicate they are unlikely to be effective drugs; or
it may take greater human and financial resources to identify additional therapeutic opportunities for our product candidates or to develop suitable potential products through internal research programs and clinical trials than we will possess, thereby limiting our ability to diversify and expand our product portfolio.
Because we have limited financial and managerial resources, we focus on research programs and product candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other potential products or product candidates or for other indications that later prove to have greater commercial potential or a greater likelihood of success. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Accordingly, there can be no assurance that we will ever be able to identify additional therapeutic opportunities for our product candidates or to develop suitable potential products through internal research programs, which could materially adversely affect our future growth and prospects.
If we reallocate our resources to acquire or develop one or more new product candidates, we may not be successful in developing such new product candidates and we will once again be subject to all the risks and uncertainties associated with research and development of products and technologies.
We have explored the possibility of reallocating our resources toward developing, acquiring, by acquisition or in-license, new product candidates. If we decide to acquire one or more new product candidates, we cannot guarantee that any such acquisition would result in the identification and successful development of one or more approved and commercially viable products. The development of products and technologies is subject to a number of risks and uncertainties, including:
the time, costs and uncertainty associated with the clinical testing required to demonstrate the safety and effectiveness of a product candidate to obtain regulatory approvals;
the ability to raise sufficient funds to fund the research and development of any one or more new product candidates;
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the ability to protect the intellectual property rights associated with any one or more new product candidates;
litigation;
competition;
ability to comply with ongoing regulatory requirements;
government restrictions on the pricing and profitability of products in the United States and elsewhere; and
the extent to which third-party payers, including government agencies, private health care insurers and other health care payers, such as health maintenance organizations, and self-insured employee plans, will cover and pay for newly approved therapies.
Risks Related to Our Reliance on Third Parties
We currently depend on third partiesIntellectual Property
We rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to oversee and conduct our clinical trials, and to perform data collection and analysis of our product candidates. We expect to rely on these third parties to conduct clinical trials of any other potential products that we develop. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our program. In addition, any CRO that we retain will be subject to the FDA’s regulatory requirements or similar foreign standards and we do not have control over compliance with these regulations by these providers. Our agreements with third-party service providers are on trial-by-trial and project-by-project bases. Typically, we may terminate the agreements with notice and occasionally the third party service provider may terminate the agreement without notice. Typically, we are responsible for the third party’s incurred costs and occasionally we have to pay cancellation fees. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our product candidates, producing additional losses and depriving us of potential product revenue.
Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities, and we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan, the protocols for the trial and the FDA’s regulations and international standards, referred to as Good Clinical Practice, or GCP, requirements, 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. Preclinical studies must also be conducted in compliance with other requirements, such as Good Laboratory Practice, or GLP, and the Animal Welfare Act. Managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor our third-party providers.
Furthermore, these third parties may conduct clinical trials for competing drugs or may have relationships with other entities, some of which may be our competitors. As such, the ability of these third parties to provide services to us may be limited by their work with these other entities. The use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated.
If these third parties do not successfully carry out their contractual duties or obligations and meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols according to regulatory requirements or for other reasons, our financial results and the commercial prospects for our current product candidates or our other potential products could be harmed, our costs could increase and our ability to obtain regulatory approval and commence product sales could be delayed.
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We have no manufacturing capacity or experience and anticipate continued reliance on third-party manufacturersintellectual property for the development and commercialization of our product candidates in accordance with manufacturing regulations.
We do not currently, nor currently intend to, operate manufacturing facilities for clinical or commercial production of our product candidates. We have no experience in drug formulation, and we lack the resources and the capabilities to manufacture our product candidates and potential products on a clinical or commercial scale. We do not intend to develop facilities for the manufacture of product candidates for clinical trials or commercial purposes in the foreseeable future. We currently rely on third-party manufacturers to produce the active pharmaceutical ingredient and final drug product for our clinical trials. We currently have only one supplier of active pharmaceutical ingredient. We manage such production with all our vendors on a purchase order basis in accordance with applicable master service and supply agreements. We do not have long-term agreements with any of these or any other third-party suppliers. To the extent we terminate our existing supplier arrangements in the future and seek to enter into arrangements with alternative suppliers, we might experience a delay in our ability to obtain adequate supply for our clinical trials and commercialization. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates if and when they are approved. Our third-party manufacturers have made only a limited number of lots of our product candidates to date and have not made any commercial lots. The manufacturing processes for our product candidates have never been tested at commercial scale, and the process validation requirement has not yet been satisfied for any product candidate. These manufacturing processes and the facilities of our third-party manufacturers will be subject to inspection and approval by the FDA before we can commence the manufacture and sale of our product candidates, and thereafter on an ongoing basis. Some of our third-party manufacturers have never been inspected by the FDA and have not been through the FDA approval process for a commercial product. Some of our third-party manufacturers are subject to FDA inspection from time to time. Failure by these third-party manufacturers to pass such inspections and otherwise satisfactorily complete the FDA approval regimen with respect to our product candidates may result in regulatory actions such as the issuance of FDA Form 483 inspectional observations, warning letters or injunctions or the loss of operating licenses. Based on the severity of the regulatory action, our clinical or commercial supply of our product candidates could be interrupted or limited, which could have a material adverse effect on our business.
With respect to commercial production of our product candidates in the future, we plan on outsourcing production of the active pharmaceutical ingredients and final product manufacturing if and when approved for marketing by the applicable regulatory authorities. This process is difficult and time consuming and we can give no assurance that we will enter commercial supply agreements with any contract manufacturers on favorable terms or at all.
Reliance on third-party manufacturers entails risks, including:
manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of their agreements with us;
the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us;
the possible breach of the manufacturing agreement by the third party;
product loss due to contamination, equipment failure or improper installation or operation of equipment or operator error;
the failure of the third-party manufacturer to comply with applicable regulatory requirements; and
the possible misappropriation of our proprietary information, including our trade secrets and know-how.
Our manufacturers may not perform as agreed or may not remain in the contract manufacturing business. In the event of a natural disaster, business failure, strike or other difficulty, we may be unable to replace a third-party manufacturer in a timely manner and the production of our product candidates and potential products could be interrupted, resulting in delays and additional costs. We may also have to incur other charges and expenses for products that fail to meet specifications and undertake remediation efforts.
If third-party manufacturers fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.
Before a third party can begin the commercial manufacturing of our product candidates and potential products, their manufacturing facilities, processes and quality systems must be in compliance with applicable regulations. Due to the complexity of the processes used to manufacture pharmaceutical products and product candidates, any potential third-party manufacturer may be unable to initially pass federal, state or international regulatory inspections in a cost effective manner. If contract manufacturers fail to pass such inspection, our commercial supply of drug substance will be significantly delayed and may result in significant additional costs. In addition, pharmaceutical manufacturing facilities are continuously subject to inspection by the FDA and comparable non-U.S. regulatory authorities, before and after product approval, and must comply with cGMP. Our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. In addition, contract manufacturers’ failure to achieve and maintain high manufacturing standards in accordance with applicable regulatory requirements, or the incidence of manufacturing errors, could result in patient injury, product liability claims, product
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shortages, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously harm our business. If a third-party manufacturer with whom we contract is unable to comply with manufacturing regulations, we may also be subject to fines, unanticipated compliance expenses, recall or seizure of our products, product liability claims, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions could materially adversely affect our financial results and financial condition.
Furthermore, changes in the manufacturing process or procedure, including a change in the location where the product is manufactured or a change of a third-party manufacturer, will require prior FDA review and/or approval of the manufacturing process and procedures in accordance with the FDA’s regulations, or comparable foreign requirements. This review may be costly and time consuming and could delay or prevent us from conducting our clinical trials or launching a product. The new facility will also be subject to pre-approval inspection. In addition, we have to demonstrate that the product made at the new facility is equivalent to the product made at the former facility by physical and chemical methods, which are costly and time consuming. It is also possible that the FDA may require clinical testing as a way to prove equivalency, which would result in additional costs and delay.
Any collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and future product candidates.
We plan to seek collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of our current and future product candidates outside of the United States. We will face, to the extent that we decide to enter into collaboration agreements, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. To the extent such collaborators have programs that are competitive with our product candidates, they may decide to focus time and resources on development of those programs rather than our product candidates.
Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.
If we are not able to establish collaborations, we may have to alter our development and commercialization plans.
The development and potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide 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 collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaborationlicenses granted to us by others.
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 aour technology and products, including technology related to our manufacturing process and our gene therapy product candidate, reduce or delay its development program or one or morecandidates. These and other licenses may not provide exclusive rights to use such intellectual property and technology in all relevant fields of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expendituresuse and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or
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commercialization activities on our own,in all territories in which we may needwish to obtain additional expertiselicense our platform or develop or commercialize our technology 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 undertakeproducts in the necessary development and commercialization activities,future. As a result, we may not be able to further developprevent competitors from developing and commercializing competitive products in territories not included in all of our product candidateslicenses.
Risks Related to Intellectual Property
Wedevelopment programs may not be able to protect our proprietary technologyavailable in the marketplace.
We dependfuture or may not be available on commercially reasonable terms, or at all, which could materially harm our business and financial condition.
Our intellectual property consists of issued patents and pending patent applications related to our product candidates and other proprietary technology which cover compositions of matter, methods of use, combinations with other glaucoma products, formulations, polymorphs and the protection of the optic nerve. For trabodenoson, the composition patents are scheduled to expire in 2025 and 2026, in Europe and the United States, respectively. The trabodenoson polymorph US patent is scheduled to expire in 2033. See “Business—Intellectual Property” included in this Annual Report on Form 10-K for the year ended December 31, 2016, for further information about our issued patents and patent applications.
Patents that we own or may license in the future do not necessarily ensure the protection of our product candidates for a number of reasons, including without limitation the following:
we may not have beenbe aware of all third-party intellectual property rights potentially relating to our technology and product candidates. Publications of discoveries in the scientific literature often lag the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions covered by ourclaimed in any owned or any licensed patents or pending patent applications;
applications, or that we may not have beenwere the first to file for patent protection of such inventions.
any patents issued to uswe license or may not cover our products as ultimately developed;
our pending patent applications may not resultown in issued patents, and even if theythe future do issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us or otherwise provide us with any competitive advantages,advantage. Our competitors or other third parties may be challenged and invalidated by third parties;
our patents may not be broad or strong enough to prevent competition from other products that are identical or similar to our product candidates;
there can be no assurance that the termavail themselves of a patent can be extendedsafe harbor under the provisionsDrug Price Competition and Patent Term Restoration Act of patent term extension afforded by U.S. law or similar provisions in foreign countries, where available;
our patents,1984 (Hatch-Waxman Amendments) to conduct research and patents that we may obtain in the future, may not prevent generic entry into the U.S. market for our trabodenoson and other product candidates;
we may be required to disclaim part of the term of one or more patents;
there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;
there may be patents issued to third parties that will affect our freedom to operate;
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there might be significant changes in the laws that govern patentability, validity and infringement of our patents that adversely affects the scope of our patent rights;
a court could determine that a competitor’s technology or product does not infringe our patents;
our patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing; and
we may fail to obtain patents covering important products and technologies in a timely fashion or at all.
In addition, on September 16, 2011, the 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. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent Office is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act have not yet become effective. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act, in particular the first-to-file provision, 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.
If we encounter delays in our development or clinical trials the period of time during which we could market our product candidates under patent protection would be reduced.
Our competitors may seek to invalidate our patents.
Our competitorsand may be able to circumvent our patentspatent rights by developing similar or alternative technologies or products in a non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting Abbreviated New Drug Applications, or ANDAs, to the FDA in which our competitors claim that our patents are invalid, unenforceable and/or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive with our products. In these circumstances, we may need to defend and/or assert our patents, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with jurisdiction may find our patents invalid and/or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we have valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
A significant portion of As a result, our intellectual property portfolio currently includes pending patent applications thatmay not provide sufficient rights to exclude others from commercializing products similar or identical to ours.
Our commercial success will depend significantly on maintaining and expanding patent protectioncommercialization efforts for our product candidates, as well as successfully defending our current and future patents against third-party challenges. Ascandidates.
There can be no assurance that our patent applications will issue as patents in the United States or foreign jurisdictions in which such applications are pending. Even if patents do issue on any of these applications, there can be no assurance that a third party will not challenge their validitylicense agreement, including:
| · | the scope of rights granted under the license agreement; |
| · | whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
| · | our right to sublicense patent and other intellectual property rights to third parties under collaborative development relationships; |
| · | our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of is product candidates, and what activities satisfy those diligence obligations; |
| · | the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and |
| · | whether and the extent to which inventors are able to contest to the assignment of their rights to our licensors. |
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We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. To the extent we are able to obtain patents or other intellectual property rights in any foreign jurisdictions, it may be difficult for us to prevent infringement of our patents or misappropriation of these intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affectimpair our ability to obtain adequate protection formaintain our technologycurrent licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the enforcementaffected product candidates. In addition, if disputes arise as to ownership of intellectual property.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The United States Patent and Trademark Office, or the USPTO, and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In this event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may infringe thelicensed intellectual property, rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our products.
Our commercial success depends significantly on our ability to operate without infringingpursue or enforce the patentslicensed patent rights may be jeopardized. If we or our licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.
Moreover, patent applications are in some cases maintained in secrecy until patents are accepted or issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary technology without authorizationusing inventions covered by the third-party’s patent rights and may suego to court to stop us for patentfrom engaging in our normal operations and activities, including making or other intellectual property infringement.selling our product candidates. These lawsuits are costly and could adversely affect our results of operations and divert the attention of managerial and scientifictechnical personnel. There is a risk that a court would decide that we are infringing the third-party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party’s patents. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, potential products or methods of use either do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid or unenforceable, and we may not be able to do this.invalid. Proving invalidity, or unenforceabilityin particular, is difficult. For example, in the United States, proving invaliditydifficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even ifOur competitors have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our in-licensed patent applications and could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we are successfulmay have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office, to determine priority of invention in the U.S. The costs of these proceedings we may incurcould be substantial, costs and the time and attentionit is possible that such efforts would be unsuccessful, resulting in a loss of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resourcesUnited States patent position with respect to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and coversuch inventions.
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prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Pharmaceutical companies, biotechnology companies and academic institutions mayrights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. 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 usus. If our trade secrets are not adequately protected or sufficient to provide an advantage over our competitors, our competitive position could be adversely affected, as could our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.
From time to time, we find it necessary or prudent to obtain licenses from third-party intellectual property holders. Where licenses are readily available at reasonable cost, such licenses are considered a normal cost of doing business. In other instances, however, we may use the results of freedom-to-operate studies to guide our early-stage research away from areas where we are likely to encounter obstacles in the form of third-party intellectual property. For example, where a third party holds relevant intellectual property and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. We strive to identify potential third-party intellectual property issues in the early stages of research of our research programs, in order to minimize the cost and disruption of resolving such issues.
In spite of these efforts to avoid obstacles and disruptions arising from third-party intellectual property, it is impossible to establish with certainty that our products will be free of claims that we infringe, misappropriateown or otherwise violate the rights of third-party intellectual property holders. Even with modern databases and online search engines, freedom-to-operate searches are imperfect andin-license may fail to identifyresult in issued patents with claims that cover our product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to patents and published applications. Even whenpatent applications owned or in-licensed by us have been found, which can invalidate a third-party patent is identified, we may conclude that we do not infringe the patent or that theprevent a patent is invalid. If the third-partyfrom issuing from a pending patent owner disagrees with our conclusion and we continue with the business activity in question, patent litigation may result. We might decide to initiate litigation in an attempt to have a court declare the third-party patent invalid or non-infringed by our activity.
We may be subject to claims that we or our employees have misappropriated the intellectual property, including trade secrets, of a third party, or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed at universities, biotechnology companies or other pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the intellectual property and other proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such intellectual property, including trade secrets or other proprietary information. Litigation may be necessary to defend against these claims. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management, but litigation may be necessary in the future to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.application. Even if we are successful in defending againstpatents do successfully issue and even if such claims, litigation could result in substantial costs and be a distraction to management.
In addition, while we typically requirepatents cover our employees, consultants and contractors whoproduct candidates, third parties may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own,challenge their validity, enforceability or scope, which may result in claims bysuch patents being narrowed or againstinvalidated. Furthermore, even if they are unchallenged, patents and patent applications that we own or in-license may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
We may be unablepursue additional activities to adequately prevent disclosure ofprotect the patents, trade secrets and other proprietary information.
intellectual property covering our product candidates. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates that we may develop. Further, if we or the relevant licensor encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we cannot be certain that we or the relevant licensor were the first to file any patent application related to a product candidate. Furthermore, if third parties have filed such patent applications, an interference proceeding in the United States can be initiated by a third-party to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available however the life of a patent, and the protection it affords, is limited. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic medications.
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proprietary information. Further,For example, the FDA, as part of its Transparency Initiative, a proposal by the FDA to increase disclosure and make data more accessible to the public, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Failure
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, our competitive position would be harmed.
Any lawsuits relating to infringementcondition.
We may be required to initiate litigation to enforce or defend our intellectual property. These lawsuits can be very time consuming and costly.third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industry generally. Such litigationindustries, including patent infringement lawsuits, interferences, oppositions, ex parte reexaminations, post-grant review, and inter partes review proceedings before the U.S. Patent and Trademark Office, or proceedings could substantially increaseU.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our operating expensesproduct candidates may be subject to claims of infringement of the patent rights of third parties.
until such patents expire. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In any infringement litigation, any award of monetary damages we receiveeither case, such a license may not be available on commercially valuable. reasonable terms or at all.
| · | the scope of rights granted under the license agreement and other interpretation-related issues; |
| · | the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
| · | the sublicensing of patent and other rights under our collaborative development relationships; |
| · | our diligence obligations under the license agreement and what activities satisfy those diligence obligations; |
| · | the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners; and |
| · | the priority of invention of patented technology. |
In addition, our patents and patent applications could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings, and other forms of post-grant review. In the United States, for example, post-grant review has recently been expanded. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our patents and patent applications subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel’s time and attention.
In addition, there couldalso be public announcements of the results of hearings, motions or other interim proceedings or developments, and ifdevelopments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the market price of our common stock.
We
Any name we intend to use for our product candidates will require approval from However, the FDA regardless of whether we have secured a formal trademark registration fromLeahy-Smith Act and its implementation could increase the USPTO. The FDA typically conducts a review of proposed product names, including an evaluation ofuncertainties and costs surrounding the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies certain medical claims or contributes to an overstatement of efficacy. If the FDA objects to anyprosecution of our proposed product names, we may be required to adopt an alternative name for our product candidates. If we adopt an alternative name, we would losepatent applications and the benefitenforcement or defense of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rightsissued patents, all of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidates.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our patents and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA regulatory approval for our product candidates, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five
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years as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval by the FDA.
The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain earlier approval of competing products, and our ability to generate revenues could be materially adversely affected.
Risks Related to Our Business Operations and Industry
We will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.
We are currently a small company with twenty-four full-time employees as of March 1, 2017, and we outsource to consultants or other organizations a portion of our operations, including but not limited to research and development and conduct of clinical trials and certain administrative functions. In order to commercialize our product candidates, we will need to substantially increase our operations. We plan to continue to build our compliance, financial and operating infrastructure to ensure the maintenance of a well-managed company. We expect to significantly expand our employment base when we reach the full commercial stages of our current product candidates’ life cycle.
Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:
manage our clinical trials and the regulatory process effectively;
manage the manufacturing of product candidates and potential products for clinical and commercial use;
integrate current and additional management, administrative, financial and sales and marketing personnel;
develop a marketing and sales infrastructure;
hire new personnel necessary to effectively commercialize our product candidates;
develop our administrative, accounting and management information systems and controls; and
hire and train additional qualified personnel.
Product candidates that we may acquire or develop in the future may be intended for patient populations that are large. In order to continue development and marketing of these product candidates, if approved, we would need to significantly expand our operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties. In particular, we will need to build out our finance, accounting and reporting infrastructure to meet our reporting obligations as a public company. Because we have never had this infrastructure, there may be increased risk that we will not be able to adequately meet these reporting obligations in a timely manner.
We are a clinical-stage company and it may be difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of therapies for glaucoma. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and developing our product candidates. We have not yet demonstrated our ability to successfully complete a pivotal Phase 3 clinical trial, obtain regulatory approval of a product candidate, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing 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 and more experience with late stage development and commercialization of product candidates.
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In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a product development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.
We depend upon our key personnel and our ability to attract and retain employees.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our senior management team and our scientific founders, as well as the other principal members of our management and scientific teams. Although we have formal employment agreements with our executive officers, these agreements do not prevent them from terminating their employment with us at any time. The loss of the services of any member of our senior management or scientific team or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.
Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of David P. Southwell, our President and Chief Executive Officer, Rudolf A. Baumgartner, M.D., our Executive Vice President and Chief Medical Officer, or Dale Ritter, our Vice President—Finance, could be detrimental to us if we cannot recruit suitable replacements in a timely manner. We do not currently carry “key person” insurance on the lives of members of executive management. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. 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.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
If we engage in acquisitions or mergers in the future, we will incur a variety of costs and we may never realize the anticipated benefits of such acquisitions.
We may attempt to acquire companies, businesses, technologies, services, products or other product candidates or merge with other companies in the future that we believe are a strategic fit with our business. We have no present agreement regarding any material acquisitions or other transactions. However, if we do undertake any acquisitions or mergers, the process of integrating an acquired or merged business, technology, service, product candidates or potential products into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. In addition, we may fail to retain key executives and employees of acquired or merged companies, which may reduce the value of the acquisition or merger, or give rise to additional integration costs. Future acquisitions or mergers could result in additional issuances of equity securities that would dilute the ownership of existing stockholders. Future acquisitions or mergers could also result in the incurrence of debt, actual or contingent liabilities or the amortization of expenses related to other intangible assets, any of which could adversely affect our operating results. In addition, we may fail to realize the anticipated benefits of any acquisition or merger.
Our business is affected by macroeconomic conditions.
Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass through price increases to patients. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations.
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Interest rates and the ability to access credit markets could also adversely affect the ability of patients, payors and distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our potential future contract manufacturers, sole-source or single-source suppliers or licensees to remain in business or otherwise manufacture or supply product. Failure by any of them to remain in business could affect our ability to manufacture products.
If product liability lawsuits are successfully brought against us, our insurance may be inadequate and we may incur substantial liability.
We face an inherent risk of product liability claims as a result of the clinical testing of our product candidates. We will face an even greater risk if we commercially sell our product candidates or any other potential products that we develop. We maintain product liability insurance with an aggregate limit of $10 million that cover our clinical trials and we plan to maintain insurance against product liability lawsuits for commercial sale of our product candidates. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and, in the future, commercial use of our product candidates, for which our insurance coverage may not be adequate, and the cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial.
For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Regardless of the merits or eventual outcome, liability claims may result in:
reduced resources of our management to pursue our business strategy;
decreased demand for our product candidates or potential products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
termination of clinical trial sites or entire trial programs;
initiation of investigations by regulators;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
significant costs to defend resulting litigation;
diversion of management and scientific resources from our business operations;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
We will need to increase our insurance coverage if our product candidates receive marketing approval and we begin selling them. However, the product liability insurance we will need to obtain in connection with the commercial sales of our product candidates, if and when they receive regulatory approval, may be unavailable in meaningful amounts or at a reasonable cost. In addition, insurance coverage is becoming increasingly expensive. If we are unable to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against product liability claims, it could prevent or inhibit the development and commercial production and sale of our product candidates, if and when they obtain regulatory approval, which could materially adversely affect our business, financial condition, results of operations, cash flows and prospects.
Additionally, we do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability, employment practices liability, auto, property, workers’ compensation, products liability and directors’ and officers’ insurance. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would materially adversely affect our financial position, cash flows and results of operations.
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Business interruptions could delay us in the process of developing our products and could disrupt our sales.
Our headquarters is located in Lexington, Massachusetts. We are vulnerable to natural disasters, such as severe storms and other events that could disrupt our business operations. We do not carry insurance for natural disasters and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our business operations.
Our business and operations would suffer infinancial condition.
Despite the implementation of security measures, our internal computer systems, and thoseinventorship or ownership of our CROspatents and other intellectual property.
A breach of the Company’s computer systems and networks could materially adversely affect the Company’s business and financial condition.
Our business requires us, including somefound invalid or unenforceable if challenged in court.
Any such incident could compromise the Company’s or such vendors’ networks, and the information stored by the Company or such vendors could be accessed, misused, shared publicly, corrupted, lost, held for ransom, or stolen, resulting in fraud, including wire fraud related to Company assets, corporate espionage, or other harm. Moreover, if a data security incident or breach affects the Company’s systems or such vendors’ systems or results in the unauthorized release of personally identifiable information, the Company’s reputation could be materially harmed and the Company may be exposed to a risk of loss orunenforceable. In patent litigation and possible liability, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition. In the event clinical or other medical data from patients enrolled in clinical trials is exposed to unauthorized persons, either by the Company or the Company’s vendors, the Company could face challenges enrolling patients in future trials. The Company’s insurance coverage may not cover or may be inadequate to cover the losses it could incur should the Company experience a major data security event.
Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.
We are exposed to the risk of fraud or other misconduct by employees and independent contractors, such as principal investigators, consultants, commercial partners and vendors. Misconduct by these parties could include failures to comply with the regulations of the FDA and comparable non-U.S. regulatory authorities, provide accurate information to the FDA and comparable non-U.S. regulatory authorities, comply with fraud and abuse and other healthcare laws in the United States, and abroad, report financialdefendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including patent eligible subject matter, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and other business arrangementsmade a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the healthcare industry are subject to extensive laws intended to prevent fraud, misconduct, kickbacks, self-dealingUnited States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Misconduct could also involve the improper use of information obtainedequivalent proceedings in the course of clinical trials, whichforeign jurisdictions (e.g., opposition proceedings). Such proceedings could result in regulatory sanctions and serious harmrevocation or amendment to our reputation. We adoptedor our licensing partners’ patents in such a codeway that they no longer cover our product candidates. The outcome following legal assertions of ethics, but itinvalidity and unenforceability is not always possibleunpredictable. With respect to identify and deter employee and other third-party misconduct,the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the precautionspatent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we take to detectwould lose at least part, and prevent this
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activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming fromperhaps all, of the patent protection on our product candidates. Such a failure to comply with these laws. If any such actions are instituted against us resulting from such misconduct those actions couldloss of patent protection would have a significantmaterial adverse impact on our business, includingbusiness.
Weprotect our products.
We and our development partners, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerousevents has created uncertainty with respect to human health and safety or the environment. Our operationsvalue of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and localU.S. PTO, the laws and regulations govern the use, generation, manufacture, storage, handlinggoverning patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly,patents that it might obtain in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
The availability of our common stock and securities linked to our common stock for sale in the future could reduce the market price of our common stock.
In the future, we may issue equity and equity-linked securities to raise cash for acquisitions or otherwise. future.
Risks Related to Ownership of Our Common Stock
If we fail to maintain the listing of our common stock with a U.S. national securities exchange, the liquidity of our common stock could be adversely affected.
If our common stock is delisted by NASDAQ, our common stock may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our common stock. In addition, there can be no assurance that our common stock would be eligible for trading on any such alternative exchange or markets.
The market price of our common stock may be highly volatile, and you may not be able to resell your shares atprotect our intellectual property rights throughout the world.
Our initial public offering was completedpatents or marketing of competing products in February 2015. Therefore, there has only beenviolation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a public market for our common stock for a short periodsignificant commercial advantage from the intellectual property that we develop or license.
The trading price
announcements of regulatory approval or a complete response letter, or specific label indications or patient populations for its use, or changes or delays in the regulatory review process;
announcements of therapeutic innovations or new products by us or our competitors;
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any adverse changes to our relationship with manufacturers or suppliers;
the results of our testing and clinical trials;
the results of our efforts to acquire or license additional product candidates;
variations in the level of expenses related to our existing product candidates or preclinical and clinical development programs;
any intellectual property infringement actions innear future, which we may become involved;
announcements concerning our competitors or the pharmaceutical industry in general;
achievement of expected product sales and profitability;
manufacture, supply or distribution shortages;
actual or anticipated fluctuations in our quarterly or annual operating results;
changes in financial estimates or recommendations by securities analysts;
trading volume of our common stock;
sales of our common stock by us, our executive officers and directors or our stockholders in the future;
sales by us of securities linked to our common stock;
general economic and market conditions and overall fluctuations in the U.S. equity markets;
changes in accounting principles; and
the loss of any of our key scientific or management personnel.
In addition, the stock market, in general, and small pharmaceutical and biotechnology companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affectcould cause the market price of our common stock regardless of our actual operating performance. Further, a significant decline in the financial markets and other related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.
We and our management are parties to a lawsuit which,drop significantly, even if adversely decided against, could adversely affect our business and cause the price of our common stock to continue to decrease. We may also be subject to other securities litigation in the future, which is expensive and could divert management attention.
Our share price has been and may continue to be volatile, and in the past companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. This risk is especially relevant for us because our stock price declined following our announcement of top-line data from our Phase 3 clinical trial of trabodenoson for the treatment of primary open-angle glaucoma or ocular hypertension. On January 6, 2017, a purported stockholder of the Company filed a putative class action in the U.S. District Court for the District of Massachusetts, against the Company, David Southwell, Rudolf Baumgartner, Dale Ritter, and William McVicar, captioned Whitehead v. Inotek Pharmaceuticals Corporation, et al., No. 1:17-cv-10025. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 based on allegedly false and misleading statements and omissions regarding our MATrX-1 Phase 3 clinical trial of trabodenoson. The lawsuit seeks among other things, unspecified compensatory damages, interest, attorneys’ fees and costs, and unspecified equitable/injunctive relief. The Company will vigorously defend plaintiff’s claims on the factual record, which it believes will prove that the Company is not liable to the plaintiff in any regard. This litigation or future litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could adversely impact our business. Any adverse determination in this or future litigation could also subject us to significant liabilities.
Our existing principal stockholders, executive officers and directors own a significant percentage of our common stock and will be able to exert a significant control over matters submitted to our stockholders for approval.
As of February 15, 2017, our officers and directors, and stockholders who individually own more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 44% of our common stock.
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This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, these stockholders, if they acted together, could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. These stockholders may be able to determine all matters requiring stockholder approval. The interests of these stockholders may not always coincide with our interests or the interests of other stockholders or noteholders. This may also prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as a stockholder or noteholder, and they may act in a manner that advances their best interests and not necessarily those of other stockholders or noteholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock and 2021 Convertible Notes.
performing well.
Sales of a substantial numberhave entered or may enter into Rule 10b5-1 plans providing for sales of shares of our common stock from time to time. Under a Rule 10b5-1 plan, a broker executes trades pursuant to parameters established by the employee, director or anyofficer when entering into the plan, without further direction from the employee, officer, director or affiliated stockholder. A Rule 10b5-1 plan may be amended or terminated in some circumstances. Our employees, executive officers, directors and affiliated stockholders also may buy or sell additional shares outside of our securities linked to our common stock, or the perception that these sales might occur, could depress the market pricea Rule 10b5-1 plan when they are not in possession of our common stock and could impair our ability to raise capital through the sale of additional equity securities or equity-linked securities. As of December 31, 2016, we have 26,986,318 outstanding shares of common stock, which excludes 6,483,791 shares of common stock issuable upon conversion of the 2021 Convertible Notes, 2,675,458 shares of common stock issuable upon the exercise of stock options outstanding and exercisable at a weighted-average exercise price of $6.30 per share and 470,000 unvested Restricted Stock Units outstanding as of December 31, 2016.
material, nonpublic information.
| · | results of clinical trials of our product candidates or those of our competitors; |
| · | the success of competitive products or technologies; |
| · | commencement or termination of collaborations; |
| · | 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; |
| · | the results of our efforts to discover, develop, acquire or in-license additional product candidates; |
| · | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts; |
| · | negative publicity around gene therapy in general, or our product candidates; |
| · | variations in our financial results or those of companies that are perceived to be similar to us; |
| · | changes in the structure of healthcare payment systems; |
| · | market conditions in the pharmaceutical and biotechnology sectors; and |
| · | general economic, industry and market conditions. |
We currently anticipate that we will retain future earnings, forif any, to finance the development, operationgrowth and expansiondevelopment of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future.business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be stockholders’ sole source of gain for the foreseeable future.
If we are unable to substantially utilize our net operating loss carryforward, our financial results will be adversely affected.
As of December 31, 2016 we had federal and state net operating losses of approximately $105.3 million and $62.7 million, respectively, which may be utilized against future federal and state income taxes, respectively. In general, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than fifty percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years). Purchases of our common stock in amounts greater than specified levels, which are beyond our control, or prior issuances of our common stock, could create a limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, or have occurred in the past, we may not derive some or all of the expected benefits from our NOLs. We have determined that we have experienced prior ownership changes occurring in 2005, 2007, and 2015. NOLs generated prior to these changes, although subject to an annual limitation, can be utilized in future years as well as any post change NOLs. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed.
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The requirements associated with being a public company require significant company resources and management attention.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, the listing requirements of the securities exchange on which our common stock is traded and other applicable securities rules and regulations. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition and maintain effective disclosure controls and procedures and internal control over financial reporting. In addition, subsequent rules implemented by the SEC and NASDAQ may also impose various additional requirements on public companies. decline.
We will incur increased costs as a result of operating as a public company, and our management team will be required to devote substantial time to new compliance initiatives.
Now that we are a public company, we will incur significant legal, accountingbe required to maintain internal control over financial reporting and other expenses thatto report any material weaknesses in such internal control. Once we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and The NASDAQ Stock Market have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404,are no longer an emerging growth company, we will be required to furnish a report by our management on the effectiveness of our internal control over financial reporting including an attestation report onpursuant to Section 404 of the Sarbanes-Oxley Act. We are in the process of designing, implementing, and testing the internal control over financial reporting issued by our independent registered public accounting firm. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliancecomply with Section 404 within the prescribed period, we will be engaged in athis obligation, which process to document and evaluate our internal control over financial reporting, which is bothtime consuming, costly, and challenging.complicated. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan 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. Despite our efforts, there is a risk that neither we noraddition, our independent registered public accounting firm will be ablerequired to concludeattest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are no longer an “emerging growth company.” If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.
The JOBS Act will allow us to postpone the date by which we must comply with some of the laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC, which could undermine investor confidence in our company and adversely affect the market price of our common stock.
For so long as we remain an “emerging growth company” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies” including:
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring thator if our independent registered public accounting firm provideis unable to express an attestation report onopinion as to the effectiveness of our internal control over financial reporting;
reporting when required, investors may lose confidence in the “say on pay” provisions (requiring a non-binding stockholder vote to approve compensationaccuracy and completeness of certain executive officers)our financial reports and the “saymarket price of our common stock could be negatively affected, and we could become subject to investigations by the stock exchange on golden parachute” provisions (requiring a non-binding stockholder votewhich our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources.
the requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act, and instead provide a reduced level of disclosure concerning executive compensation; and
any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.
Wean emerging growth company, we may take advantage of these exemptions until wefrom various reporting requirements that are no longer an “emergingapplicable to other public companies that are not emerging growth company.”companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We would cease tocould be an “emergingemerging growth company” upon the earliest of: (i)company until December 31, 2020; (ii) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1
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billion in non-convertible debt securities; or (iv) as of the end of any fiscal year in which2020, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceededexceeds $700 million as of the endany June 30 before that time, in which case we would no longer be an emerging growth company as of the second quarter of that fiscal year.
Although we are still evaluating the JOBS Act, we currently intend to take advantage of some, but not all, of the reduced regulatory and reporting requirements that will be available to us so long as we qualify as an “emerging growth company.” For example, we have irrevocably elected under Section 107 of the JOBS Act not to take advantage of the extension of time to comply with new or revised financial accounting standards available under Section 102(b) of the JOBS Act. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an “emerging growth company,” which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected. Likewise, so long as we qualify as an “emerging growth company,” we may elect not to provide you with certain information, including certain financial information and certain information regarding compensation of our executive officers, that we would otherwise have been required to provide in filings we make with the SEC, which may make it more difficult for investors and securities analysts to evaluate our company.following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatilevolatile.
Some provisions of our charter document, Delaware law andtherefore, will be subject to the indenturesame new or revised accounting standards as other public companies that governs our 2021 Convertible Notes may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our bylaws as well as provisions of the Delaware General Corporation Law, or DGCL, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:
establishing a classified board of directors such thatare not all members of the board are elected at one time;
allowing the authorized number of our directors to be changed only by resolution of our board of directors;
| Item 1B. |
limiting the removal of directors by the stockholders;
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
eliminating the ability of stockholders to call a special meeting of stockholders;
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and
requiring 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 our bylaws.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.
In addition, the terms of our 2021 Convertible Notes require us to repurchase the 2021 Convertible Notes in cash in the event of a fundamental change. A takeover of our company, if such takeover constituted a “fundamental change,” would trigger an option of the holders of the 2021 Convertible Notes to require us to repurchase the 2021 Convertible Notes. This may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors in the 2021 Convertible Notes.
Item 1B.Unresolved Staff Comments
70
the First Circuit entered judgment dismissing the action on September 5, 2018.
Item 5. |
On February 18, 2015, our
2015 |
| High |
|
| Low |
| ||
February 18, 2015 to March 31, 2015 (First Quarter) |
| $ | 6.20 |
|
| $ | 5.05 |
|
Second Quarter |
| $ | 6.14 |
|
| $ | 4.68 |
|
Third Quarter |
| $ | 19.45 |
|
| $ | 4.71 |
|
Fourth Quarter |
| $ | 13.36 |
|
| $ | 9.01 |
|
2016 |
| High |
|
| Low |
| ||
First Quarter |
| $ | 11.89 |
|
| $ | 5.81 |
|
Second Quarter |
| $ | 10.90 |
|
| $ | 6.60 |
|
Third Quarter |
| $ | 9.90 |
|
| $ | 6.42 |
|
Fourth Quarter |
| $ | 9.60 |
|
| $ | 5.85 |
|
On March 6, 2017, the closing price for our common stock as reported on the NASDAQ Global Market was $1.55.
Stockholders
Securities authorized for issuance under equity compensation plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report on Form 10-K.
We deemed
Usepurchases by the Company of Proceeds from Registered Securities
In April 2016, we filed a registration statement on Form S-3 containing two prospectuses: (i) a base prospectus which covers the offering, issuance and sale by us of up to $200.0 million in the aggregate of an indeterminate number ofits shares of common stock and preferred stock, such indeterminate principal amountduring the three-month period ended December 31, 2018. The purchases were not made under any publicly announced plans or programs.
(a) Total Number of Shares Purchased(1) | (b) Average Price Paid per Share | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | |||||||||||||
| October 1-31, 2018 | — | — | — | — | ||||||||||||
| November 1-30, 2018 | — | — | — | — | ||||||||||||
| December 1-31, 2018 | 100,000 | $ | 13.93 | — | — | |||||||||||
72
prospectusshares repurchased by the amount issued. During the year endedCompany settled on December 31, 2016, we sold 482,6892018 and the remaining 50,000 shares of common stock and received net proceeds of $4.0 million pursuant to the ATM. We are using the net proceeds from this offering primarily for research, development, manufacturing, and general and administrative expenses, and for other general corporate purposes.
In August 2016, we filed a prospectus supplement to our Form S-3 pursuant to which we closed an underwritten public offering of $52.0 million aggregate principal amount of 5.75% Convertible Senior Notes due 2021, including $2.0 million from an exercise of the underwriters’ overallotment option, or the 2021 Convertible Notes, and received net proceeds of approximately $48.7 million after deducting underwriting discounts and offering-related costs. We are using the net proceeds from this offering to fund the continued testing of trabodenoson as a monotherapy and as a fixed-dose combination with latanoprost for the reduction of IOP and for general corporate purposes.
Issuer Purchases of Equity Securities
There were no repurchases of shares of common stock made during the year ended December 31, 2016.
We derived the selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 and the consolidated balance sheet data as of December 31, 2016 and 2015 from our audited consolidated financial statements appearing elsewhere in this annual report on Form 10-K.
|
| For the Years Ended December 31, |
| |||||
(in thousands, except share and per share data) |
| 2016 |
|
| 2015 |
| ||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
| $ | (31,985 | ) |
| $ | (12,554 | ) |
General and administrative |
|
| (9,894 | ) |
|
| (7,842 | ) |
Loss from operations |
|
| (41,879 | ) |
|
| (20,396 | ) |
Interest expense |
|
| (1,418 | ) |
|
| (1,230 | ) |
Interest income |
|
| 443 |
|
|
| 89 |
|
Loss on extinguishment of debt |
|
| - |
|
|
| (4,399 | ) |
Change in fair value of warrant liabilities |
|
| - |
|
|
| 267 |
|
Change in fair value of Convertible Bridge Notes redemption rights derivative |
|
| - |
|
|
| 480 |
|
Change in fair value of 2020 Convertible Notes derivative liability |
|
| - |
|
|
| (42,793 | ) |
Net loss |
| $ | (42,854 | ) |
| $ | (67,982 | ) |
Net loss per common share—basic and diluted |
| $ | (1.60 | ) |
| $ | (3.72 | ) |
Weighted-average common shares outstanding—basic and diluted |
|
| 26,735,175 |
|
|
| 18,311,333 |
|
| For the Years Ended December 31, | Period from July 14 to December 31, | |||||||||||||||
| 2018 | 2017 | 2016 | 2015 | |||||||||||||
| Consolidated Statements of Operations Data: | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 53,270 | $ | 14,917 | $ | 5,994 | $ | 3,236 | ||||||||
| General and administrative | 17,886 | 4,855 | 1,580 | 184 | ||||||||||||
| Loss from operations | (71,156 | ) | (19,772 | ) | (7,574 | ) | (3,420 | ) | ||||||||
| Research and development incentives | 186 | 192 | - | - | ||||||||||||
| Interest expense | (6,039 | ) | - | - | (7 | ) | ||||||||||
| Interest and other income net | 1,690 | 2 | 1 | 1 | ||||||||||||
| Accretion of discount on investments | 801 | - | - | - | ||||||||||||
| Loss on debt conversion | - | - | - | (778 | ) | |||||||||||
| Net loss | $ | (74,518 | ) | $ | (19,578 | ) | $ | (7,573 | ) | $ | (4,204 | ) | ||||
| Net loss per common share—basic and diluted | $ | (1.89 | ) | $ | (2.88 | ) | $ | (1.11 | ) | $ | (0.62 | ) | ||||
| Weighted-average common shares outstanding—basic and diluted | 39,377,666 | 6,795,627 | 6,833,718 | 6,833,718 | ||||||||||||
|
| December 31, |
| |||||
(in thousands) |
| 2016 |
|
| 2015 |
| ||
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 29,798 |
|
| $ | 80,042 |
|
Short-term investments |
|
| 96,675 |
|
|
| 31,238 |
|
Total assets |
|
| 129,647 |
|
|
| 113,321 |
|
Convertible notes payable |
|
| 48,960 |
|
|
| — |
|
Total liabilities |
|
| 56,479 |
|
|
| 4,508 |
|
Accumulated deficit |
|
| (238,877 | ) |
|
| (196,023 | ) |
Total stockholders’ equity |
|
| 73,168 |
|
|
| 108,813 |
|
73
| As of December 31, | ||||||||
| 2018 | 2017 | |||||||
| Consolidated Balance Sheet Data: | ||||||||
| Cash, cash equivalents and investments | $ | 213,132 | $ | 18,142 | ||||
| Total assets | 251,313 | 20,147 | ||||||
| Convertible notes | 41,447 | - | ||||||
| Total liabilities | 57,276 | 4,628 | ||||||
| Accumulated deficit | (105,873 | ) | (31,355 | ) | ||||
| Total shareholders’ equity | 194,037 | 15,519 | ||||||
Overview
We areAnnual Report on Form 10-K.
“RCKT.”
In August 2016, we closed an underwritten public offering of $52.0 million aggregate principal amount of 5.75% Convertible Senior Notes due 2021, including $2.0 million from an exercise of the underwriters’ overallotment option, (the “2021 Convertible Notes”), and received net proceeds of approximately $48.7 million after deducting underwriting discounts and offering-related costs. (See Note 5 in the accompanying notes to the consolidated financial statements).
In July 2016, we announced the initiation of a Phase 2 dose-ranging trial of a fixed-dose combination (“FDC”) of trabodenoson and latanoprost. The trial will enroll approximately 165 patients with an IOP greater than or equal to 25 mmHg and less than or equal to 34 mmHg; which represents the patients most likely to receive treatment for glaucoma or ocular hypertension. Data from this trial is expected in mid-2017.
In April 2016, we filed a registration statement on Form S-3 containing two prospectuses: (i) a base prospectus which covers the offering, issuance and sale by us of up to $200.0 million in the aggregate of an indeterminate number of shares of common stock and preferred stock, such indeterminate principal amount of debt securities and such indeterminate number of warrants and; and (ii) a sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $50.0 million of our common stock that may be issued and sold under an at-the-market sales agreement with Cowen and Company, LLC and Evercore Group L.L.C., as representatives (the “ATM”“Representatives”). The $50.0 million of the several underwriters (collectively with the Representatives, the “Underwriters”), pursuant to which the Company sold 6,325,000 shares of common stock (the “Shares”), which includes 825,000 shares that were sold pursuant to an option granted to the Underwriters (the “Offering”). The Shares were sold in the Offering at a public offering price of $13.25 per share in which the Company received gross proceeds of $83.8 million net of $5.3 million of offering costs, commission and legal and other expenses for net proceeds from the Offering of $78.5 million, after deducting the underwriting discounts and commissions and legal and accounting costs.
As disclosedShares for a per-Share price of $13.93, plus an amount equal to the Company’s expenses incurred in Item 5.02 of the Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on October 7, 2016, we informed William McVicar, Ph.D. that his employment would be ending. Dr. McVicar stepped down from his position as our Executive Vice President, Chief Scientific Officer and executive officer effective October 4, 2016. Dr. McVicar has agreed to remain employed by us in a non-executive capacity as Senior Advisor, through April 4, 2017, unless we terminate him or he resigns sooner (such date, the “Separation Date”), to facilitate a smooth transition. In connection with the departure, weRepurchases (including broker’s commissions) and Dr. McVicar have entered intothe issuance of the Shares. The offering and sale of the Shares was completed as a Transition Agreement signed on October 27, 2016 (the “Transition Agreement”), effectiveprivate placement under Section 4(a)(2) of the Securities Act of 1933, as amended.
74
As of December 31, 2016, we had an accumulated deficit of $238.9 million and cash and cash equivalents and short-term investments aggregating $126.5 million. We estimate we have sufficient funding to sustain operations into 2019. See “Liquidity and Capital Resources.”
Overview
Factors Affecting our Results of Operations
planning for potential commercialization. We do not expect our expenses to increase in 2017 as we fully assess the results from the latest Phase 3 trial. Results from our ongoing Phase 2 trial with our FDC product candidate are expected in mid-2017. If we successfully develophave any products approved for sale and launch trabodenoson as a monotherapy or any other product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution of our products.
We will need to obtain additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or any potential future commercialization efforts. We will need to generate significant revenues to achieve profitability, and we may never do so. As a result, we expect to incur significant expenses and increasing operating losses for the foreseeable future.
Financial Overview
Revenue
We have not generated any revenue from product sales since oursales. From inception through December 31, 2018, Rocket raised net cash proceeds of approximately $195.2 million from investors through both equity and do not expectconvertible debt financing to generate any revenuefund operating activities, including proceeds from the sale of products in the near future. Our ability to generate revenues will depend on the successful development, regulatory approvalJanuary 2018 and commercialization of trabodenoson and any other future product candidates.
November 2018 public offerings.
Research
direct clinical and non-clinical expenses which include
employee
We expense research and development costs as incurred. We record costs for some development activities such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or other information our vendors provide to us.
75
The following table summarizes our research and development expenses by type of activity for the years ended December 31, 2016 and 2015:
|
| For the Years Ended December 31, |
| |||||
(in thousands) |
| 2016 |
|
| 2015 |
| ||
Trabodenoson—direct clinical and non-clinical |
| $ | 22,598 |
|
| $ | 8,653 |
|
Personnel and other expenses: |
|
|
|
|
|
|
|
|
Employee and consultant-related expenses |
|
| 7,763 |
|
|
| 3,483 |
|
Target validation expenses |
|
| 802 |
|
|
| — |
|
Facility expenses |
|
| 533 |
|
|
| 336 |
|
Other expenses |
|
| 289 |
|
|
| 82 |
|
Total personnel and other expenses |
|
| 9,387 |
|
|
| 3,901 |
|
Total research and development expenses |
| $ | 31,985 |
|
| $ | 12,554 |
|
We do not track trabodenoson-related expenses by product candidate. All expenses related to trabodenosondeveloping product candidates, including investments in manufacturing, as a monotherapy also benefit the FDC product candidate trabodenoson with latanoprost. We have expended approximately $74 million for externalour programs advance into later stages of development costs related to trabodenoson from inception through December 31, 2016.
and as we conduct additional clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time consumingtime-consuming, and the successful development of our product candidates is highly uncertain, especially consideringuncertain. As a result, we are unable to determine the MATrX-1 Phase 3 clinical trial’s failureduration and completion costs of research and development projects or when and to meet its primary endpoint. what extent we will generate revenue from the commercialization and sale of any of our product candidates.
seek to complete development of our product candidates.
As a result of the uncertainties discussed above, we are unable to determine with certainty the duration and completion costs of our development programs or precisely when and to what extent we will receive revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for one or more of our product candidates. The duration, costs and timing of clinical trials and development of any product candidates will depend on a variety of factors, including the uncertainties of future preclinical studies and clinical trials, uncertainties in the clinical trial enrollment rate and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including efficacy and tolerability profiles, manufacturing capability, competition, and commercial viability.
76
investor and public relations, auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies used in general and administrative activities.
We expect general and administrative expenses to increase for the foreseeable future due to anticipated increases in headcount to support the continued advancement of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses.
investments.
2017
|
| For the Years Ended December 31, |
|
| Increase |
| ||||||
(in thousands) |
| 2016 |
|
| 2015 |
|
| (Decrease) |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| $ | (31,985 | ) |
| $ | (12,554 | ) |
| $ | 19,431 |
|
General and administrative |
|
| (9,894 | ) |
|
| (7,842 | ) |
|
| 2,052 |
|
Loss from operations |
|
| (41,879 | ) |
|
| (20,396 | ) |
|
| 21,483 |
|
Interest expense |
|
| (1,418 | ) |
|
| (1,230 | ) |
|
| 188 |
|
Interest income |
|
| 443 |
|
|
| 89 |
|
|
| (354 | ) |
Loss on extinguishment of debt |
|
| - |
|
|
| (4,399 | ) |
|
| (4,399 | ) |
Change in fair value of warrant liabilities |
|
| - |
|
|
| 267 |
|
|
| 267 |
|
Change in fair value of derivative liabilities |
|
| - |
|
|
| (42,313 | ) |
|
| (42,313 | ) |
Net loss |
| $ | (42,854 | ) |
| $ | (67,982 | ) |
| $ | (25,128 | ) |
Loss from operations
Loss from operations For the Years Ended December 31, 2018 2017 Change Operating expenses: Research and development $ 53,270 $ 14,917 $ 38,353 General and administrative 17,886 4,855 13,031 Total operating expenses 71,156 19,772 51,384 Loss from operations (71,156 ) (19,772 ) (51,384 ) Research and development incentives 186 192 (6 ) Interest expense (6,039 ) - (6,039 ) Interest and other income net 1,690 2 1,688 Accretion of discount on investments 801 - 801 Total other income (expense) net (3,362 ) 194 (3,556 ) Net loss $ (74,518 ) $ (19,578 ) $ (54,940 )
Researchan increase in legal costs of $0.7 million, insurance costs of $0.7 million and developmentfiling fees of $0.3 million in connection with supporting the growth in our business and becoming a public company in 2018. We expect an increase in general and administrative expenses
Research and development expenses increased $19.4 million in future periods, as we continue to $32.0operate as a public company.
| For the Years Ended December 31, | ||||||||||||
| 2017 | 2016 | Change | ||||||||||
| Operating expenses: | ||||||||||||
| Research and development | $ | 14,917 | $ | 5,994 | $ | 8,923 | ||||||
| General and administrative | 4,855 | 1,580 | 3,275 | |||||||||
| Total operating expenses | 19,772 | 7,574 | 12,198 | |||||||||
| Loss from operations | (19,772 | ) | (7,574 | ) | (12,198 | ) | ||||||
| Research and development incentives | 192 | - | 192 | |||||||||
| Interest and other income net | 2 | 1 | 1 | |||||||||
| Total other income net | 194 | 1 | 193 | |||||||||
| Net loss | $ | (19,578 | ) | $ | (7,573 | ) | $ | (12,005 | ) | |||
General and administrative expenses
General and administrative expenses increased $2.1$8.9 million to $9.9$14.9 million for the year ended December 31, 2016, as2017 compared to $7.8the year ended December 31, 2016. The increases were primarily a result of increases in manufacturing and process development expenses of $4.7 million, increase in research expense of $1.2 million and an increase in R&D share-based compensation expense of $0.3 million and increase in compensation expense due to increased headcount of $0.8 million for the year ended December 31, 2015. This increase primarily reflects $0.8 million related to increased staffing expenses due to increased headcount and salaries and $1.4 million primarily related to increased consulting and other outside services. Stock-based compensation expense decreased $0.2 million due to a one-time charge of $1.0 million in 2015 related2017 as compared to the elimination of repurchase rightsyear ended December 31, 2016.
77
Interest expense increased $0.2$3.3 million to $1.4$4.9 million for the year ended December 31, 2016, as2017 compared to $1.2the year ended December 31, 2016. The increase in G&A expenses was primarily due to an increase in G&A stock compensation expense of $0.7 million, a $1.1 million increase in personnel costs due to headcount additions, and an increase in merger related costs of $1.0 million due to the Reverse Merger with Inotek.
Interest income
Interest income increased $0.3 million to $0.4 million for the year ended December 31, 2016, as compared to $0.1 million for the year ended December 31, 2015. This increase primarily reflects higher weighted average invested balances and interest rates.
Loss on extinguishment of debt
The loss on extinguishment of debt of $4.4 million in the year ended December 31, 2015,2017 which consisted of $3.7 million related to the July and August 2015 conversionrefund from the NYC Biotech tax credit.
|
| For the Years Ended December 31, |
|
| Increase |
| ||||||
(in thousands) |
| 2015 |
|
| 2014 |
|
| (Decrease) |
| |||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| $ | (12,554 | ) |
| $ | (5,592 | ) |
| $ | 6,962 |
|
General and administrative |
|
| (7,842 | ) |
|
| (2,112 | ) |
|
| 5,730 |
|
Loss from operations |
|
| (20,396 | ) |
|
| (7,704 | ) |
|
| 12,692 |
|
Interest expense |
|
| (1,230 | ) |
|
| (980 | ) |
|
| 250 |
|
Interest income |
|
| 89 |
|
|
| — |
|
|
| (89 | ) |
Loss on extinguishment of debt |
|
| (4,399 | ) |
|
| — |
|
|
| 4,399 |
|
Change in fair value of warrant liabilities |
|
| 267 |
|
|
| (845 | ) |
|
| (1,112 | ) |
Change in fair value of derivative liabilities |
|
| (42,313 | ) |
|
| (2 | ) |
|
| 42,311 |
|
Net loss |
| $ | (67,982 | ) |
| $ | (9,531 | ) |
| $ | 58,451 |
|
Research and development expenses
Research and development expenses increased $7.0 million to $12.6 million for the year ended December 31, 2015, from $5.6 million for the year ended December 31, 2014. This increase was related to higher pre-clinical expenses of $4.7 million primarily related to work preparing drug product for our trabodenoson clinical trials, along with ongoing pre-clinical studies, higher payroll-related and stock-based compensation expense of $1.9 million related to increased staffing and higher consulting expenses of $0.6
78
million. This increase was partially offset by a $0.3 million net reduction in direct clinical trial expenses as a result of the completion of our Phase 2 trial in October 2014 over increased costs of our Phase 3 trial that commenced in October 2015.
General and administrative expenses
General and administrative expenses increased $5.7 million, to $7.8 million, for the year ended December 31, 2015, as compared to $2.1 million for the year ended December 31, 2014. This increase included $1.6 million in stock-based compensation of which $1.0 million related to the elimination of repurchase rights and final vesting related to the Series X preferred shares held by our former CEO and CFO pursuant to our IPO. The remaining increase was due primarily to higher compensation-related expenses of $2.0 million primarily related to increased staffing, including our current CEO and VP of Finance, higher insurance expenses and other public-company related expenses of $0.9 million, higher professional fees of $0.7 million, and higher consulting fees of $0.3 million.
Interest expense
Interest expense increased $0.2 million, to $1.2 million, for the year ended December 31, 2015, as compared to $1.0 million for the year ended December 31, 2014. Interest expense in 2015 was comprised of $1.0 million for coupon interest and amortization of debt discount and deferred financing costs related to our 2020 Convertible Notes, $0.1 million related to our Convertible Bridge Notes and $0.1 million related to our notes payable. Interest expense in 2014 related primarily to our Notes Payable.
Loss on extinguishment of debt
The loss on extinguishment of debt of $4.4 million in the year ended December 31, 2015, consisted of $3.7 million related to the July and August 2015 conversion of all of the 2020 Convertible Notes into common stock (see Note 5 in the accompanying notes to the consolidated financial statements), $0.4 million of unamortized debt discount and issuance costs related to our Convertible Bridge Notes and $0.3 million related to unamortized debt discount and issuance costs and prepayment fees related to our Notes Payable.
Change in fair value of warrant liabilities
The change in fair value of warrant liabilities for the year ended December 31, 2015, was a gain of $0.3 million related to a decrease in our warrant liabilities related to warrants to purchase shares of Series AA Preferred Stock that became warrants to purchase shares of common stock upon our IPO. The $0.8 million loss in the year ended December 31, 2014, related to an increase in the value of the warrant liabilities related to our Series AA Preferred Stock.
Change in fair value of derivative liabilities
The change in fair value of derivative liabilities for the year ended December 31, 2015, was a net loss of $42.3 million. We recorded a loss of $42.8 million in the year ended December 31, 2015, related to the final mark-to market of the 2020 Convertible Notes derivative liability in connection with the July and August 2015 full conversion of the 2020 Convertible Notes into common stock (see Note 5 in the accompanying notes to the consolidated financial statements), and a gain of $0.5 million related to the decrease in the value of the Convertible Bridge Notes redemption rights derivative.
Liquidity and Capital Resources
Since inception, we
primarily through the sale of its equity and debt securities.
During the year ended December 31, 2016, we sold 482,6896,325,000 shares of common stock and received net proceeds of $4.0 million pursuantapproximately $78.5 million.
In August 2015, we completed the Follow-on Offering, issuing 6,210,000 shares of our common stock resulting in aggregate net proceeds to us of approximately $74.0 million.
79
In July and August 2015, holders of $21.0 million principal amount of our 2020 Convertible Notes elected to convert the principal into 3,333,319 shares of common stock. In addition, the Interest Make-Whole Payment was settled with967,742 shares of common stock at our election, resulting in the issuancefor gross proceeds of 530,072 additional shares of common stock. As a result of these conversions, we no longer have an obligation to repay the principal or make cash interest payments on the 2020 Convertible Notes.approximately $15.0 million.
generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.
| Total | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | ||||||||||||||||
| Operating lease obligations | $ | 28,664 | $ | 1,372 | $ | 3,794 | $ | 3,354 | $ | 20,144 | ||||||||||
| 2021 Convertible Notes | 52,000 | - | 52,000 | - | - | |||||||||||||||
| Total | $ | 80,664 | $ | 1,372 | $ | 55,794 | $ | 3,354 | $ | 20,144 | ||||||||||
| For the Years Ended December 31, | ||||||||||||
| 2018 | 2017 | 2016 | ||||||||||
| Cash used in operating activities | $ | (53,788 | ) | $ | (15,962 | ) | $ | (5,503 | ) | |||
| Cash used in investing activities | (5,272 | ) | (760 | ) | (335 | ) | ||||||
| Cash provided by financing activities | 153,502 | 25,406 | 16 | |||||||||
| Net change in cash, cash equivalents and restricted cash | $ | 94,442 | $ | 8,684 | $ | (5,822 | ) | |||||
|
| For the Years Ended December 31, |
| |||||
(in thousands) |
| 2016 |
|
| 2015 |
| ||
Cash used in operating activities |
| $ | (37,266 | ) |
| $ | (17,416 | ) |
Cash used in investing activities |
|
| (66,059 | ) |
|
| (31,675 | ) |
Cash provided by financing activities |
|
| 53,081 |
|
|
| 125,515 |
|
Net increase (decrease) in cash and equivalents |
| $ | (50,244 | ) |
| $ | 76,424 |
|
Net used $53.7 million of cash, usedprimarily resulting from our net loss of $74.5 million and net changes in our operating assets and liabilities of $4.4 million, partially offset by net non-cash charges of $16.3 million, including share-based compensation expense of $13.6 million and accretion of discount on convertible notes of $3.1 million. Changes in Rocket’s operating assets and liabilities for the year ended December 31, 2018 consisted of an increase in accounts payable and accrued expenses of $5.9 million, offset by an increase in prepaid expenses and other assets of $1.5 million.
of $0.1 million.
Net cash used in investing activities
Net cash used in investing activities, was $66.1 million forconsisting primarily of purchases of property and equipment.
Net2018, net cash used in investingprovided by financing activities was $31.7$153.5 million, consisting primarily of proceeds from the issuance of common stock. On January 26, 2018, we closed a public offering of common stock and received net proceeds of approximately $78.5 million.
Net2017, net cash provided by financing activities
was $25.4 million, consisting of proceeds from Rocket’s issuance of Series B convertible preferred shares. Net cash provided by financing activities was $53.1 millionimmaterial for the year ended December 31, 2016 and primarily reflects net proceeds of $48.7 million from the issuance of our 2021 Convertible Notes and net proceeds of $4.0 million from the issuance of common stock pursuant to our ATM.
Net cash provided by financing activities was $125.5 million for the year ended December 31, 2015, and reflects the net proceeds from (i) the issuance of common stock in our IPO of $38.1 million, (ii) our offering of 2020 Convertible Notes of $19.1 million, and (iii) the issuance of common stock in the Follow-on Offering of $74.0 million. These net proceeds from our common stock and 2020 Convertible Notes in 2015 do not reflect an aggregate of $1.8 million of IPO-related costs incurred in 2014. Additionally, in 2015, we made $5.8 million of payments related to the principal and termination of our notes payable.
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Contractual Obligations and Commitments
The following summarizes our significant contractual obligations as of December 31, 2016:
(in thousands) |
| Total |
|
| Less than 1 year |
|
| 1 to 3 years |
|
| 3 to 5 years |
|
| More than 5 years |
| |||||
Operating facilities lease (1) |
| $ | 2,622 |
|
| $ | 402 |
|
| $ | 831 |
|
| $ | 869 |
|
| $ | 520 |
|
2021 Convertible Notes (2) |
|
| 66,950 |
|
|
| 2,990 |
|
|
| 5,980 |
|
|
| 57,980 |
|
|
| - |
|
Total |
| $ | 69,572 |
|
| $ | 3,392 |
|
| $ | 6,811 |
|
| $ | 58,849 |
|
| $ | 520 |
|
|
|
|
|
We enter into contracts in the normal course of business with CROs and contract manufacturers to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts, they are not included in the table of contractual obligations and commitments.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks in the ordinary courserules and regulations of our business. These market risks are principally limited to interest rate fluctuations. We had cash and cash equivalents of $29.8 million at December 31, 2016, consisting primarily of funds in money market accounts. We also had $96.7 million in short-term investments consisting of certificates of deposit, agency bonds and United States Treasury securities. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 1.0% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect a sudden change in market interest rates to affect materially our operating results or cash flows.
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Our
We account for stock options issued to non-employees in accordance with the provisions of the Financial Accounting Standards Board, or FASB, ASC Subtopic 505-50, Equity-Based Payments to Non-employees, which requires valuing the stock options using the Black-Scholes option pricing model and re-measuring such stock options at their current fair value as they vest.
Significant Factors, Assumptions and Methodologies Used in Determining Fair Value
Determining the fair value of our convertible preferred stock warrants, convertible debt derivative and stock-based awards requires the use of subjective assumptions. In the absence of a publicly traded market for our securities, we conducted periodic valuations of our securities.
Valuations conducted in 2015 and 2014
A third-party valuation consultant was engaged to advise and assist us in connection with the valuations of our (i) Series AA preferred stock warrants outstanding at December 31, 2014, (ii) our convertible debt redemption rights derivative at issuance and at December 31, 2014, (iii) our common stock options issued in August 2014 and (iv) our 2020 Convertible Notes derivative liability at issuance and at the time of the conversions of the 2020 Convertible Notes during 2015. Because our previously outstanding Series X preferred stock was entitled to a contingent liquidation preference which varies based on the total value of our equity, we were precluded from using a closed-form model, such as the Black-Scholes option pricing method, to value the Series AA preferred stock warrants. Therefore, we employed a Monte Carlo simulation methodology to determine the fair value of securities in our capital structure during the period during the period prior to the February 2015 IPO.
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Common Stock and Preferred Stock Warrant Valuations
Our initial equity value was determined by utilizing a risk-adjusted discounted cash flow model based upon market research and management’s assessment thereof, which is an income approach and was corroborated with market data, coupled with a series of Monte Carlo simulations which projected various equity values under different possible liquidity events including (i) initial public offering (“IPO”), (ii) merger and acquisition (“M&A”), and (iii) stay-private (“SP”) scenarios. The first two scenarios assumed positive results from our recent Phase 2 clinical trial, while the third scenario considered unfavorable results for valuations performed prior to December 31, 2014 and, at December 31, 2014, no IPO or M&A transaction.
Key assumptions underlying the discounted cash flow model are described below:
Based on the research and industry knowledge of our officers and consultants, we developed projections of market penetration, product selling prices and required infrastructure to estimate our future revenues and operating expenses to determine projected free cash flows from our two current product candidates containing trabodenoson, through patent expiration.
Probability of Success. To determine the probability of success for the various phases of development required for submission in an NDA, we utilized the clinical trial success rates as published in certain reports.
Time to Liquidity. All 2014 valuations assumed liquidity events occurring between December 31, 2014 and April 1, 2015.
Risk Free rates. Risk free rates are based on published or imputed government treasury rates as of each valuation date.
Volatilities. Volatilities were derived from historical data from guideline publicly traded comparable companies. We used volatilities of 60% to 70% for the 2014 valuations.
The Monte Carlo-simulated total equity values were then allocated to each type of security using a current value (waterfall) method under each scenario and were then probability-adjusted using probability weights by scenario.
As of date: |
| IPO |
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| M&A |
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| SP |
| |||
December 31, 2014 |
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| 70 | % |
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| 25 | % |
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| 5 | % |
Valuation models require the input of highly subjective assumptions. Because our shares had characteristics significantly different from that of publicly traded common stock and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models did not necessarily provide a reliable, single measure of the fair value of our previously outstanding Series AA preferred stock or Series X preferred stock. The foregoing valuation methodologies were not the only valuation methodologies available and will not be expected to be used to value our securities after our IPO. We cannot make complete assurances as to any particular valuation for our securities.
Convertible Debt Redemption Rights Derivative
The Convertible Bridge Notes redemption rights derivative required separate accounting and was valued using a single income valuation approach. We estimated the fair value of the redemption rights derivative using a ‘‘with and without’’ income valuation approach. Under this approach, we estimated the present value of the fixed interest rate debt based on the fair value of similar debt instruments excluding the embedded feature. This amount was then compared to the fair value of the debt instrument including the embedded feature using a probability weighted approach by assigning each embedded derivative feature a probability of occurrence, with consideration provided for the settlement amount including conversion discounts, prepayment penalties, the expected life of the liability and the applicable discount rate.
As of the issuance of the Convertible Bridge Notes on December 22, 2014 and on December 31, 2014, the Company ascribed a probability of occurrence of 25% to the change in control redemption feature of the Convertible Bridge Notes. The expected life of the feature was the remaining term of the debt and the discount rate was 18.9%. The Company classified the liability within Level 3 of the fair value hierarchy as the probability factor and the discount rate are unobservable inputs and significant to the valuation model.
2020 Convertible Notes derivative liability
Based on the characteristics of the (i) conversion option including make-whole provision, (ii) the Additional Interest, and (iii) the notes, we estimated the fair value of the conversion option including make-whole and the Additional Interest using the “with” and “without” method. Using this methodology, we first valued the notes with the conversion option including make-whole provision but excluding the Additional Interest (the “with” scenario) and subsequently valued the notes without the conversion option including make-whole provision and excluding the Additional Interest (the “without” scenario). The difference between the fair values of the notes in the “with” and “without” scenarios was the concluded fair value of the conversion option including make-whole provision as
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of the measurement date. We developed an estimate of fair value for the notes excluding the Additional Interest using a binomial lattice model. We modeled the decision to convert or hold by considering the maximum of the conversion or hold value at every node of the lattice in which the notes are convertible and choosing the action that maximizes the return to the notes’ holders. The significant assumptions used in the binomial model were: the market yield and the expected volatility.
We estimated the fair value of the Additional Interest using an income approach, specifically, the risk-neutral debt valuation method that is used to derive the value of a debt instrument using the expected cash flows and the risk-free rate. The significant assumptions used in estimating the expected cash flows were the market yield used to determine the risk-neutral probability of default and the expected recovery rate upon default.
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-15,
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, which supersedes the current leasing guidance and upon adoption, will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard is effective for the Company for the annual period beginning after December 15, 2018, and can be early adopted by applying a modified retrospective approach for leases existing at, and entered into after,2018. Upon the beginningadoption of the earliest comparable period presented inguidance, operating leases are capitalized on the financial statements. We are currently evaluatingbalance at the impactpresent value of this accounting standard update on our consolidated financial statements.
In March 2016,lease payments. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. See Note 13 for commitment and contingencies footnote for operating leases.
We are exposed to
Our 2021 Convertible Notes bearaccrue interest at a fixed rate and therefore a change in interest rates would not impact the amount of interest we would have paid on this indebtedness. Until the 2020 Convertible Notes were converted in July and August 2015, they bore interest at a fixed rate, therefore a change in interest rates would not impact the amount
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JOBS Act.
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Not applicable.
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| · | any material breach by the executive of any agreement between the executive and the Company; |
| · | the conviction of, indictment for or plea of nolo contendere by the executive to a felony or a crime involving moral turpitude; or |
| · | any material misconduct or willful and deliberate nonperformance (other than by reason of the executive’s disability) by the executive of the executive’s duties to the Company. |
| · | a material, adverse change in the executive’s duties, responsibilities, authority, title or reporting structure; |
| · | a material reduction in the executive’s base salary or bonus opportunity; or |
| · | a geographical relocation of the executive’s principal office location by more than 50 miles. |
| · | the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity; |
| · | a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction; |
| · | the sale of all of the stock of the Company to an unrelated person, entity or group thereof acting in concert; or |
| · | any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company. |
Directors and Executive Officers
The following table sets forth information regarding our executive officers and directors, including their respective ages and positions as of the date hereof:
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The following is a biographical summaryInformation with respect to this item will be set forth in the Proxy Statement for the 2018 Annual Meeting of Stockholders (“Proxy Statement”) or an amendment to this Annual Report on Form 10-K (“Form 10-K/A”) under the experience of our executive officers and directors:
Executive Officers
David P. Southwell has served as our President and Chief Executive Officer since July 2014, and as one of our directors since August 2014. From March 2010 to October 2012, Mr. Southwell served as Executive Vice President, Chief Financial Officer of Human Genome Sciences, Inc., or Human Genome Sciences, which is owned by GlaxoSmithKline plc. Prior to his time at Human Genome Sciences, Mr. Southwell served as Executive Vice President and Chief Financial Officer of Sepracor Inc. from July 1994 to July 2008. Mr. Southwell has also served on the Boardheadings “Election of Directors, of PTC Therapeutics Inc. since December 2005” “Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and THL Credit, Inc. since June 2007. Mr. Southwell received a B.A. from Rice University and an M.B.A. from Dartmouth College. We believe that Mr. Southwell’s qualifications to sit on our Board include his broad experience serving on the boards of directors of public companies, his specific experience with public therapeutics companies and his executive leadership, managerial and business experience.
Rudolf Baumgartner, M.D. has served as our Executive Vice President and Chief Medical Officer since June 2007. Dr. Baumgartner received a B.S. and an M.D. from Pennsylvania State University and completed post-doctoral training at the University of Michigan, Johns Hopkins University and the National Institutes of Health.
William K. McVicar, Ph.D. joined us in September 2007 as Executive Vice President, Pharmaceutical Development and served as our Executive Vice President and Chief Scientific Officer from January 2009 to October 2016. Dr. McVicar also served as our interim President from May 2013 until August 2014. Dr. McVicar now serves as a Senior Advisor to the Company until April 4, 2017. Dr. McVicar received a B.S. from the State University of New York College at Oneonta and a Ph.D. in Chemistry from the University of Vermont.
Dale Ritter joined us as a financial consultant in June 2014 and has served as our Vice President—Finance and Principal Financial and Accounting Officer, Treasurer and Secretary since August 2014. From May 2011 to November 2013, Mr. Ritter served Senior Vice President, Finance and Chief Accounting Officer at Coronado Biosciences, Inc. From January 2011 to May 2011, Mr. Ritter served as an Independent Financial Consultant and from 1994 to 2009 Mr. Ritter served in various roles and most recently as Senior Vice President and Chief Accounting Officer at Indevus Pharmaceuticals, Inc. Mr. Ritter received a B.A. from Syracuse University and an M.B.A. from Babson College.
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Timothy Barberich has served as one of our directors since September 2016. Mr. Barberich served as Chief Executive Officer of Sepracor Inc. from 1984 to 2007 and as Chairman of its Board from 1994 to 2009. Prior to working for Sepracor Inc., Mr. Barberich held positions at Millipore Corporation and American Cyanamid Company. Mr. Barberich has served as a member of the Board of Directors at GI Dynamics, Inc. since 2011, Verastem, Inc. since 2014, Neurovance, Inc. since 2010, Frequency Therapeutics, Inc. since 2016 and BioNevia LLC since 2008. Mr. Barberich also served on the Board of Directors of Heartware, Inc. from 2008 to 2016, Tokai Pharmaceuticals, Inc. from 2009 to 2016 and MirImmune, Inc. from 2015 to 2017. Mr. Barberich received his Bachelor of Science degree in Chemistry from King’s College. We believe that Mr. Barberich’s qualifications to sit on our Board include his experience as a director of and working in leadership roles at pharmaceutical companies.
Carsten Boess has served as one of our directors since January 2016. He is currently the Chief Business Officer at Kiniksa Pharmaceuticals, a privately held biotechnology company. He previously served as Senior Vice President and Chief Financial Officer at Synageva Biopharma Corporation from 2011 until the company’s acquisition by Alexion Pharmaceuticals in 2015. Prior to his role at Synageva, Mr. Boess served in multiple roles with increasing responsibility for Insulet Corporation, including Chief Financial Officer from 2006 to 2009 and Vice President of International Operations from 2009 to 2011. Prior to that, Mr. Boess served as Executive Vice President of Finance for Serono Inc. from 2005 to 2006. In addition, he was a member of the Geneva based World Wide Executive Finance Management Team while at Serono. Mr. Boess was also Chief Financial Officer at Alexion Pharmaceuticals, and was a finance executive at Novozymes of North America and Novo Nordisk in France, Switzerland and China. Mr. Boess received a Bachelor’s degree and Master’s degree in Economics and Finance, specializing in Accounting and Finance from the University of Odense, Denmark. We believe that Mr. Boess’ qualifications to sit on our Board include his business and financial experience working at pharmaceutical companies.
J. Martin Carroll has served as one of our directors since April 2016. In 2012, Mr. Carroll held a position leading corporate strategy and development for Boehringer Ingelheim GmBH in Ingelheim, Germany. From 2002 to 2011, he was President and CEO of US Businesses for Boehringer Ingelheim Corporation. From 1976 to 2001, Mr. Carroll held various positions at Merck & Company, Inc., including Executive Vice President – Customer Marketing and Sales. From 1972 to 1976, Mr. Carroll served in the United States Air Force. Mr. Carroll has served as a member of the Board of Directors at Catalent, Inc. and TherapeuticsMD, Inc. since 2015, and Mallinckrodt Pharmaceuticals since 2013. He has previously served on the Boards of Accredo Health Group, Inc. and Durata Therapeutics, Inc. Mr. Carroll received his Bachelor degree from College of the Holy Cross and his MBA from Babson College. We believe that Mr. Carroll’s qualifications to serve on our Board include his significant experience in leadership positions at pharmaceutical companies.
Paul G. Howes has served as one of our directors since September 2008. From January 2016 to present, Mr. Howes has been President of ThromboGenics Inc. Mr. Howes also served as our President and Chief Executive Officer from September 2008 to May 2013. Prior to his time with us, Mr. Howes served as President of the Americas Region of Bausch + Lomb Incorporated, which is now owned by Valeant Pharmaceuticals International, Inc., from July 2003 to February 2007. Prior to this time, Mr. Howes served in a variety of senior roles at Merck & Co., Inc. for sixteen years. Since May 2013, Mr. Howes has served as a member of the Board of Directors of various companies including: since May 2013, Kish Bancorp and Kish Bank, a financial conglomerate parent company and its community bank subsidiary; since November 2008, Prevent Blindness America, a vision-related charity for which Mr. Howes has served as Chairman since November 2013; since August 2014, ThromboGenics NV and ThromboGenics Inc., a global integrated biopharmaceutical company and its U.S.-based operating subsidiary. Mr. Howes received an A.B. from Harvard University and an M.B.A. from York University. We believe that Mr. Howes’ qualifications to sit on our Board include the intimate knowledge of our operations he developed as our President and Chief Executive Officer, his experience working with a public biopharmaceutical company, significant commercial experience in the field of ophthalmology and his executive leadership, managerial and business experience.
Patrick Machado has served as one of our directors since August 2016. Mr. Machado co-founded Medivation, Inc. and served as its Chief Business Officer from December 2009 to April 2014 and its Chief Financial Officer from December 2004 to April 2014. Prior to working for Medivation, Inc., Mr. Machado held positions at Cytyc Corporation, Pro•Duct Health, Inc., Chiron Corporation and Morrison & Foerster LLP. Mr. Machado has served as a member of the Board of Directors at Chimerix, Inc. since 2014, as a member of the Board of Directors of Scynexis, Inc. since 2015, and as a member of the Board of Directors of Medivation, Inc. from 2014 to 2016. Mr. Machado received his Bachelor of Science in Economics and Bachelor of Arts in German from Santa Clara University and his Juris Doctor from Harvard Law School. We believe that Mr. Machado’s qualifications to sit on our Board include his experience working as a director of and in leadership roles at pharmaceutical companies.
Gary Phillips, M.D. has served as one of our directors since October 2015. Dr. Phillips has also served on the Board of Directors of Aldeyra Therapeutics since 2009. From October 2013 and to the present, Dr. Phillips has been Senior Vice President, Chief Strategy Officer at Mallinckrodt Pharmaceuticals plc. He was also Senior Vice President and President of Autoimmune and Rare Diseases at Mallinckrodt from August to January 2015. Dr. Phillips was Head of Global Health & Healthcare Industries at the
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World Economic Forum in Geneva from January 2012 to September 2013. He was President of Reckitt Benckiser Pharmaceuticals, Inc. (now Indivior) from 2011 to 2012. He served as President of U.S. Surgical and Pharmaceuticals at Bausch & Lomb from 2002 to 2008. Dr. Phillips has also held executive roles at Merck Serono SA (a division of Merck KGaA) from 2008 to 2011, Novartis Corporation from 2000 to 2002, and Wyeth Pharmaceuticals, Inc. (now Pfizer, Inc.) from 1999 to 2000. Dr. Phillips was a healthcare strategy managing consultant at Towers Perrin (now Towers Watson & Co) from 1997 to 1999, and practiced as a general medicine clinician/officer in the US Navy, from which he was honorably discharged as a lieutenant commander. Dr. Phillips was educated at the University of Pennsylvania, where he received an M.D. (Alpha Omega Alpha) from the School of Medicine, an MBA from the Wharton School, and B.A. (summa cum laude, Phi Beta Kappa) in biochemistry with distinction from the School of Arts and Sciences. He completed postgraduate medical education at United States Naval Medical Center and maintains an active medical license. Currently, he serves on the boards of Aldeyra Therapeutics (NASDAQ: ALDX), Envisia Therapeutics, and Rheon Medical SA. We believe that Dr. Phillips’ qualifications to sit on our Board include his experience working in leadership roles at pharmaceutical companies.
Richard N. Spivey, PharmD, PhD has served as one of our directors since July 2015. Dr. Spivey currently serves as a scientific advisor to the pharmaceutical industry and as a member of the Board of Councilors, University of Southern California, and School of Pharmacy. From 2010 to 2015, he was the Senior Vice President, Global Regulatory Affairs at Allergan, plc. From 2002 to 2010, Dr. Spivey served various roles at Meda AB (previously MedPointe Inc.), most recently as the Chief Scientific Officer (Head of R&D). Dr. Spivey has also held positions at Pharmacia Corporation (now Pfizer Inc.), Schering-Plough Corporation (now Merck & Co.), Parke-Davis Pharmaceutical Research Division, and Boots Pharmaceuticals, Inc. Dr. Spivey received his PharmD from the University of Southern California and his PhD from the College of Pharmacy, University of Minnesota. We believe that Dr. Spivey’s qualifications to sit on our Board include his distinguished background in drug development and regulatory affairs spanning thirty-years of experience working at leading pharmaceutical companies.
Composition of Our Board of Directors
Our Board of Directors currently consists of eight members. Our nominating and governance committee and Board of Directors may consider a broad range of factors relating to the qualifications and background of nominees, which may include diversity“Corporate Governance” and is not limited to race, genderincorporated herein by reference. The Proxy Statement or national origin. We have no formal policy regarding board diversity. Our nominating and governance committee’s and Board of Directors’ priority in selecting board members is identification of persons whoForm 10-K/A will further the interests of our stockholders through his or her established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape and professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.
Our amended and restated certificate of incorporation and amended and restated bylaws also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least 75% of the votes that all our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our Board of Directors, including a vacancy resulting from an enlargement of our Board of Directors, may be filled only by vote of a majority of our directors then in office.
Director independence. Our Board of Directors has determined that all members of the Board of Directors except Mr. Southwell, are independent, as determined in accordance with the rules of The NASDAQ Global Market, or NASDAQ. Our Board of Directors also determined that our former directors, Dr. A.N. “Jerry” Karabelas, Mr. Isai Peimer, Mr. Ittai Harel and Mr. Martin Vogelbaum, satisfied the independence requirements, as determined in accordance with the rules of NASDAQ. In making such independence determination, the Board of Directors considered the relationships that each such non-employee director has with us and all other facts and circumstances that the Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our Board of Directors considered the association of our directors with the holders of more than 5% of our common stock. The composition and functioning of our Board of Directors and each of our committees complies with all applicable requirements of NASDAQ and the rules and regulations of the SEC. There are no family relationships among any of our directors or executive officers.
Staggered board. In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws, our Board of Directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. Upon the expiration of the term of a class of directors, directors in that class will be eligible to be elected for a new three-year term at the annual meeting of stockholders in the year in which their term expires. The following persons have been designated to serve as directors in the following classes until the term specified below or until his earlier death, resignation or removal:
Our Class I directors are David P. Southwell and Richard N. Spivey, PharmD, PhD (term expires on date of annual meeting of stockholders following the year ending December 31, 2017);
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Our Class III directors are Paul G. Howes, Patrick Machado and Timothy Barberich (term expires on date of annual meeting of stockholders following the year ending December 31, 2016).
Our amended and restated certificate of incorporation and amended and restated bylaws provide that the authorized number of directors may be changed only by resolution of the Board of Directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class shall consist of one third of the Board of Directors.
The division of our Board of Directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.
Board Leadership Structure and Board’s Role in Risk Oversight
The positions of our Chairperson of the board and Chief Executive Officer are presently separated. Separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing the Chairperson of the board to lead the Board of Directors in its fundamental role of providing advice to and independent oversight of management. Our Board of Directors recognizes the time, effort and energy that the Chief Executive Officer must devote to his position in the current business environment, as well as the commitment required to serve as our Chairperson, particularly as the Board of Directors’ oversight responsibilities continue to grow. Our Board of Directors also believes that this structure ensures a greater role for the independent directors in the oversight of our company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the work of our Board of Directors. Our Board of Directors believes its administration of its risk oversight function has not affected its leadership structure. Although our amended and restated bylaws do not require our Chairperson and Chief Executive Officer positions to be separate, our Board of Directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.
Our Board of Directors oversees the management of risks inherent in the operation of our business and the implementation of our business strategies. Our Board of Directors performs this oversight role by using several different levels of review. In connection with its reviews of our operations and corporate functions, our Board of Directors addresses the primary risks associated with those operations and corporate functions. In addition, our Board of Directors reviews the risks associated with our business strategies periodically throughout the year as part of its consideration of undertaking any such business strategies.
Director Nomination Process
There have been no material changes to the process by which stockholders may submit nominees for election to the Board of Directors to the Nominating and Corporate Governance Committee since that process was described in the Company’s Proxy Statement filed with the SEC on May 6, 2016.
Board Committees
Our Board of Directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant to a separate charter adopted by our Board of Directors. The composition and functioning of all of our committees will comply with all applicable requirementswithin 120 days after the end of the Sarbanes-Oxley Act, the Dodd-Frank Act, NASDAQ and SEC rules and regulations.
Audit Committee
Carsten Boess, Paul G. Howes and Patrick Machado currently serve on the audit committee, which is chairedfiscal year covered by Carsten Boess. Our Board of Directors has determined that each member of the audit committee is “independent” for audit committee purposes as that term is defined in the rules of the SEC and the applicable rules of NASDAQ. Our Board of Directors has designated Carsten Boess as an “audit committee financial expert,” as defined under the applicable rules of the SEC. The audit committee’s responsibilities include:
appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;
approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;
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reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;
reviewing the adequacy of our internal control over financial reporting;
establishing policies and procedures for the receipt, retention and treatment of complaints received regarding ethics-related issues or potential violations of our code of business conduct and ethics and accounting and auditing-related complaints and concerns;
recommending, based upon the audit committee’s review and discussions with management and the independent registered public accounting firm, whether our audited financial statements shall be included in our Annual Report on Form 10-K;
monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;
preparing the audit committee report required by SEC rules to be included in our annual proxy statement;
reviewing all related party transactions for potential conflict of interest situations and approving all such transactions; and
reviewing quarterly earnings releases.
Compensation Committee
Timothy Barberich, Gary Phillips, M.D., and Richard N. Spivey, PharmD, PhD currently serve on the compensation committee, which is chaired by Timothy Barberich. Our Board of Directors has determined that each member of the compensation committee is “independent” as that term is defined in the applicable rules of NASDAQ. The compensation committee’s responsibilities include:
annually reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer;
evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and determining the compensation of our Chief Executive Officer;
reviewing and approving the compensation of our other executive officers;
reviewing and establishing our overall management compensation, philosophy and policy;
overseeing and administering our compensation and similar plans;
evaluating and assessing potential current compensation advisors in accordance with the independence standards identified in the applicable rules of NASDAQ;
retaining and approving the compensation of any compensation advisors;
reviewing and approving our policies and procedures for the grant of equity-based awards;
reviewing and making recommendations to the Board of Directors with respect to director compensation;
preparing the compensation committee report required by SEC rules to be included in our annual proxy statement;
reviewing and discussing with management the compensation discussion and analysis to be included in our annual proxy statement or Annual Report on Form 10-K; and
reviewing and discussing with the Board of Directors corporate succession plans for the Chief Executive Officer and other key officers.
Nominating and Corporate Governance Committee
Carsten Boess and Richard N. Spivey, PharmD, PhD currently serve on the nominating and corporate governance committee, which is chaired by Richard N. Spivey, PharmD, PhD. Our Board of Directors has determined that each member of the nominating and corporate governance committee is “independent” as that term is defined in the applicable rules of NASDAQ. The nominating and corporate governance committee’s responsibilities include:
developing and recommending to the Board of Directors criteria for board and committee membership;
92
|
|
identifying individuals qualified to become members of the Board of Directors;
recommending to the Board of Directors the persons to be nominated for election as directors and to each of the board’s committees;
developing and recommending to the Board of Directors a set of corporate governance guidelines; and
overseeing the evaluation of the Board of Directors and management.
Corporate Governance
Our Board of Directors hasWe have adopted a written codeCode of business conductBusiness Conduct and ethicsEthics that applies to all of our directors, officers and employees, including our principal executive, officer, principal financial officer,and principal accounting officer or controllerofficers or persons performing similar functions. A current copyOur Code of the codeBusiness Conduct and Ethics is posted on the Corporate Governance section of our website which is located at www.inotekpharma.com. If we makewww.rocketpharma.com. We intend to disclose any substantivefuture amendments to or grantcertain provisions of the Code of Business Conduct and Ethics, and any waivers from,of the codeCode of business conductBusiness Conduct and ethics for any officer, we will disclose the nature of such amendment or waiverEthics granted to executive officers and directors, on our website or in a current report on Form 8-K.
93
The following table sets forth the portion of compensation paid to the named executive officers that is attributable to services performed during the fiscal year ended December 31, 2016 and 2015.
Name and principal position |
| Fiscal Year |
| Salary $ |
|
| Bonus $ |
|
|
| Option Awards $ (3) |
|
| Stock Awards $ (4) |
|
| All other compensation $ (5) |
|
| Total $ |
| ||||||
David P. Southwell |
| 2016 |
|
| 465,508 |
|
|
| 221,231 |
| (1) |
|
| 1,093,470 |
|
|
| 2,275,000 |
|
|
| 5,273 |
|
|
| 4,060,482 |
|
President and Chief Executive Officer |
| 2015 |
|
| 440,152 |
|
|
| 257,000 |
| (2) |
|
| 602,912 |
|
|
| — |
|
|
| 138 |
|
|
| 1,300,202 |
|
Rudolf Baumgartner, M.D. |
| 2016 |
|
| 393,095 |
|
|
| 144,538 |
| (1) |
|
| 839,175 |
|
|
| 780,000 |
|
|
| 9,761 |
|
|
| 2,166,569 |
|
Executive Vice President and Chief Medical Officer |
| 2015 |
|
| 387,124 |
|
|
| 152,000 |
| (2) |
|
| 301,456 |
|
|
| — |
|
|
| 8,208 |
|
|
| 848,788 |
|
William K. McVicar, Ph.D. |
| 2016 |
|
| 382,750 |
|
|
| 101,806 |
| (1) |
|
| 686,598 |
|
|
| — |
|
|
| 9,761 |
|
|
| 1,180,915 |
|
Former Executive Vice President and Chief Scientific Officer (6) |
| 2015 |
|
| 372,523 |
|
|
| 148,000 |
| (2) |
|
| 301,456 |
|
|
| — |
|
|
| 8,208 |
|
|
| 830,187 |
|
Dale Ritter |
| 2016 |
|
| 274,093 |
|
|
| 86,384 |
| (1) |
|
| 203,436 |
|
|
| — |
|
|
| 11,367 |
|
|
| 575,280 |
|
Vice President—Finance |
| 2015 |
|
| 273,385 |
|
|
| 107,000 |
| (2) |
|
| 100,485 |
|
|
| — |
|
|
| 6,779 |
|
|
| 487,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Agreements
We have entered into employment agreements with certain of our named executive officers. These employment agreements provide for “at will” employment and contain the additional terms summarized below:
David P. Southwell. On August 11, 2014, we entered into an employment agreement with Mr. Southwell, our President and Chief Executive Officer. In 2016, Mr. Southwell received a base salary of $465,750, which is subject to review and adjustment in accordance with our corporate policy. In 2016, Mr. Southwell was eligible for an annual performance bonus with a target amount of 50% of his base salary. In 2016, the Compensation Committee awarded Mr. Southwell a bonus of $221,231, representing 47.5% of his 2016 base salary. Mr. Southwell is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Mr. Southwell will be eligible to receive the following payments and benefits in the event that his employment is terminated by us without cause or he terminates his employment with us for good reason: base salary continuation for 12 months; if Mr. Southwell is participating in our group health plan immediately prior to the date of termination and elects COBRA health continuation, we will pay him a monthly cash payment equal to the monthly employer contribution we would have made to provide
94
him health insurance if he had remained employed by us until twelve monthswithin four business days following the date of termination; and the portion of the stock options and other time-based equity awards held by Mr. Southwell as of the date of termination that would have vestedamendment or waiver.
Rudolf Baumgartner, M.D. On May 2, 2007, we entered into an employment agreement with Dr. Baumgartner, our Executive Vice President and Chief Medical Officer, which we amended on December 23, 2008 and October 9, 2009. In 2016, Dr. Baumgartner received a base salary of $393,300, which is subject to review and adjustment in accordance with our corporate policy. In 2016, Dr. Baumgartner was eligible for an annual performance bonus with a target amount of 35% of his base salary. In 2016, the Compensation Committee awarded Dr. Baumgartner a bonus of $144,538, representing 36.75% of his 2016 base salary. Dr. Baumgartner is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Dr. Baumgartnerreference. The Proxy Statement or Form 10-K/A will be eligible to receivefiled with the following payments and benefits in the event that his employment is terminated by us without cause: base salary continuation for twelve months; and a monthly cash payment equal to the monthly employer contribution to provide him health and dental insurance coverage if he had remained employed by us until 12 months following the date of termination. The receipt of the severance payments and benefits set forth above shall be conditioned upon Dr. Baumgartner not violating the terms of a restrictive covenant agreement between Dr. Baumgartner and Inotek.
William K. McVicar, Ph.D. On August 23, 2007, we entered into an employment agreement with Dr. McVicar, our Executive Vice President and Chief Scientific Officer, which we amended on December 23, 2008 and October 9, 2009. Dr. McVicar stepped down from his position as our Executive Vice President, Chief Scientific Officer and executive officer effective as of October 4, 2016. Prior to his resignation, Dr. McVicar received a base salary of $382,950, which was subject to review and adjustment in accordance with our corporate policy. In 2016, Dr. McVicar was eligible for an annual performance bonus with a target amount of 35% of his base salary, payable at the discretion of our Board. In 2016, the Compensation Committee awarded Dr. McVicar a bonus of $101,806, pursuant to the Transition Agreement. Dr. McVicar was eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Pursuant to the Transition Agreement, Dr. McVicar will be a Senior Advisor to the Company until April 4, 2017 ( the “Separation Date”), and for twelve months thereafter, will continue to receive his base salary. The receipt of the severance payments and benefits set forth above shall be conditioned upon Dr. McVicar not violating the terms of a restrictive covenant agreement between Dr. McVicar and Inotek.
Dale Ritter. On August 28, 2014, we entered into an employment agreement with Mr. Ritter, our Vice President—Finance. In 2016, Mr. Ritter received an annual base salary of $274,235. Mr. Ritter is eligible for an annual performance bonus with a target amount of 30% of his annualized base salary. In 2016, the Compensation Committee awarded Mr. Ritter a bonus of $86,384, representing 31.5% of his 2016 base salary. Mr. Ritter is eligible to participate in our employee benefit plans in effect from time to time, subject to the terms of those plans. Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, Mr. Ritter will be eligible to receive base salary continuation for six months in the event that his employment is terminated by us without cause. The receipt of the severance payments and benefits set forth above shall be conditioned upon Mr. Ritter not violating the terms of a restrictive covenant agreement between Mr. Ritter and Inotek.
Termination and Change of Control Benefits
Subject to the execution and effectiveness of a separation agreement, including, among other things, a general release of claims, and each named executive officer, excluding Dr. McVicar, not violating the terms of a restrictive covenant agreement, each named executive officer will be eligible to receive the payments and benefits set forth below in the event that such executive officer’s employment is terminated by us without cause or the named executive officer terminates his or her employment with us for good reason, in either caseSEC within twelve months120 days after a “change in control.” The payments and benefits described below and due to each named executive officer other than Mr. Southwell are in addition to, not in lieu of, the payments set forth above next to such named executive officer’s name. With respect to Mr. Southwell, the payments and benefits described below are in lieu of the payments set forth above next to Mr. Southwell’s name.
With respect to all named executive officers other than Mr. Southwell, all unvested stock options and other stock-based awards held by such named executive officer as of the date of the termination of such named executive officer’s employment shall immediately accelerate and become fully vested as of the date of termination of such named executive officer.
With respect to Mr. Southwell, a one-time lump payment equal to 18 months base salary within 45 days of termination.
Under the Transition Agreement, we have also agreed (i) to pay Dr. McVicar severance pay consisting of salary continuation at his final base salary rate, less applicable tax-related deductions and withholdings, effective for the twelve month period immediately following the Separation Date (the “Severance Pay Period”) and (ii) to pay the same portion of the COBRA premium payment
95
reimbursements that we pay active employee for the same level of group medical and dental coverage as in effect for Dr. McVicar if he elects continuation of his COBRA coverage on the Separation Date until the end of the Severance Pay Period.
Equity Incentive Awards
Outstanding Equity Awards at Fiscal Year-End
The following table provides information concerning outstanding equity awards for each of our named executive officers as of December 31, 2016.
|
| Option Awards |
| Stock Awards | |||||||||||||||||||||||
Name |
| Number of securities underlying unexercised options exercisable |
|
|
| Number of securities underlying unexercised options unexercisable |
|
|
| Per share option exercise price ($) |
|
| Option expiration date |
| Number of securities that have not vested |
|
|
| Market value of securities that have not vested ($) (5) |
|
|
| |||||
David P. Southwell |
|
| 232,456 |
| (1) |
|
| 166,041 |
| (1) |
|
| 4.342 |
|
| 8/28/2024 |
|
| — |
|
|
|
| — |
|
|
|
|
|
| 68,750 |
| (2) |
|
| 81,250 |
| (2) |
|
| 5.03 |
|
| 6/23/2025 |
|
| — |
|
|
|
| — |
|
|
|
|
|
| — |
|
|
|
| 215,000 |
| (3) |
|
| 7.56 |
|
| 3/21/2026 |
|
| — |
|
|
|
| — |
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
|
| 350,000 |
| (5) |
|
| 2,135,000 |
| (6) |
|
Rudolf Baumgartner, M.D. |
|
| 2,170 |
| (4) |
|
| — |
|
|
|
| 40.578 |
|
| 6/3/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 197 |
| (4) |
|
| — |
|
|
|
| 40.578 |
|
| 3/20/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 116,228 |
| (1) |
|
| 83,020 |
| (1) |
|
| 4.342 |
|
| 8/28/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 34,370 |
| (2) |
|
| 40,630 |
| (2) |
|
| 5.03 |
|
| 6/23/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
| 165,000 |
| (3) |
|
| 7.56 |
|
| 3/21/2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
|
| 120,000 |
| (5) |
|
| 732,000 |
| (6) |
|
William K. McVicar, Ph.D. (7) |
|
| 1,269 |
| (4) |
|
| — |
|
|
|
| 40.58 |
|
| 9/18/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 462 |
| (4) |
|
| — |
|
|
|
| 40.58 |
|
| 12/31/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 115 |
| (4) |
|
| — |
|
|
|
| 40.58 |
|
| 3/20/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 116,228 |
| (1) |
|
| 83,020 |
| (1) |
|
| 4.342 |
|
| 8/28/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 34,370 |
| (2) |
|
| 40,630 |
| (2) |
|
| 5.03 |
|
| 6/23/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
| 135,000 |
| (3) |
|
| 7.56 |
|
| 3/21/2026 |
|
|
|
|
|
|
|
|
|
|
|
Dale Ritter |
|
| 25,651 |
| (1) |
|
| 18,331 |
| (1) |
|
| 4.342 |
|
| 8/28/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,450 |
| (2) |
|
| 13,550 |
| (2) |
|
| 5.03 |
|
| 6/23/2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
| 40,000 |
| (3) |
|
| 7.56 |
|
| 3/21/2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Purchase Plan
In November 2014, the Company’s Board of Directors adopted and the stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees to purchase shares of the Company’s common stock through payroll withholdings and pursuant to specific offerings of common stock. An eligible employee may contribute up to 10%, in full percentages, of gross wages, which are withheld from each payroll, to the ESPP. At the end of each offering, an ESPP participant
96
employee will purchase shares at 85% of the lower of the fair value of the Company’s common stock on the first and last day of the offering with aggregate withholdings as of the end of the offering. The offerings commence on June 1 and December 1 and are six months in duration. A participant may reduce his or her withholdings as many times as he or she wishes and may increase his or her withholdings two times during an offering. The Company’s Board of Directors has authorized the issuance of a number of shares of common stock issuable under the ESPP to the number that represents 1% of the Company’s outstanding common stock outstanding immediately after the IPO, or 160,276 shares. The ESPP provides that the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased each January 1, beginning on January 1, 2016, by the lesser of (i) 600,000 shares of common stock or (ii) the number of shares necessary to set the number of shares of Common Stock under the Plan at 1% percent of the outstanding number of shares as of January 1 of the applicable year. However, the Board of Directors reserves the right to determine that there will be no increase for any year or that any increase will be for a lesser number of shares. On January 1, 2017, the number of shares reserved and available for issuance under the ESPP was increased by 31,555 to 269,863 shares. During 2016, 5,790 shares and 20,135 shares of common stock were purchased by plan participants and issued by the Company pursuant to two offerings under the ESPP at a purchase price of $7.82 and $5.44 per share, respectively. Mr. Southwell purchased 2,765 shares at $5.44 per share. Dr. Baumgartner purchased 2,530 shares at $5.44 per share. Dr. McVicar purchased 1,092 shares at $7.82 per share. Mr. Ritter purchased 782 shares at $7.82 per share and 1,765 shares at $5.44 per share.
Inotek Pharmaceuticals Corporation 401(k) Profit-Sharing Plan (the “401(k) Plan”)
The Company maintains the 401(k) Plan through which its employees who are not covered by a collective bargaining agreement and are not non-resident aliens may contribute a portion of their earnings on a tax-deferred basis, up to certain limitations specified by federal law. The Company may, in its sole discretion, make a matching contribution on behalf of a contributing employee. The Company has elected to match 100% of the first 3% of compensation contributed by an employee. All employee contributions are immediately vested. Matching contributions made by the Company vest based on years of service according to the following vesting schedule: less than one year, 0%; one year but less than two years, 25%; two years but less than three years, 50%; three years or more, 100%.
EQUITY COMPENSATION PLAN INFORMATION
The following sets forth the aggregate information of our equity compensation plans in effect as of December 31, 2016. Our equity plans consist of our 2014 Plan, our 2004 Plan and our ESPP.
Plan Category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted- average exercise price of outstanding options, warrants and rights |
|
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| |||
|
| (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation plans approved by security holders (1) (2) |
|
| 3,145,458 |
|
| $ | 6.30 |
|
|
| 241,342 |
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 3,145,458 |
|
| $ | 6.30 |
|
|
| 241,342 |
|
|
|
|
|
DIRECTOR COMPENSATION
Director Compensation Table
The following table presents the total compensation for each person who served as a member of our Board during 2016. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our Board in 2016. David P. Southwell, who is also
97
our President and Chief Executive Officer, receives no compensation for his service as a director, and, consequently, is not included in this table.
Our Board adopted a formal director compensation policy for all of our non-employee directors that became effective upon the closing of our initial public offering.
2016 Director Compensation Table
Director name |
| Fees earned $ (8) |
|
| Option awards $ (6) |
|
|
| All other compensation ($) |
|
|
| Total ($) |
| ||||
Timothy Barberich |
|
| 11,617 |
|
|
| 154,251 |
| (1) |
|
| — |
|
|
|
| 165,868 |
|
Carsten Boess |
|
| 48,523 |
|
|
| 204,930 |
| (2) |
|
| — |
|
|
|
| 253,453 |
|
J. Martin Carroll |
|
| 44,548 |
|
|
| 442,488 |
| (3) |
|
| 7,500 |
| (7) |
|
| 494,536 |
|
Ittai Harel |
|
| 26,442 |
|
|
| - |
|
|
|
| — |
|
|
|
| 26,442 |
|
Paul G. Howes |
|
| 38,915 |
|
|
| 58,288 |
| (4) |
|
| — |
|
|
|
| 97,203 |
|
A.N. “Jerry” Karabelas, Ph.D. |
|
| 31,250 |
|
|
| - |
|
|
|
| — |
|
|
|
| 31,250 |
|
Patrick Machado |
|
| 15,822 |
|
|
| 113,098 |
| (5) |
|
| 7,500 |
| (7) |
|
| 136,420 |
|
Isai Peimer |
|
| 14,500 |
|
|
| - |
|
|
|
| — |
|
|
|
| 14,500 |
|
Gary Phillips, M.D. |
|
| 41,123 |
|
|
| 58,288 |
| (4) |
|
| — |
|
|
|
| 99,411 |
|
Richard N. Spivey, PharmD, PhD |
|
| 42,849 |
|
|
| 58,288 |
| (4) |
|
| — |
|
|
|
| 101,137 |
|
Martin Vogelbaum |
|
| 25,240 |
|
|
| - |
|
|
|
| — |
|
|
|
| 25,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, total options shares held by board members are as follows: 24,000 shares for Mr. Barberich and Mr. Machado; 36,000 shares for Mr. Boess, Dr. Phillips and Dr. Spivey; 87,000 shares for Mr. Carroll; and 33,857 shares for Mr. Howes.
Post IPO Non-Employee Director Compensation
The Company adopted a non-employee director compensation policy that became effective upon the Company’s IPO in February 2015. The purpose of this policy is to provide a total compensation package that enables the Company to attract and retain, on a long-term basis, high-caliber directors who are not employees or officers of the Company. During 2016, for service on the board of directors, annual cash retainers were paid as follows: for board members, $35,000, for the non-executive chairperson, $65,000. In 2017, for service on the board of directors, annual cash retainers will be paid as follows: for board members, $50,000, for the non-executive chairperson, $92,850. In addition to cash retainers for service on the board of directors, additional cash retainers are paid for service on committees of the board of directors. For service on the Audit Committee, annual cash retainers will be paid as follows: for committee members, $7,500, for the chairperson, $15,000. For service on the Compensation Committee, annual cash retainers will be
98
paid as follows: for committee members, $5,000, for the chairperson, $10,000. For service on the Nominating and Corporate Governance Committee, annual cash retainers will be paid as follows: for committee members, $3,000, for the chairperson, $7,500.
In addition, each new non-employee director upon his/her election to the Board will receive a one-time option grant to purchase shares of the Company’s common stock, par value $0.01 per share in such amount and on such terms as authorized by the Board, or by a committee appointed by the Board. On the date of each Annual Meeting of Stockholders, an annual option will be granted to each non-employee director serving on the Board immediately following the Company’s annual meeting of stockholders to purchase shares of common stock in such amount and on such terms as authorized by the Board, or by a committee appointed by the Board.
All of the foregoing option grants will have an exercise price equal to the fair market value of a share of common stock on the date of grant.
Item 12. |
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of February 15, 2017 for:
each person, or group of affiliated persons, known by us to be the beneficial owner of more than 5% of our capital stock;
our named executive officers;
each of our other directors; and
all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC. A person is deemed to be a beneficial holder of our common stock if that person has or shares voting power, which includes the power to vote or direct the voting of our common stock, or investment power, which includes the power to dispose of or to direct the disposition of such capital stock. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment powerInformation with respect to all common stock shown as beneficially ownedthis item will be set forth in the Proxy Statement or Form 10-K/A under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by them.
reference. The table lists applicable percentage ownership based on 26,986,318 shares of common stock outstanding as of February 15, 2017 and excludes (i) 6,483,791 shares of common stock issuable upon conversionProxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the 2021 Convertible Notes, (ii) 2,675,458 shares of common stock issuable upon the exercise of stock options outstanding as of February 15, 2017, at a weighted-average exercise price of $6.30 per share; (iii) 56,408 shares of common stock issuable upon the exercise of warrants outstanding as of February 15, 2017, which have an exercise price of $6.204 per share and (iv) 1,401,000 unvested Restricted Stock Units outstanding as of February 15, 2017. Shares of common stock that may be acquiredfiscal year covered by an individual or group within 60 days of February 15, 2017, pursuant to the exercise of options, warrants or other rights, are deemed to be beneficially owned by the persons holding these options for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person’s ownership percentage.
99
Unless otherwise noted below, the address of each person listed on the table is c/o Inotek Pharmaceuticals Corporation, 91 Hartwell Avenue, Second Floor, Lexington, MA 02421.this Annual Report.
Name and address of beneficial owner |
| Number of Shares Beneficially Owned |
|
| Percent of Class |
| ||
5% Stockholders |
|
|
|
|
|
|
|
|
OrbiMed Entities (1) |
|
| 2,788,111 |
|
|
| 10.0 | % |
Rho Ventures Entities (2) |
|
| 2,627,790 |
|
|
| 9.7 | % |
Prudential Financial, Inc. (3) |
|
| 1,981,692 |
|
|
| 7.3 | % |
MedImmune Ventures, Inc. (4) |
|
| 1,917,906 |
|
|
| 7.1 | % |
Citadel Entities (5) |
|
| 1,917,020 |
|
|
| 6.6 | % |
Care Capital Entities (6) |
|
| 1,519,647 |
|
|
| 5.6 | % |
Great Point Partners, LLC (7) |
|
| 1,500,000 |
|
|
| 5.6 | % |
Named executive officers and directors |
|
|
|
|
|
|
|
|
David P. Southwell (8) |
|
| 465,439 |
|
|
| 1.7 | % |
Rudolf Baumgartner, M.D. (9) |
|
| 353,980 |
|
|
| 1.3 | % |
William K. McVicar, Ph.D. (10) |
|
| 323,337 |
|
|
| 1.2 | % |
Dale Ritter (11) |
|
| 59,046 |
|
| * |
| |
Timothy Barberich |
|
| — |
|
| * |
| |
Carsten Boess (12) |
|
| 16,500 |
|
| * |
| |
J. Martin Carroll (13) |
|
| 25,000 |
|
| * |
| |
Paul G. Howes (14) |
|
| 138,506 |
|
| * |
| |
Patrick Machado |
|
| — |
|
| * |
| |
Gary Phillips, M.D. (15) |
|
| 18,000 |
|
| * |
| |
Richard N. Spivey, Pharm.D., Ph.D. (16) |
|
| 19,500 |
|
| * |
| |
All directors and executive officers as a group (11 persons) (17) |
|
| 1,419,308 |
|
|
| 5.1 | % |
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
For information concerning securities authorized for issuance under our equity compensation plans, see “Item 11 – Equity Compensation Plan Information” of this Form 10-K.
Other than compensation arrangements, we describe below transactions and series of similar transactions, since January 1, 2014, which includes our last three full fiscal years,
the amounts involved exceeded or will exceed $120,000; and
any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.
Compensation arrangements for our directors and named executive officers are described elsewhere in this prospectus and other documents incorporated by reference herein.
101
Sales and Purchases of Securities
In December 2014, we sold subordinated convertible promissory notes, or the “2014 bridge notes”,set forth in the aggregate original principal amount of $2.0 million to existing stockholders. As consideration for our issuance of the 2014 bridge notes, each investor paid us an amount equal to the original principal amount of the note issued to the investor. The 2014 bridge notes mature on June 30, 2015, accrue interest at the rate of 8% per annum and are subordinate to all other senior indebtedness of the Company. As of the date of this prospectus, the aggregate outstanding principal and accrued interestProxy Statement or Form 10-K/A under the 2014 bridge notes is approximately $2.0 million. Uponheadings “Transactions with Related Persons” and “Information about the closing of our initial public offering, all outstanding principalBoard and accrued interest of the 2014 bridge notes, automatically converted into common stock at the initial public offering price. The following table summarizes the participation in the 2014 bridge notes financing by any of our directors, executive officers, holders of more than 5% of our voting securities, or any member of the immediate family of the foregoing persons.
Name |
| Principal Amount of Subordinated Convertible Promissory Note |
| |
Devon Park Bioventures, L.P. (1) |
| $ | 626,942.90 |
|
Rho Ventures IV, L.P. (2) |
| $ | 27,797.11 |
|
Rho Ventures IV (QP), L.P. (2) |
| $ | 146,910.56 |
|
Rho Ventures IV GmbH & Co. Beteiligungs KG (2) |
| $ | 153,102.29 |
|
Rho Ventures IV Holdings LLC (2) |
| $ | 104,780.66 |
|
Care Capital Investments III, LP (3) |
| $ | 369,989.00 |
|
Care Capital Offshore Investments III, LP (3) |
| $ | 6,178.93 |
|
MedImmune Ventures, Inc. (4) |
| $ | 338,551.12 |
|
Pitango Venture Capital Fund IV, L.P. (5) |
| $ | 220,975.53 |
|
Pitango Venture Capital Principals Fund IV, L.P. (5) |
| $ | 4,771.90 |
|
|
|
|
|
|
|
|
|
|
|
Agreements With Our Stockholders
In connection with our preferred stock financings, we entered into a third amended and restated investor rights agreement, or Investor Rights Agreement, and a third amended and restated stockholders agreement, as amended, or Stockholders Agreement, in each case, with the purchasers of our preferred stock and, in the case of the stockholders agreement, certain holders of our common stock.
The rights under each of the Investor Rights Agreement and the Stockholders Agreement terminated upon the closing of our initial public offering, other than certain registration rights for certain holders of our preferred stock.
Employment Agreements
We have employment agreements with our executive officers, which provide for certain salary, bonus, stock option and severance compensation.
Indemnification Agreements
Our Seventh Amended and Restated Certificate of Incorporation and our bylaws, as amended, provide that we shall indemnify our directors and officers to the fullest extent permitted by law. In addition, we have previously entered into and intend to enter into new agreements to indemnify our directors and executive officers. These agreements will, among other things, indemnify these individuals for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts reasonably incurred by such
102
person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of us or that person’s status as a member of our Board of Directors.
Director Independence
Information about director independence is incorporated herein by reference to Item 11reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of Part III ofthe fiscal year covered by this Annual Report on Form 10-K.
Our audit committee pre-approves all audit
|
| 2016 |
|
| 2015 |
| ||
Audit Fees |
| $ | 162,950 |
|
| $ | 162,900 |
|
Audit-Related Fees |
|
| 67,300 |
|
|
| 148,000 |
|
Tax Fees |
|
| 36,000 |
|
|
| — |
|
All Other Fees |
|
| — |
|
|
| — |
|
Total |
| $ | 266,250 |
|
| $ | 310,900 |
|
103
Item 15. |
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
Exhibit Index
None. Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934,
POWER OF ATTORNEY Each person whose individual signature appears below hereby constitutes and appoints Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Rocket Pharmaceuticals, Inc. Index to Consolidated Financial Statements Contents
Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors
Rocket Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
/s/ EisnerAmper LLP We have served as the EISNERAMPER LLP New York, New York March 8, 2019 Rocket Pharmaceuticals,
Consolidated Balance Sheets (in thousands, except share and per share amounts)
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Operations (in thousands, except share and per share amounts)
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprehensive Loss (in thousands)
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Changes in (in thousands, except share amounts)
The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Cash Flows (in thousands)
The accompanying notes are an integral part of these consolidated financial statements. Notes to Consolidated Financial Statements (in thousands, except share and per share amounts) 1. Basis of Presentation Rocket Pharmaceuticals, Inc., together with its subsidiaries (collectively, “Rocket” or the “Company”), is a clinical-stage, multi-platform biotechnology company focused on the development of first or best-in-class gene therapies, with direct on-target mechanism of action and clear clinical endpoints, for rare and devastating pediatric diseases. The Company has clinical-stage lentiviral vector (“LVV”) programs currently undergoing clinical testing for Fanconi Anemia (“FA”), a genetic defect in the bone marrow that reduces production of blood cells or promotes the production of faulty blood cells and Leukocyte Adhesion Deficiency-I (“LAD-I”), a genetic disorder that causes the immune system to malfunction. FA has been in clinical stage testing in the EU since 2016, and in the U.S., Rocket received investigational new drug (“IND”) clearance for both FA and LAD-I in late 2018. Two additional pre-clinical stage LVV programs include Pyruvate Kinase Deficiency (“PKD”), a rare red blood cell autosomal recessive disorder that results in chronic non-spherocytic hemolytic anemia; and Infantile Malignant Osteopetrosis (“IMO”), a genetic disorder characterized by increased bone density and bone mass secondary to impaired bone resorption. In addition, the Company has an adeno-associated virus (“AAV”), program for Danon disease, a multi-organ lysosomal-associated disorder leading to early death due to heart failure. An IND filing was cleared in Danon disease in early 2019, which will permit the commencement of human clinical studies following approval. The Company has global commercialization and development rights to all of its product candidates under royalty-bearing license agreements, with the exception of the CRISPR/Cas9 development program for which the Company currently only has development rights. Reverse Merger and Exchange Ratio On January 4, 2018, Rome Merger Sub (“Merger Sub”), a wholly owned subsidiary of Inotek Pharmaceuticals Corporation (“Inotek”), completed its merger with and into Rocket Pharmaceuticals, Ltd. (“Rocket Ltd”), with Rocket Ltd surviving as a wholly owned subsidiary of Inotek. This transaction is referred to as the “Reverse Merger.” The Reverse Merger was effected pursuant to an Agreement and Plan of Merger and Reorganization (the As a The Reverse Merger has been accounted for as a reverse acquisition under the acquisition method of accounting where Rocket Ltd is considered the accounting acquirer and Inotek is the acquired company for financial reporting purposes. Rocket Ltd was determined to be the accounting acquirer based on the terms of the Merger Agreement and other factors, such as relative voting rights and the composition of the combined company’s board of directors and senior management. The pre-acquisition financial statements of Rocket Ltd became the historical financial statements of Rocket following completion of the Reverse Merger. The historical financial statements, outstanding shares and all other historical share information have been adjusted by multiplying the respective share amount by the Exchange Ratio as if the Exchange Ratio had been in effect for all periods presented. Immediately following the Reverse Merger, the combined company changed its name from “Inotek Pharmaceuticals Corporation” to “Rocket Pharmaceuticals, Inc.” The combined company following the Reverse Merger may be referred to herein as “the combined company,” “Rocket,” or the “Company.” The Company’s
2. Risks and The Company has not The Company’s drug candidates are in the development and clinical stage. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has
In the
3. Summary of
Principles of The
Use of Estimates The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
Cash, Cash, cash equivalents
Restricted cash consists of deposits collateralizing letters of credit issued by a bank in connection with the Company’s operating leases (See Note 13) and a deposit collateralizing a letter of credit issued by a bank supporting the Company’s Corporate Credit Card. As of December 31, 2018, and 2017, restricted cash was $1,436 and $207, respectively. Cash, cash equivalents and restricted cash consist of the following:
Concentrations of credit risk Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents and available-for-sale securities. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. The Company’s marketable securities primarily consist of U.S. Treasury securities, U.S. government agency securities and certificates of deposit, and potentially subject the Company to concentrations of credit risk. The Company has adopted an investment policy that limits the amounts the Company may invest in any one type of investment and requires all investments held by the Company to be at least AA+/Aa1 rated, thereby reducing credit risk exposure. Investments
realized. Realized gains and losses are included in investment income on a specific-identification basis. There were no realized gains or losses on The Company reviews
Investments at December 31,
The Company evaluated its securities for other-than-temporary impairment and determined that no such impairment existed at December 31, Goodwill Business combinations are accounted for under the acquisition method (see Note 4). The total cost of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Goodwill is tested for impairment annually as of December 31, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has one segment and one reporting unit and as such reviews goodwill for impairment at the consolidated level. When testing goodwill, the Company has the option to first assess qualitative factors for reporting units that carry goodwill. The qualitative assessment includes assessing the totality of relevant events and circumstances that affect the fair value or carrying value of the reporting unit. These events and circumstances include macroeconomic conditions, industry and competitive environment conditions, overall financial performance, reporting unit specific events and market considerations. The Company also considers recent valuations of the reporting unit, including the magnitude of the difference between the most recent fair value estimate and the carrying value, as well as both positive and adverse events and circumstances, and the extent to which each of the events and circumstances identified may affect the comparison of a reporting unit’s fair value with its carrying value. If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of a reporting unit exceeds the carrying value, then no further testing is performed for that reporting unit. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. As amended, an entity will recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative test for a reporting unit to determine if the quantitative impairment test is necessary. Entities should apply for the amendment prospectively. The Company early adopted this guidance as of January 1, 2018. The Company performed the qualitative assessment of the its goodwill and determined that it is more likely than not that the fair value of a reporting unit exceeds the carrying value of the reporting unit. As a result, the Company has determined there was no goodwill impairment for the year ended December 31, 2018. Property and Equipment Property and equipment are stated at Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the
Fair Value Measurements Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The fair value of the Company’s financial instruments, including cash and cash equivalents, prepaid expenses and other Deferred Rent and Lease Liability The Company recognizes rent expense on a straight-line basis, after considering the effect of rent escalation provisions resulting in a level rent expense recognized over the lease term. For the lease liability, Research and Development Research and development costs, which include salaries and staff costs, license costs, regulatory and scientific consulting fees, as well as contract research, and share-based compensation expense, are accounted for in accordance with ASC Topic 730, Research and Development (“ASC 730”). The Company does not currently have any commercial biopharmaceutical products, and does not expect to have any for several years, if at all. Accordingly, research and development costs are expensed as incurred. While certain of the Company’s research and development costs may have future benefits, the policy of expensing all research and development expenditures is predicated on the fact that the Company has no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited. Foreign Currency Transactions Certain transactions during the years ended December 31, 2018, 2017 and 2016 are denominated in Euros. Gains and losses on foreign currency transactions are not significant for the years ended December 31, 2018, 2017 and 2016. Treasury Stock The Company records treasury stock at cost. Treasury stock consists of 50,000 shares that were
Share-Based Compensation The Company measures the cost of employee and nonemployee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized on a straight-line basis over the period during which the employee and nonemployee is required to provide service in exchange for the award. The fair value of options on the date of grant is calculated using the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company’s estimates of these assumptions are primarily based on the trading price of the Company’s stock, historical data, peer company data and judgment regarding future trends and factors. The Company classifies share-based compensation expense in its statement of operations in the same manner in which the award recipient’s payroll costs and services are classified or in which the award recipient’s service payments are classified. The Company recognizes compensation expense for at least the portion of awards that are vested. Forfeitures are accounted for as they occur. The Company measures the compensation expense of share options and other share-based awards granted to employees, nonemployees and directors using the grant date fair value of the award and recognizes compensation expense as determined by the Black-Scholes Option pricing model on a straight-line basis over their requisite service period, which is generally the vesting period of the respective award. Effective July 1, 2018, the Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment awards to nonemployees. As a result, stock-based awards granted to consultants and non-employees are accounted for in the same manner as awards granted to employees and directors as described above. Prior to the adoption of ASU 2018-07, for stock-based awards granted to consultants and non-employees, the Company recognized compensation expense over the period during which services are rendered by such consultants and non-employees until completed. At the end of each financial reporting period prior to completion of the service, the estimated fair value of these awards was re-measured using the then-current fair value of our common stock and updated assumption inputs in the Black-Scholes option-pricing model. NYC Biotechnology Tax Credit Program New York City allows investors and owners of emerging technology companies focused on biotechnology to claim a tax credit against the General Corporation Tax and Unincorporated Business Tax for amounts paid or incurred for certain facilities, operations, and employee training in New York City. The credit is recognized as research and development incentives when approved by New York City of the eligibility for the credit and the development incentive income of $186, $192 and $0, respectively. Income The Company The Company’s deferred tax assets relate primarily to its net operating loss carryforwards and other balance sheet differences. In accordance with ASC 740 “Income Taxes”, the Company
The Company accounts for uncertainty in income taxes recognized in the
On December 22, 2017, the Tax Cut and Jobs Act (the “Act”), was signed into law by the President of the United States. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 34 percent to domestic multinational corporations. Net Segment Reporting Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment. Comprehensive Loss Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, and other events and circumstances from non-owner sources, and consists of net loss
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), as amended, which supersedes the current leasing guidance and upon adoption, will require lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard is effective for the Company for the annual period beginning after December 15, 2018, and can be early The FASB issued ASU 2018-11 in July 2018, which includes certain amendments to ASU 2016-02 intended to provide relief in implementing the new standard. Among these amendments is the option to not restate comparative periods presented in the financial statements. The Company The Company elected the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. The Company also expects it will make an accounting policy election to utilize the short-term lease exemption, whereby leases with a term of 12 months or less will not follow the recognition and measurement requirements of the new standard. In preparation for adoption of the standard, the Company has implemented internal controls to enable the preparation of financial information including the assessment of the impact of In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 provides that when substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. ASU 2017-01 is effective to annual periods beginning after December 31, 2018 and interim periods within annual periods beginning after December 31, 2019. Adoption of ASU 2017-01 may impact the Company’s accounting 4. Acquisition Accounting The identifiable assets and liabilities of Inotek are allocated in the Company’s consolidated financial
The acquisition-date fair value of the consideration transferred is as follows:
The following table summarizes the fair value purchase price allocation of the assets acquired and liabilities assumed at the date of acquisition which is subject to
The goodwill of $30,815 represents the premium over the purchase price. Goodwill is mainly attributable to the value of cash and The following supplemental unaudited pro forma information presents the
The
5. Fair Value of Financial Instruments Items measured at fair value on a recurring basis are the Company’s investments. The following table sets forth the Company’s financial
The Company classifies its money market mutual funds and United States Treasury securities as Level 1 assets under the fair value hierarchy, as these assets have been valued using quoted market prices in active markets without any valuation adjustment. 6. Property and Equipment
The Company’s property and equipment consisted of the following:
During the years ended December 31,
7. Accounts Payable and Accrued Expenses At December 31,
8. Convertible Notes Payable On year. Each holder of a 2021 Convertible Note (the “Holder”) has the option until the close of business on the second business day immediately preceding the Maturity Date to convert all, or any portion, of the 2021 Convertible Notes held by it at In addition, in certain circumstances, the Conversion Rate will be increased in respect of a Holder’s conversion of 2021 Convertible Notes in connection with the occurrence of one or more corporate events specified in the indenture (as supplemented, the “Indenture”) governing the 2021 Convertible Notes (each such specified corporate event, a “Make-Whole Fundamental Change”) that occurs prior to the Maturity Date (a “Make-Whole Fundamental Change Conversion”) or in respect of a Holder’s voluntary conversion of 2021 Convertible Notes other than in connection with a Make-Whole Fundamental Change (a “Voluntary Conversion”). In connection with a Make-Whole Fundamental Change Conversion or a Voluntary Conversion, the Company will increase the Conversion Rate for the 2021 Convertible Notes surrendered for conversion by a number of additional shares of the Company’s common stock set forth in the Additional Shares Make-Whole Table in the Indenture, based on the applicable Stock Price (as defined in the Indenture) and Effective Date (as defined in the Indenture) for such conversion. The additional shares potentially issuable in connection with a Make-Whole Fundamental Change Conversion or a Voluntary Conversion range from 0 to Upon the occurrence of a Fundamental Change, the occurrence of certain change of control transactions or delisting events (as defined in the Indenture), each Holder may require the Company to repurchase for cash all or any portion of the 2021 Convertible Notes held by such Holder at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon. The Company, at its option, may redeem for cash all or any portion of the 2021 Convertible Notes if the last reported sale price of a share of the Company’s common stock is equal to or greater than 200% of the conversion price for the 2021 Convertible Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending within the five trading days immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2021 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
If an Event of Default (as defined in the Indenture), other than certain events of bankruptcy, insolvency or reorganization involving the Company, occurs and is continuing, the trustee under the Indenture Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an Event of Default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture, will (i) for the first 90 days after the occurrence of such an Event of Default, consist exclusively of the right to receive additional interest on the 2021 Convertible Notes at a rate equal to 0.25% per annum of the principal amount of the 2021 Convertible Notes outstanding for each day during such 90-day period on which such an Event of Default is continuing and (ii) for the period from, and including, the 91st day after the occurrence of such an Event of Default to, and including, the 180th day after the occurrence of such an Event of Default, consist exclusively of the right to receive additional interest on the 2021 Convertible Notes at a rate equal to 0.50% per annum of the principal amount of the 2021 Convertible Notes outstanding for each day during such additional 90-day period on which such an Event of Default is continuing (such additional interest, “Additional Interest”). After 180 days, if such Event of Default is not cured or waived, the 2021 Convertible Notes would be subject to acceleration in accordance with the Indenture. The 2021 Convertible Notes are considered a hybrid financial instrument consisting of a fixed interest rate “host” and various embedded features that required evaluation as potential embedded derivatives under FASB ASC 815,Derivatives and Hedging (“ASC 815”). Based on the nature of the host instrument and the embedded features, management concluded that none of the conversion, put and redemption features required bifurcation and separate accounting from the host instrument. The Company determined that the Additional Interest was an embedded derivative that contains non-credit related events of default. As a result, the Additional Interest feature required bifurcation and separate accounting under ASC 815. Based on the amount of Additional Interest that would be owed and the likelihood of occurrence, 2018. The The table below summarizes the carrying value of the 2021 Convertible Notes as of December 31,
Accretion of the 2021 Convertible Notes
9. Shareholders’ Equity Preferred Shares On January 4, 2018, immediately prior to and in
Exchange Ratio On January 4, 2018, in connection with the Reverse Merger, Rocket’s historical share and per share information has been Common Shares At the time of the Reverse Merger, Rocket Ltd’s outstanding shares of common stock were 26,281,396 which includes 19,475,788 issued upon the conversion of Rocket Ltd’s convertible preferred stock. On January 24, 2018, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Cowen and Company, LLC and Evercore Group L.L.C., as representatives (the “Representatives”) of the several underwriters (collectively with the Representatives, the “Underwriters”), pursuant to which the Company sold 6,325,000 shares of common stock (the “Shares”), which includes 825,000 shares that were sold pursuant to an option granted to the Underwriters (the “Offering”). The Shares were sold in the Offering at a public offering price of $13.25 per share in which the Company received gross proceeds of $83,806 net of $5,288 of offering costs, commission and legal and other expenses for net proceeds from the Offering of $78,518, after deducting the underwriting discounts and commissions and legal and accounting costs. On November 30, 2018, the Company announced the closing of its previously announced underwritten public offering of 4,082,500 shares of its common stock, which includes the full exercise of the underwriters’ option to purchase 532,500 additional shares of its common stock, at a public offering price of $15.50 per share. The gross proceeds to Rocket from the offering were approximately $63,339, net of $4,035 of offering costs, commissions, legal and other expenses for a net proceeds from the offering of $59,304. BofA Merrill Lynch, Cowen and Company, LLC and Evercore ISI acted as joint book-running managers for the offering. Oppenheimer & Co. acted as lead manager and Ladenburg Thalmann acted as co-manager. In addition to the shares sold in the public offering, on November 30, 2018 Rocket closed a concurrent sale of 967,742 shares of common stock at a price of $15.50 per share, for gross proceeds of $15,000, net of offering costs of $200 for net proceeds of $14,800, in a private placement to RTW Investments, LP, (“RTW”) an existing stockholder of the Company and an affiliate of Roderick Wong, the chairman of Rocket’s board of directors. The sale of these On December 27 and 28, 2018, the Company repurchased 100,000 shares of its common stock Immediately following the stock repurchases (the “Repurchases”), the Company sold 100,000 shares of common stock (the “Shares”) for $1,396 to RTW Innovation Master Fund, Ltd. (“RTW Innovation”), which is an affiliate of the Company and is managed by RTW. RTW Innovation purchased the shares for a per-Share price of $13.93, plus an amount equal to the
10. Share-Based Awards 2015
The Rocket Ltd 2015 Share Option Plan provides for the Company
As required by the 2015 Share Option Plan, the exercise price for share options granted was not to be less than the fair value of common shares as determined by the The total number of shares that may be issued under the 2015 Share Option Plan was 9,904,050 shares; however, the 2,944,702 shares that remained available under the 2015 Share Option Plan were added to the share reserve of the 2014 Plan in connection with the Reverse Merger. By virtue of the terms of the Merger Agreement, each stock option outstanding under the Rocket Ltd 2015 Share Option Plan immediately prior to the consummation of the Reverse Merger was automatically converted into a stock option exercisable for a number of shares of the Company’s common stock Pursuant to the
Second Amended and Restated 2014 Stock Option and Incentive Plan In March 2018, Rocket’s board of directors approved the Second Amended and Restated 2014 Stock Option and Incentive Plan (the “Revised 2014 Plan”) which was subsequently approved by the Company’s shareholders at the Annual Meeting held on June 25, 2018. The Revised 2014 Plan contains the following material features and changes from the 2014 Plan:
2004 Stock Option and Incentive Plan In July 2004, Inotek’s board of directors adopted the 2004 Plan for the issuance of incentive stock options, restricted stock, and other equity awards, all for common stock, as determined by the board of directors to employees, officers, directors, consultants, and advisors of
Vesting of all unvested Inotek option awards issued and outstanding was accelerated at the effective time of the Reverse Merger, and all such option awards issued and outstanding at the time of the Reverse Merger, aggregating to 523,456, remained issued and outstanding. For accounting purposes, since the acceleration of vesting was negotiated in contemplation of the Reverse Merger, the remaining unrecognized compensation expense associated with the original grant date fair value of the options of $2,997 was recognized in the Company’s consolidated statement of operations for the year ended December 31, 2018. In addition, the exercise period for all Inotek options outstanding at the effective time of the Reverse Merger was extended beyond the respective periods provided in the original awards. The Company recorded $462 in connection with the extension of the exercise periods in the consolidated statement of operations for the year ended December 31, 2018, equal to the difference in the fair value of the options immediately prior to and immediately following the modification of the exercise period. Share Option Valuation The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to employees and directors were as follows:
The weighted average assumptions that the Company used in the Black-Scholes pricing model to determine the fair value of the share options granted to non-employees were as follows:
The Company recognizes stock-based compensation expense for at least the portion of awards that have vested. The following table summarizes stock option activity for the years ended December 31, 2018 and 2017, under the Revised 2014 Plan:
Restricted Stock Units All unvested Inotek RSU awards issued and outstanding were accelerated at the effective time of the Reverse Merger. For accounting purposes, since the acceleration of vesting upon change of control was included in the original terms of the award, the remaining unrecognized compensation expense associated with the original grant date fair value of the RSU awards was recognized as a pre-merger expense of Inotek. The following table summarizes the
As of December 31, 2018, none of the RSU’s remain unsettled. The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The intrinsic value of options exercised and exercisable as of December 31, 2018 was $6 and $88. The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2018, 2017 and 2016 was $13.21, $2.23, and
The
Employee Stock Purchase Plan In November 2014,
Share-Based Compensation
As of December 31, 2018, the Company had an aggregate of $18,272 of unrecognized share-based compensation cost, which is expected to be recognized over the weighted average period of 2.05 years. 11. Net Loss Per Share Basic and diluted net loss per share attributable to common shareholders was
The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to
The Company has warrants of 14,102 outstanding as of December 31, 2018, convertible into 14,102 of common 12. Income Taxes Net loss by jurisdiction consists of the following:
No provision for federal or state income taxes was recorded during the years ended December 31, 2018, 2017, and 2016, as the Company incurred operating losses and maintains a full valuation allowance against its net deferred tax assets. A reconciliation of income tax benefit computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
The significant components of the Company’s deferred income tax assets and liabilities after applying the enacted corporate tax rates are as follows:
As of December 31, 2018, the Company had federal and state net operating loss carryforwards of approximately $96,400 and $124,500, respectively, which begin to expire in 2025. Additionally $62,300 of the Federal NOLs can be carried forward indefinitely. As required by ASC 740, Income Taxes, management of Rocket has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of NOL carryforwards and capitalized research and development costs. As a result of the fact that Rocket has incurred tax losses from inception, management has determined that it is more likely than not that Rocket will not recognize the benefits of federal and state net deferred tax assets and, as a result, a full valuation allowance has been established against its net deferred tax assets as of December 31, 2018 and 2017. Rocket has offset certain deferred tax liabilities with deferred tax assets that are expected to generate offsetting deductions within the same period. During the years ended December 31, 2018, 2017 and 2016, the valuation allowance increased by $46,016 and $1,273 respectively. Realization of deferred tax assets is dependent upon the generation of future taxable income. During 2018, the Company recorded Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The Company has completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company became a “loss corporation” as defined in Section 382. The Company experienced multiple ownership changes occurring in 2005, 2007, 2015, and 2018. The ownership change has and will continue to subject our pre-ownership change net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset taxable income in periods following the ownership change. In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate. As a result of the ownership change, the Company is limited to an approximate $1,700 annual limitation on our ability to utilize our pre-merger NOL’s and R&D Credits. Due to this limitation, approximately $93,000 of the $127,100 pre-merger Federal NOL will expire unutilized as the cumulative limitation amount over a 20 year carryforward period is $34,100. Additionally, $4,900 of Federal R&D Credits will expire unutilized. As a result, the Company has reduced its deferred tax assets related to the
The Company recorded uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2018 the Company has not recorded any uncertain tax positions in our financial statements. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2018 and 2017, no accrued interest or penalties are included on the related tax liability line in the consolidated balance sheet. 13. Commitments and Contingencies Operating Leases
On March 31, 2016, the Company entered into a lease agreement On June 7, 2018, the Company entered into a three year lease agreement with ESRT Empire State Building, L.L.C. for office space in the Empire State Building (the “ESB Lease Agreement”). In connection with the ESB Lease Agreement, the Company established an irrevocable standby letter of credit (the “Empire LOC”) with a bank for $936 which expires on June 30, 2019 and is renewed automatically for a one year period until its expiration date of September 30, 2021. The Empire LOC serves as the Company’s security deposit on the lease in which the landlord is the beneficiary. The Company has a certificate of deposit of $936 with a bank as collateral for the Empire LOC which is classified as part of restricted cash in the consolidated balance sheet as of December 31, 2018. On January 4, 2018, in connection with the Reverse Merger, the Company assumed an operating lease for Inotek’s former headquarters in Lexington, On August 14, 2018, Rocket entered into a lease for approximately 92,000 rentable square feet in Cranbury, New Jersey, for office space, process development, research activities and potentially manufacturing to support the Company’s pipeline (the “NJ Lease Agreement”). The
The total restricted cash balance for the $936. Rent expense was As of December 31,
Securities Litigation On January 6, 2017, a purported stockholder of Inotek filed a putative class action in the U.S. District Court for the District of Massachusetts, captioned Whitehead v. Inotek Pharmaceuticals Corporation, et al., No. 1:17-cv-10025. An amended complaint was filed on July 10, 2017, and a second amended complaint was filed on September 5, 2017. The second amended complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against Inotek, David Southwell, and Rudolf Baumgartner based on allegedly false and misleading statements and omissions regarding Inotek’s phase 2 and phase 3 clinical trials of trabodenoson. The lawsuit sought, among other things, unspecified compensatory damages for purchasers of Inotek’s common stock between July 23, 2015 and July 10, 2017, as well as interest and attorneys’ fees and costs. The second amended complaint was dismissed with prejudice on June 27, 2018. Plaintiffs filed a notice of appeal to the First Circuit Court of Appeals on July 27, 2018, voluntarily dismissed their appeal on August 31, 2018, and the
From time to time, the Company Indemnification Arrangements Pursuant to
Throughout the normal course of business, the Company has agreements with vendors that provide goods and services required by the Company to run its business. In some instances, vendor agreements include language that requires the Company to indemnify the vendor from certain damages caused by the Company’s use of the vendor’s goods and/or services. The Company has insurance that would allow it to recover a portion of any future amounts that could arise from these indemnifications. As a result, the Company believes that the estimated fair value of these indemnification commitments is minimal.
14. Agreements Related to Intellectual Property
The Company
has various license and research and collaboration arrangements. The
License 161101 and SRA 161101 On April 20, 2018, the Company entered into Amendment No. 1 to the clinical trial agreement with the Fred Hutchinson Research Cancer Center (“Hutch”) for the clinical trial entitled: Gene Therapy for Patients with Fanconi Anemia Complementation Group A. The Company agreed to pay $108 for additional budgeted amounts for the period from March 2018 through August 2018. LAD-I (leukocyte adhesion deficiency-I) Master Research Agreement with CIEMAT On March 1, 2018, the Company entered into Amendment No. 1 to the LAD-1 Master Research Agreement whereby the Company and Centro de Investigaciones Energéticas, Medioambientales y Tecnológicas (“CIEMAT”) agreed to a modification of the PKD (pyruvate kinase deficiency) Master Research Agreement with CIEMAT On September 17, 2018, the Company entered into Amendment No. 1 to the PKD Master Research Agreement whereby the Company and CIEMAT agreed to a modification of the original commitment from Rocket of €4,190 down by €1,007 (approximately $1,168). Contract Research and Collaboration Agreement with Lund University and J. Richter In August 2016, Rocket entered into a research and collaboration agreement with Lund University and Johan Richter, M.D., Ph.D. under which Dr. Richter grants to Rocket an exclusive, perpetual, sublicensable, worldwide license to certain intellectual property rights of Dr. Richter relating to lentiviral-mediated gene transfer to treat Osteopetrosis. In exchange for the license, Rocket is obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the
As consideration for an option to acquire rights from Lund University on commercially reasonable terms and conditions, Rocket paid Lund University an upfront license fee of €0.02 million (approximately $0.02 million), which was expensed as research and development costs. Rocket is obligated to make aggregate milestone payments of up to €0.1 million (approximately $0.1 million) to Lund University and Dr. Richter upon the achievement of specified development and regulatory milestones. With respect to any commercialized products covered by the Lund University agreement, Rocket is obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments, by Rocket or its sublicensees or affiliates. In the event that Rocket enters into a sublicense agreement with a sublicensee, Rocket will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances. Rocket may terminate this agreement at any time by providing Lund University and Dr. Richter with 90 days’ advance notice. The research agreement has an initial term of 24 months. In August 2018, the research and collaboration agreement was renewed for an additional year expiring August 2019. License Agreement for Danon Disease In February 2017, the Company entered into a License Agreement with The Regents of the University of California, represented by its San Diego campus (“UCSD”), under which UCSD granted us an exclusive, sublicensable, worldwide license to certain intellectual property rights for the treatment of lysosomal storage diseases, including Danon disease. In exchange for the license, the Company became obligated to make an up-front payment, certain clinical and commercial milestone payments, royalty payments (on net sales of products covered by a valid claim within the licensed intellectual property), maintenance fees and sublicense revenue payments. The upfront license fee of $0.05 million was expensed as research and development costs. The Company is obligated to make aggregate milestone payments of up to $1.5 million to UCSD upon the achievement of specified development and regulatory milestones for the treatment of Danon disease. A reduced schedule of milestone payments applies to achieving the same milestones for additional indications. With respect to any commercialized products covered by the agreement, we are obligated to pay a low single digit percentage royalty on net sales, subject to specified adjustments. If the Company enters into a sublicense agreement with a sublicensee, the Company will be obligated to pay a portion of any consideration received from such sublicensees in specified circumstances. The Company is also subject to certain diligence milestones for development of a product using the intellectual property licensed from UCSD under this agreement. The term of the license agreement with UCSD is through the expiration of the licensed patents, some of which are still in the pending application phase. REGENXBIO, Inc. License On November 19, 2018, the Company through its wholly-owned subsidiary Rocket Pharmaceuticals, Ltd., entered into a License Agreement (the “License Agreement”) with REGENXBIO Inc. (“RGNX”), pursuant to which the Company obtained an exclusive license for all U.S. patents and patent applications related to RGNX’s NAV AAV-9 vector for the treatment of Danon disease in humans by in vivo gene therapy using AAV-9 to deliver any known LAMP2 transgene isoforms and all possible combinations of LAMP2 transgene isoforms (the “Field”), as well as an exclusive option to license (the “Option Right”) all U.S. patents and patent applications for two additional NAV AAVvectors in the Field (each, a “LicensedPatent” and collectively, the “Licensed Patents”). Under the terms of the License Agreement, the Company is obligated to use commercially reasonable efforts to develop, commercialize, market, promote and sell products incorporating the Licensed Patents (“Licensed Products”). Unless the License Agreement is terminated earlier as provided below, the license from RGNX expires on a country-by-country, Licensed Product-by-Licensed Product basis until the later of the expiration date of the last to expire of the last valid claim of the applicable Licensed Patent or ten years after the first commercial sale of a Licensed Product in such country. The License Agreement provides that RGNX may terminate the agreement upon a material breach by the Company if the Company does not cure such breach within a specified notice period, if the Company commences a challenge against RGNX or certain of its licensors to declare or render invalid or unenforceable the licensed patents or upon the Company’s In consideration for the rights granted to the Company under the License Agreement, the Company made an upfront payment to RGNX of $7,000 included as research and development expenses. A fee of $2,000 per additional vector would be due if the Company exercises its Option Right to purchase additional vectors. The License Agreement provides for royalties payable to RGNX in the high-single digits to low-teens on net sales levels of Licensed Products during the royalty term. If successful, the Company will be required to make milestone payments to RGNX of up to $13,000 for each Licensed Product upon the achievement of specified clinical development and regulatory milestones in the U.S. and European Union. In addition, the Company shall pay RGNX 20% of the payment fees received from a priority review voucher issued in connection with or otherwise related to a Licensed Product. These royalty obligations are subject to specified reductions if additional licenses from third parties are required. The Company must also pay RGNX a portion of all non-royalty sublicense income (if any) received from sublicensees. 15. Strategic Research Collaboration On May 16, 2018, Rocket and the Stanford University School of Medicine (“Stanford University”) entered into a strategic collaboration to support the advancement of FA and PKD gene therapy research. Under the terms of the collaboration agreement, Stanford University will serve as the lead clinical trial research center in the U.S. for the planned FA registrational trial and would also be the lead U.S. site for PKD clinical trials. The project will also separately evaluate the potential for non-myeloablative, non-genotoxic antibody-based conditioning regimens as a future development possibility that may be applied across bone marrow-derived disorders. In addition, Rocket agreed to support expansion of Stanford University’s Laboratory for Cell and Gene Therapy (“LCGM”) in efforts to further enhance the development of Rocket’s internal pipeline. Rocket agreed to fund up to $3,500 for the LCGM expansion upon which 40% or $1,400 was due upon execution of the agreement and the balance is due upon the achievement of certain milestones. $1,400 of the $3,500 milestone payments was paid during the year ended December 31, 2018. As of December 31, 2018, none of the remaining milestones were met with regard to the LCGM. In January 2019, the Company and Stanford signed a Clinical Trial Agreement for the treatment of FA. Upon the signing of the January 2019 Stanford Clinical Trial Agreement, the second milestone of $1,400 for the LGCM became due and was expensed in January 2019, when the milestone was met. 16. Related Party Transactions During January 2018, the Company sold certain furniture and fixtures from the Inotek former corporate headquarters to a director of the Company for $20. During March 2018, the Company entered into a consulting agreement with a member of the Board of Directors for strategic and finance consulting services to be provided to the Company. The Company incurred expenses of $210 in connection with this consulting agreement. During April 2018, the Company entered into a consulting agreement with a different member of the Board of Directors for business development consulting services. Payments for the services under the agreement are $28 per quarter, and the Company may terminate the agreement with 14 days’ notice. The Company incurred expenses of $110 in connection with this consulting agreement. 17. 401(k) Savings Plan The Company has a defined contribution savings plan (the “Plan”) under Section 401(k) of the Internal Revenue Code of 1986. This Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. Company contributions to the Plan may be made at the discretion of the Company’s board of directors. The Company has elected to match 4% of employee contributions to the Plan, subject to certain limitations. The Company’s matching contribution for the year ended December 31,
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