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 trials consist of expanded multi-location testing for efficacy and safety to evaluate the overall benefit-to-risk index of the investigational drug in relationship to the disease treated. The results of preclinical and human clinical testing are submitted to the FDA in the form of a BLA for approval to commence commercial sales.
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| 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 evidence of clinical efficacy and to further test for safety in an expanded patient population at
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| | multiple clinical trial sites. They are intended to further evaluate dosage, effectiveness and safety, to establish the overall benefit-risk relationship of the investigational drug and 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 trials to demonstrate the efficacy of the drug.
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All clinical trials must be conducted in accordance with FDA regulations, GCP requirements and their protocols in order for the data to be considered reliable for regulatory purposes. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all.
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.
Government regulation may delay or prevent marketing of product candidates or new drugs for a considerable period of time and impose costly procedures upon our activities.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved up to a maximum of two years. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
The
NDA and BLA Approval Process
In order to obtain approval to market a drug in the
United States,U.S., a marketing application must be submitted to the FDA that provides data establishing to the FDA’s satisfaction the safety and effectiveness of the investigational drug for the proposed indication.
Each NDA or BLA submission requires a substantial user fee payment unless a waiver or exemption applies. The application includes all relevant data available from pertinent non-clinical or preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, or from a number of alternative sources, including studies initiated by investigators that meet GCP requirements.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the End-of-Phase 1 or 2, and before
an NDAa BLA is submitted. Meetings at other times may be 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.
The results of product development, non-clinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of
an NDA ora BLA requesting approval to market the
product.product for its intended indication. The FDA reviews all
NDAs and BLAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. It may request additional information rather than accept
an NDA ora BLA for filing. In this event, the
NDA or BLA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. The FDA has 60 days from its receipt of
an NDA ora BLA to conduct an initial review to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review.
If the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether the proposed product is safe and potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The FDA has agreed to specific performance goals on the review of
NDAsBLA’s. Specifically, FDA under the goals and
BLAs and seekspolicies agreed to
review standard NDAs for new molecular entities inby the FDA under the Prescription Drug User Fee Act, or PDUFA, as amended, the FDA has 10 months,
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from the 60-day filing date, (typically 12in which to complete its initial review of an original BLA and respond to the applicant, and six months from submissionthe filing date of the NDA).an original BLA designated for priority review. The review process may be extended by the FDA for three additional months to consider certain late-submitted information or information intended to clarify information already provided in the submission. After the FDA completes its substantive review of an NDA ora BLA, it will communicate to the sponsor that the drug will either be approved, or it will issue a complete response letter to communicate that the NDA or BLA will not be approved in its current form and inform the sponsor of changes that must be made or additional clinical, non-clinical or manufacturing data that must be received before the application can be approved, with no implication regarding the ultimate approvability of the application or the timing of any such approval, if ever. If or when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA may issue an approval letter. FDA has committed to reviewing such resubmissions in two to six months depending on the type of information included. The FDA may refer applications for novel drug products or drug products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving
an NDA ora BLA, the FDA typically will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving
an NDA ora BLA, the FDA may inspect one or more clinical sites to assure compliance with GCP.
For a gene therapy product, the FDA also will not approve the product if the manufacturer is not in compliance with the cGTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human cells, tissues, and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer into a human recipient. The primary intent of the CGTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their HCT/Ps with the FDA and, when applicable, to evaluate donors through appropriate screening and testing. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it typically will outline the deficiencies and often will request additional testing or information. This may significantly delay further review of the application. If the FDA finds that a clinical site did not conduct the clinical trial in accordance with GCP, the FDA may determine the data generated by the clinical site should be excluded from the primary efficacy analyses provided in the
NDA or BLA. Additionally, notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4
or post-approval trials may be made a condition to be satisfied for continuing drug approval. The results of Phase 4 trials can confirm the effectiveness of a product candidate and can provide important safety information. In addition, the FDA has authority to require sponsors to conduct post-marketing trials to specifically address safety issues identified by the agency. See “Post-Marketing Requirements” below.
The FDA also has authority to require a Risk Evaluation and Mitigation Strategy (“REMS”), from manufacturers to ensure that the benefits of a drug outweigh its risks. A sponsor may also voluntarily propose a REMS as part of the
NDA or BLA submission. The need for a REMS is determined as part of the review of the
NDA or BLA. Based on statutory standards, elements of a REMS may include “Dear Doctor letters,” a medication guide, more elaborate targeted educational programs, and in some cases distribution and use restrictions, referred to as
“elementselements to assure safe use
” or ETASU. (“ETASU”). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. These elements are negotiated as part of the
NDA or BLA approval, and in some cases the approval date may be delayed. Once adopted, REMS are subject to periodic assessment and modification.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, manufacturing processes or facilities, require submission and FDA approval of a new
NDABLA or
NDABLA supplement before the change can be implemented.
An NDA orA BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing
NDA or BLA supplements as it does in reviewing
NDAs or BLAs.
Even if a product candidate receives regulatory approval, the approval may be limited to specific disease states, patient populations and dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution or use, or post-marketing trial requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, 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
Under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments, a portion of a product’s U.S. patent term that was lost during clinical development and regulatory review by the FDA may be restored by returning up to five years of patent life for a patent that covers a new product or its use. This period is generally one-half the time between the effective date of an IND (falling after issuance of the patent) and the submission date of
an NDA,a BLA, plus the time between
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the submission date of an NDAa BLA and the approval of that application, provided that the sponsor acted with diligence. Patent term restorations, however, cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug may be extended and the extension must be applied for prior to expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
The Affordable Care Act, or ACA, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or the BPCIA, which created an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-approved reference biological product. Bio similarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical trial or trials. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities associated with the larger, and often more complex, structure of biological products, as well as the process by which such products are manufactured, pose significant hurdles to implementation that are still being worked out by the FDA.
A reference biological product is granted four and twelve (12) year exclusivity provisionsperiods from the time of first licensure of the product. FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product, and FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until twelve (12) years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was approved in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a new product includes a modification to the structure of a previously approved product that results in a change in safety, purity, or potency to assess whether the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.
In addition, under the
FDCA also can delayOrphan Drug Act, FDA may designate a biologic product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the
submissionU.S., or
more in cases in which there is no reasonable expectation that the
cost of developing and making a biologic product available in the U.S. for treatment of the disease or condition will be recovered from sales of the product). Orphan product designation must be requested before submitting a BLA. After FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by FDA. Orphan product designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval
of certain competing applications. The FDCA providesprocess. If a
five-year period of non-patent marketing exclusivity within the United States toproduct with orphan status receives the first
applicant to gainFDA approval
of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the
action ofdisease or condition for which it has such designation, the
drug substance. During theproduct is entitled to orphan product exclusivity,
period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”), or a 505(b)(2) NDA submitted by another company for a drug productmeaning that
contains the protected active moiety. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, or supplement, for example, for new indications, dosages or strengths of an existing drug. During the exclusivity period, the FDA may not approve
an ANDAany other applications to market the same drug or
505(b)(2) applicationbiologic product for the same
conditionsindication for seven years, except in limited circumstances, such as a showing of
approval asclinical superiority to the
innovator drug. This three-yearproduct with orphan exclusivity
protects onlyor if the
conditionsparty holding the exclusivity fails to assure the availability of
approval associatedsufficient quantities of the drug to meet the needs of patients with the
new clinical investigations and does not prohibitdisease or condition for which the
FDA from approving ANDAs or 505(b)(2) applications with different conditions of approval. For example, if three-year exclusivity protected a new extended-release dosage form, the exclusivity would not blockdrug was designated. Competitors, however, may receive approval of
an ANDA or 505(b)(2) applicationdifferent products for the
original immediate-release version ofsame indication than that for which the
drug. Five-year and three-yearorphan product has exclusivity
will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain
approval for the same product but for a
right of reference to all ofdifferent indication for which the
non-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.orphan product has exclusivity. Orphan medicinal product status in the EU has similar, but not identical, benefits.
Pediatric exclusivity is another type of non-patent marketing exclusivity in the
United StatesU.S. and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent exclusivity. This six-month exclusivity may be granted if
an NDAa BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data.
Rare Pediatric Disease Designation and Priority Review Vouchers
Under the FDCA, the FDA incentivizes the development of drugs and biological products that meet the definition of a “rare pediatric disease,” defined to mean a serious or life-threatening disease in which the serious of life-threatening manifestations primarily affect individuals aged from birth to 18 years and the disease affects fewer than 200,000 individuals in the United States or affects more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making in the United States a drug or biological product for such disease or condition will be received from sales in the United States of such drug or biological product. The sponsor of a product candidate for a rare pediatric disease may be eligible for a voucher that can be used to obtain a priority review for a subsequent human drug or biological product application after the date of approval of the rare pediatric disease drug or biological product, referred to as a priority review voucher, or PRV. A sponsor may request rare pediatric disease designation from the FDA prior to the submission of its BLA. A rare pediatric disease designation does not guarantee that a sponsor will receive a PRV upon approval of its BLA. Moreover, a sponsor who chooses not to submit a rare pediatric disease designation request may nonetheless receive a PRV upon approval of their marketing application if they request such a voucher in their original marketing application and meet all of the eligibility criteria. If a PRV is received, it may be sold or transferred an unlimited number of times. Congress has extended the PRV program through September 30, 2024, with the potential for PRVs to be granted through September 30, 2026.
Expedited Development and Review Programs
FDA is authorized to expedite the review of BLAs in several ways. Under the Fast-Track program, the sponsor of a biologic product candidate may request FDA to designate the product for a specific indication as a Fast-Track product concurrent with or after the filing of the IND. Biologic products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied. In addition to other benefits, such as the ability to have greater interactions with FDA, FDA may initiate review of sections of a Fast-Track BLA before the application is complete, a process known as rolling review.
Any product submitted to FDA for marketing, including under a Fast-Track program, may be eligible for other types of FDA programs intended to expedite development and review, such as regenerative medicine advanced therapy (“RMAT”) designation, priority review and accelerated approval.
| • | Regenerative medicine advanced therapy (RMAT) designation. To qualify for the RMAT program, product must be a regenerative medicinetherapy, which is defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, except for those regulated solely under Section 361 of the Public Health Service Act and part 1271 of Title 21, Code of Federal Regulations; is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such disease or condition, including one that received Fast Track or RMAT designation. |
| • | Priority review. A product candidate including one that received Fast Track or RMAT designation is eligible for priority review if it treats a serious condition and, if approved, it would be a significantimprovement in the safety or effectiveness of the treatment, diagnosis or prevention of a serious condition compared to marketed products. FDA aims to complete its review of priority review applications within six months as opposed to 10 months for standard review. This program is intended to facilitate efficient development and expedite review of regenerative medicine therapies, which are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. The benefits of a regenerative advanced therapy designation include early interactions with FDA to expedite development and review, potential eligibility for priority review and accelerated approval based on surrogate or intermediate endpoints. |
Fast Track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.
Additionally, biologic products studied for their safety and effectiveness in treating serious or life-threatening illnesses and thatprovide meaningful therapeutic benefit over existing treatments may receive accelerated approval. Accelerated approval means that a product candidate may be approved on the basis of adequate and well-controlled clinical trials establishing that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity and prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, FDA may require that a sponsor of a drug or biologic product candidate receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, FDA currently requires as a condition for accelerated approval pre-approval of promotional materials.
In the European Economic Area, the EMA may grant marketing authorizations for certain categories of medicinal products on the basis of less complete data than is normally required, where the benefit of immediate availability of the medicine outweighs the risk inherent in the fact that additional data are still required, or in the interests of public health. In such cases, it is possible for the Committee for Medicinal Products for Human Use, or CHMP, to recommend the granting of a marketing authorization, subject to certain specific obligations to be reviewed annually, which is referred to as a conditional marketing authorization. This may apply to medicinal products for human use that fall under the jurisdiction of the EMA, including those that aim at the treatment, the prevention, or the medical diagnosis of seriously debilitating or life-threatening diseases and those designated as orphan medicinal products.
A conditional marketing authorization may be granted when the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal product have not been supplied, all the following requirements are met:
the risk-benefit balance of the medicinal product is positive;
it is likely that the applicant will be in a position to provide the comprehensive clinical data post-authorization;
unmet medical needs will be fulfilled; and
the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data is still required.
The granting of a conditional marketing authorization is restricted to situations in which only the clinical part of the application is not yet fully complete. Incomplete preclinical or quality data may only be accepted if duly justified and only in the case of a product intended to be used in emergency situations in response to public health threats. Conditional marketing authorizations are valid for one year, on a renewable basis. The holder will be required to complete ongoing trials or to conduct new trials with a view to confirming that the benefit-risk balance is positive. In addition, specific obligations may be imposed in relation to the collection of pharmacovigilance data.
The conditional marketing authorization can be converted into a standard marketing authorization (which is no longer subject to specific obligations) once the marketing authorization holder fulfils the obligations imposed under the conditional authorization and the complete data confirm that the medicine’s benefits continue to outweigh its risks.
Post-Marketing Requirements
Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling, or off-label use, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet. Although physicians may, in their independent professional medical judgment, prescribe legally available drugs for off-label uses, manufacturers typically may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of the site of manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval or may include a lengthy review process.
Prescription drug advertising is subject to federal, state, and foreign regulations. In the
United States,U.S., the FDA regulates prescription drug promotion, including direct-to-consumer advertising. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act,
(“PDMA”), a part of the FDCA.
In the
United States,U.S., once a product is approved, its manufacturing is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMP. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our
LVV products in accordance with cGMP regulations.
We anticipate that we will also utilize direct manufacturing capabilities for clinical supplies for our AAV program, beginning in 2021. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. These regulations also impose certain organizational, procedural and documentation requirements with respect to manufacturing and quality assurance activities.
NDABLA holders using
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contract manufacturers, laboratories or packagers are responsible for the selection and monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such product or may result in restrictions on a product, manufacturer, or holder of an approved NDA,BLA, including, among other things, recall or withdrawal of the product from the market.
In addition, the manufacturer and/or sponsor under an approved
NDABLA are subject to annual product and establishment fees. These fees are typically increased annually.
The FDA also may require post-marketing testing, also known as Phase 4 testing, to monitor the effects of an approved product or place conditions on an approval via a REMS that could restrict the distribution or use of the product. Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, untitled or warning letters from the FDA, mandated corrective advertising or communications with doctors, withdrawal of approval, and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.
Coverage and Reimbursement
Sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors, including government healthcare program administrative authorities, managed care organizations, private health insurers, and other entities. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all of part of the costs associated with their prescription drugs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Therefore, our products, once approved, may not obtain market acceptance unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.
The process for determining whether a third-party payor will provide coverage for a drug product typically is separate from the process for setting the price of a drug product or for establishing the reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may limit coverage to specific drug products on an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. A decision by a third-party payor not to cover our product candidates could reduce physician utilization of our products once approved. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product or service does not ensure that other payors will also provide coverage for the medical product or service or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor separately and will be a time-consuming process.
The containment of healthcare costs has become a priority of federal, state, and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for drug products and medical services, examining the medical necessity, and reviewing the cost effectiveness of drug products and medical services, in addition to questioning safety and efficacy. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after FDA approval or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit.
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
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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.
The American Recovery and Reinvestment Act of 2009
providesprovided funding for the federal government to compare the effectiveness of different treatments for the same illness.
AThe plan for the research
will be developedwas published in 2012 by the
U.S. Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates, once approved. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the
European UnionEU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the
European UnionEU do not follow price structures of the
United StatesU.S. and generally tend to be significantly lower.
Anti-Kickback and False Claims Laws and Other Regulatory Matters
In the
United States,U.S., among other things, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation and enforcement by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of the
United StatesU.S. Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state Attorneys General and other state and local government agencies. Our current and future business activities, including for example, sales, marketing, and scientific/educational grant programs must comply with healthcare regulatory laws, as applicable, which may include the Federal Anti-Kickback Statute, the Federal False Claims Act, as amended, the privacy and security regulations promulgated under the Health Insurance Portability and Accountability Act (“HIPAA”), as amended, physician payment transparency laws, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply.
The handling of any controlled substances must comply with the U.S. Controlled Substances Act and Controlled Substances Import and Export Act. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.
The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing, storage, and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
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, directly or indirectly, in cash or in kind, solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchasing, leasing, ordering 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. 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
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(collectively, (collectively, the “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.
Federal false claims and false statement laws, including the civil False Claims Act, prohibits any person or entity from, among other things, knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that are false or fraudulent.
This statute has been interpreted to prohibit presenting claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state, and third-party reimbursement for our products, and the sale and marketing of our products, are subject to scrutiny under this law. For example, pharmaceutical companies have been found liable under the Federal Civil False Claims Act in connection with their off-label promotion of drugs. Penalties for a civil False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties
of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from participation in federal healthcare programs, and, although the Federal False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine and may suffer a decline in our stock price. In addition, private individuals have the ability to bring actions under the Federal Civil False Claims Act and certain states have enacted laws modeled after the Federal False Claims Act.
Additionally, HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed below, a similar federal requirement under the Physician Payments Sunshine Act, requires certain manufacturers to track and report to the federal government certain payments provided to physicians and teaching hospitals made in the previous calendar year, as well as certain ownership and investment interests held by physicians
(defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and their immediate family members. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state and federal authorities.
Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act,
(“HITECH”), and their respective implementing regulations, including the Final Omnibus Rule published on January 25, 2013, imposes specified requirements relating to the privacy, security, and transmission of individually identifiable health information on certain types of individuals and organizations. In addition, certain 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.
The failure to comply with regulatory requirements subjects us to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in federal healthcare programs, such as Medicare and Medicaid, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, refusal to allow us to enter into supply contracts, including government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
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We plan to develop a comprehensive compliance program that establishes internal controls to facilitate adherence to the law and program requirements to which we will or may become subject because we intend to commercialize products that could be reimbursed under a federal healthcare program and other governmental healthcare programs.
Changes in law or the interpretation of existing law could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.
Affordable Care Act and Other Reform Initiatives
European Regulation
In
the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare and containing or lowering the cost of healthcare.By way of example, in March 2010, the ACA was enacted. The ACA includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the ACA of greatest importance to the pharmaceutical industry are the following:
The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of the U.S. Department of Health and Human Services in exchange for state Medicaid coverage of most of the manufacturer’s drugs. The ACA made several changes to the Medicaid Drug Rebate Program, including increasing pharmaceutical manufacturers’ rebate liability by raising the minimum basic Medicaid rebate on most branded prescription drugs and biologic agents to 23.1% of average manufacturer price (“AMP”) and adding a new rebate calculation for “line extensions” (i.e., new formulations, such as extended release formulations) of solid oral dosage forms of branded products, as well as potentially impacting their rebate liability by modifying the statutory definition of AMP.
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 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 established a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research. The research conducted by the Patient-Centered Outcomes Research Institute may affect the market for certain pharmaceutical products.
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.
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| 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
|
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| | 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.
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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 would have on our business.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, 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 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.
European Union Drug Development
In the European Union,Europe, our products will also be subject to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if a marketing authorization application (“MAA”) from the competent regulatory agencies has been obtained, and the various phases of preclinical and clinical research in the European UnionEU are subject to significant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has(the “EU Clinical Trials Directive”) had sought to harmonize the EU clinical trial regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have transposed and applied the provisions of the Directive differently. This has led to some significant variations in the member stateMember State regimes. Under the current regime, before a clinical trial can be initiated it must be approved by two distinct bodies in each of the EU countries where the trial is to be conducted: theThe National Competent Authority (“NCA”) and one or more Ethics Committees (“ECs”). In addition, all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the NCA and ECs of the Member State where they occurred.
The EU
Clinical Trial Regulation (Regulation (EU) No 536/2014) (the “EU Clinical Trial Regulation”) will repeal the EU Clinical Trials Directive when it becomes applicable. It is expected that the EU Clinical Trials Regulation will come into effect following confirmation of full functionality of the Clinical Trials Information System, the centralized EU portal and database for clinical trials
legislationforeseen by the EU Clinical Trials Regulation, through an independent audit, which is currently
undergoing a revision process mainlyexpected to occur in December 2021. The EU Clinical Trial Regulation is aimed at making more uniform and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, improving the supervision of clinical trials, and increasing the transparency of clinical trials.
European Union For instance, the EU Clinical Trials Regulation provides for a streamlined application procedure via a single-entry point and strictly defined deadlines for the assessment of clinical trial applications.
Healthcare Legislative Reform
In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, in 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was enacted, which, among other things, subjected biologic products to potential competition by lower-cost biosimilars; addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations; subjected manufacturers to new annual fees and taxes for certain branded prescription drugs; created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, effective as of January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and provided incentives to programs that increase the federal government’s comparative effectiveness research.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and constitutional challenges in the United States Supreme Court A; the Trump Administration issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. The United States Supreme Court is expected to rule on a legal challenge to the constitutionality of the ACA in early 2021. The implementation of the ACA is ongoing, the 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. Litigation and legislation related to the ACA are likely to continue, with unpredictable and uncertain results. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the ACA would have on our business.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals for deficit reduction of at least $1.2 trillion for the years 2013 through 2021. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of, up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless Congress takes additional action. However, the Medicare sequester reductions under the Budget Control Act are suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this suspension until the end of the pandemic. In January 2013, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal, and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.
In the European Economic Area (“EEA”), which is comprised of the
28EU Member States
of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining
an MAA.a marketing authorization. There are two types of
MAAs:marketing authorizations: (1) the
Community MAA,centralized authorization, which is issued by the European Commission through the
Centralized Procedurecentralized procedure based on the opinion of the Committee for Medicinal Products for Human Use (“CHMP”), a body of the EMA, and which is valid throughout the entire territory of the EEA; and (2)
the National MAA,national marketing authorizations, which is issued by the competent authorities of the Member States of the EEA and only
authorizedauthorize marketing in that Member State’s national territory and not the EEA as a whole.
The Centralized Procedurecentralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, advanced therapy medicinal products (gene-therapy, somatic cell-therapy, and tissue-engineered medicines) and medicinal products containing a new active substance indicated for the treatment of HIV / AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune diseases and other immune dysfunctions and viral diseases. The Centralized Procedurecentralized procedure is optional for products containing a new active substance not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific, or technical innovation or which are in the interest of public healthhealth. Gene therapy products are a type of advanced therapy medicinal product (“ATMP”) in the EU. EEA. The scientific evaluation of marketing authorization applications for ATMPs is primarily performed by a specialized scientific committee called the Committee for Advanced Therapies (“CAT”). The CAT prepares a draft opinion on the quality, safety, and efficacy of the ATMP which is the subject of the marketing authorization application, which is sent for final approval to the CHMP. The CHMP recommendation is then sent to the European Commission, which adopts a decision binding in all EEA Member States. The maximum timeframe for the evaluation of a marketing authorization application for an ATMP is 210 days from receipt of a valid application, excluding clock stops when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CAT and/or CHMP. Clock stops may extend the timeframe of evaluation of an application considerably beyond 210 days. Where the CHMP gives a positive opinion, the EMA provides the opinion together with supporting documentation to the European Commission, who make the final decision to grant a marketing authorization, which is issued within 67 days of receipt of the EMA’s recommendation. Accelerated assessment may be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts such a request, the timeframe of 210 days for assessment will be reduced to 150 days (excluding clock stops), but it is possible that the CHMP may revert to the standard time limit for the centralized procedure if it determines that the application is no longer appropriate to conduct an accelerated assessment. The development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant EU guidelines, and the EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that we comply with these new guidelines.
National MAA ismarketing authorizations are for products not falling within the mandatory scope of the Centralized Procedure.centralized procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MAAmarketing authorization can be recognized in another Member States through the Mutual Recognition Procedure.mutual recognition procedure. If the product has not received a National MAAnational marketing authorization in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.decentralized procedure. Under the Decentralized Proceduredecentralized procedure an identical dossier is submitted to the competent authorities of each of the Member States in which the MAAan authorization is sought, one of which is selected by the applicant as the Reference Member State (“RMS”). If the RMS proposes to authorize the product, and the other Member States do not raise objections, the product is granted a national MAAmarketing authorization in all the Member States where the authorization was sought. Before
Under the above-described procedures, 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.
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In addition,
Now that the UK (which comprises Great Britain and Northern Ireland) has left the EU, Great Britain will no longer be covered by centralized marketing authorizations (under the Northern Irish Protocol, centralized marketing authorizations will continue to be recognized in Northern Ireland). All medicinal products with a current centralized marketing authorization were automatically converted to Great Britain marketing authorizations on January, 1 2021. For a period of two years from January 1, 2021, the Medicines and Healthcare products Regulatory Agency, or MHRA, the UK medicines regulator, may rely on a decision taken by the European Commission on the approval of a new marketing authorization in the European Union,centralized procedure, in order to more quickly grant a new Great Britain marketing authorization. A separate application will, however, still be required.
Regulatory exclusivity
In the EMA’s CommitteeEEA, innovative products authorized for Advanced Therapies (“CAT”)marketing (i.e., reference products) may qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the preclinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EEA during a period of eight years from the date on which the reference product was first authorized in the EEA. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EEA until ten years have elapsed from the initial authorization of the reference product. The ten-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if an innovative medicinal product gains the prescribed period of data exclusivity, however, another company may market another version of the product if such company obtained marketing authorization based on a marketing authorization application with a completely independent data package of pharmaceutical tests, preclinical tests, and clinical trials.
Orphan designation and exclusivity
The criteria for designating an orphan medicinal product in the EEA, are similar in principle to those in the U.S. Under Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if the following criteria are fulfilled: (i) it is responsibleintended for assessing the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (ii) either (a) such condition affects no more than five in 10,000 persons in the EEA when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EEA to justify the necessary investment in its development; and (iii) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EEA, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC) 847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan designation must be submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the orphan designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Otherwise, orphan medicine marketing exclusivity may be revoked only in very select cases, such as if:
a second applicant can establish that its product, although similar to the authorized product, is safer, more effective, or otherwise clinically superior;
the marketing authorization holder for the authorized product consents to a second orphan medicinal product application; or
the marketing authorization holder for the authorized product cannot supply enough orphan medicinal product.
Brexit and the Regulatory Framework in the United Kingdom
In June 2016, the electorate in the UK voted in favor of leaving the EU (commonly referred to as “Brexit”). Thereafter, in March 2017, the country formally notified the EU of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty and the UK formally left the EU on January 31, 2020. A transition period began on February 1, 2020, during which time EU pharmaceutical law remained applicable in the UK, however this ended on December 31, 2020. Since the regulatory framework in the UK covering quality, safety and efficacy of advanced therapy medicinal products. The role of the CAT is to prepare a draft opinion on an application forpharmaceutical products, clinical trials, marketing authorization, for a gene therapy medicinal candidate thatcommercial sales and distribution of pharmaceutical products is submittedderived from EU Directives and Regulations, Brexit could materially impact the future regulatory regime which applies to products and the EMA. The development and evaluationapproval of a gene therapy medicinal product must be consideredcandidates in the context ofUK, as UK legislation now has the relevant European Union guidelines,potential to diverge from EU legislation. It remains to be seen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the EMA may issue new guidelines concerningUK in the developmentlong-term. The MHRA has recently published detailed guidance for industry and marketing authorization for gene therapyorganizations to follow from January 1, 2021 now the transition period is over, which will be updated as the UK’s regulatory position on medicinal products and require thatevolves over time.
Human Capital
As of December 31, 2020, we
comply with these new guidelines.Other Regulations
We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposalhad 91 full-time employees, of hazardous or potentially hazardous substances. We may incur significant costs to comply with such laws and regulations now orwhom 89 were located in the future.
ResearchUnited States and Development
For the years ended December 31, 2017 and 2016, Private Rocket’s research and development expenses were $14.9 million and $6.0 million, respectively.
Employees
two in Spain. We had 20 employees as of March 1, 2018. also leverage temporary workers to provide flexibility for our business needs. None of our employees are represented by anya labor union or covered by a collective bargaining unit. agreement.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
We believe that
developing a diverse, equitable and inclusive culture is critical to continuing to attract and retain the top talent necessary to deliver on our growth strategy. As such, we
maintain good relations withare investing in the creation of a work environment where our
employees.employees can feel inspired to deliver their workplace best every day. All employees are responsible for upholding the Rocket Behaviors and the Rocket Code of Conduct, which form the foundation of our policies and practices.
We were incorporated in Delaware in 1999 as Inotek Pharmaceuticals Corporation. In January 2018, weInotek merged with Rocket Pharmaceuticals, Ltd. and changed ourits name to Rocket Pharmaceuticals, Inc. Our principal executive offices are located at The Alexandria Center for Life Science, 430 East 29th Street, Suite 1040, New York, NY 10016,9 Cedarbrook Drive, Cranbury, NJ 08512, and our telephone number is (646) 440-9100. Our internet address is www.rocketpharma.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 Securities and Exchange Commission (“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 “RCKT.”
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.
In these circumstances, the market price of our common stock could decline.
Risks Related to Rocket’sCurrent Novel Coronavirus (COVID-19) Pandemic
The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our preclinical and clinical studies.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. Throughout 2020 and into 2021, COVID-19 has spread extensively throughout the world and in the United States. In response to the spread of COVID-19, most of our corporate employees converted to working remotely with a smaller number of employees whose roles require them to be on-site working at our Cranbury, NJ facility.
As a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely impact our business, preclinical studies, and clinical trials, including:
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials such as patient follow up visit, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;
delays or difficulties in the buildout of our in-house manufacturing;
delays or difficulties in securing manufacturing slots or materials;
delays or difficulties in advancing pre-clinical research requiring in-person laboratory work at our facility or at academic partners or contract research facilities; and
interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines.
These and other factors arising from the COVID-19 pandemic could worsen in areas that are already afflicted with COVID-19, could continue to spread to additional areas, or could return to areas where the pandemic has been partially contained, each of which could further adversely impact our ability to conduct clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and results.
The extent to which the outbreak may impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In addition, a recession, depression, or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common shares.
Two vaccines for COVID-19 were granted Emergency Use Authorization by the FDA in late 2020, and more are likely to be authorized in the coming months. The resultant demand for vaccines and potential for manufacturing facilities and materials to be commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials.
The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical and preclinical programs, our clinical, preclinical, research, manufacturing, and regulatory activities, healthcare systems or the global economy. However, these effects could have a material adverse impact on our operations, and we will continue to monitor the situation closely.
Risks Related to Our Financial
PositionRocket hasCondition and Capital Needs
Risks Related to Our Financial Condition
We have a history of operating losses, and
Rocketwe may not achieve or sustain profitability.
Rocket anticipatesWe anticipate that
itwe will continue to incur losses for the foreseeable future. If
Rocket failswe fail to obtain additional funding to conduct
itsour planned research and development effort,
Rocketwe could be forced to delay, reduce, or eliminate
itsour product development programs or commercial development efforts.
Rocket is
We are an early-stage gene therapy company with a limited operating history on which to base your investment decision. Gene therapy product development is a highly speculative undertaking and involves a substantial degree of risk.
Rocket’sOur operations to date have been limited primarily to organizing and staffing
itsour company, business planning, raising capital, acquiring, and developing product and technology rights,
building out our R&D and manufacturing capabilities, and conducting preclinical
research and
developmentclinical R&D activities for
itsour product candidates.
Rocket has26
We have never generated any revenue from product sales. Rocket hasWe have not obtained regulatory approvals for any of itsour product candidates and hashave funded itsour operations to date through proceeds from sales of its preferredour stock.
Private Rocket has
We have incurred net losses since itsour inception. Private RocketWe incurred net losses of $19.6$139.7 million, $77.3 million and $7.6$74.5 million for the years ended December 31, 20172020, 2019 and 2016,2018, respectively. As of December 31, 2017, Private Rocket2020, we had an accumulated deficit of $31.3$322.8 million. Substantially all of itsour operating losses have resulted from costs incurred in connection with its research and developmentour R&D programs, buildout of our manufacturing capabilities and from general and administrative (“G&A”) costs associated with itsour operations. Rocket expectsWe expect to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as Rocket intendswe intend to continue to conduct research and development,R&D, clinical testing, regulatory compliance activities, internal and external manufacturing activities, and, if any of itsour product candidates is approved, sales and marketing activities that, together with anticipated general and administrativeG&A expenses, will likely result in Rocketus incurring significant losses for the foreseeable future. Rocket’s prior losses, combined
Our limited operating history may make it difficult for us to evaluate the success of our business to date and to assess our future viability.
Our operations to date have predominantly focused on organizing and staffing our company, business planning, raising capital, acquiring our technology, administering, and expanding our gene therapy platforms, identifying potential product candidates, undertaking research, preclinical studies and clinical trials of our product candidates, building out our R&D and manufacturing capabilities, and establishing licensing arrangements and collaborations. We have not yet completed clinical trials of our product candidates, obtained marketing approvals, manufactured a commercial-scale product, or conducted sales and marketing activities necessary for successful commercialization. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history. We are currently a drug discovery and clinical stage company and at a later point we may need to transition to a commercial stage company. We cannot guarantee that we will be successful in this transition.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with
expected future losses,U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have
hadretroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and
willchanges are likely to continue to
occur in the future. Future changes in tax laws could have
ana material adverse effect on
Rocket’s stockholders’ deficitour business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and
working capital.Rockettax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.
The amount of and our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain limitations and uncertainty.
Federal net operating losses generated in taxable years beginning after December 31, 2017 generally may not be carried back to prior taxable years, and while such federal net operating losses generated in taxable years beginning after December 31, 2017 will not be subject to expiration, the deduction for such net operating loss in any taxable year will be limited to 80% of our taxable income in such year, where taxable income is determined without regard to the net operating loss deduction itself. However, the Coronavirus Aid, Relief and Economic Security Act repeals the 80% limitation on the utilization of such federal net operating losses for taxable years beginning after December 31, 2017 and beginning before January 1, 2021 and allows for federal net operating losses generated in taxable years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the five taxable years preceding the taxable year in which the loss arises. This change in law temporarily allowing for the carryback of federal net operating losses is not expected to produce any material benefit for the issuer. In general, under Sections 382 and 383 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs or tax credits, or credits, (including federal research and development tax credits) to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Internal Revenue Code and limit our ability to utilize our NOLs and credits. Our NOLs or credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or credits if we undergo an ownership change prior to the utilization of all such NOLs or credits.
Risks Related to Capital Needs
We may need to raise additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force
Rocketus to delay, limit or terminate certain of
itsour licensing activities, product development efforts or other operations.
Rocket expects
We expect to require substantial future capital in order to seek to broaden licensing of
itsour gene therapy platforms, complete preclinical and clinical development for
itsour current product candidates and other future product candidates, if any, and potentially commercialize these product candidates.
Rocket expects itsWe expect our spending levels to increase in connection with
itsour preclinical and clinical
trials. In addition,trials and expect to spend up to $9.5 million in non-recurring expenses in 2021 in connection with the buildout of our new facility in Cranbury, New Jersey. Also, if
Rocket obtainswe obtain marketing approval for any of
itsour product candidates,
Rocket expectswe expect to incur significant expenses related to product sales, medical affairs, marketing, manufacturing, and distribution. Furthermore,
Rocket expectswe expect to incur additional costs associated with operating as a public
company.company, particularly as we no longer qualify as an emerging growth company or smaller reporting company and are subject to certain disclosure and compliance requirements as a large accelerated filer that we were not previously subject to. Accordingly,
Rocketwe will need to obtain substantial additional funding in connection with
itsour continuing
operations.operations, and we may seek to refinance or exchange our convertible notes to further extend their maturity date. If
Rocket iswe are unable to raise capital
or refinance our convertible notes due 2022 when needed or on acceptable terms,
Rocketwe could be forced to delay, reduce or eliminate certain of
itsour licensing activities,
its research and developmentour R&D programs, or other operations.
Private Rocket’s Furthermore, to the extent we raise additional capital by issuing equity securities, or to the extent holders of our 2022 convertible notes exercise their option to convert their notes into shares of our common stock, our stockholders will experience substantial additional dilution.
Our operations have consumed significant amounts of cash since inception. As of December 31,
2017, Private Rocket’s2020, our cash,
cash equivalents and investments was
$18.1$482.7 million.
Rocket’sOur future capital requirements will depend on many factors, including:
| | | |
| •
| | the timing of enrollment, commencement, completion and results of Rocket’s clinical trials, including Rocket’s only current clinical trial for Fanconi Anemia;
|
the timing of enrollment, commencement, completion, and results of our clinical trials; | | | |
| •
| | the results of Rocket’s preclinical studies for Rocket’s current product candidates and any subsequent clinical trials;
|
cost for submitting product for approval in the U.S. and Europe. | | | |
| •
| | the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials, if any, for Rocket’s internal product candidates;
|
the production of LVV and AAV gene therapy products to support preclinical and clinical needs; | | | |
| •
| | the costs associated with building out additional laboratory and manufacturing capacity, if any;
|
| | | |
| •
| | the costs, timing and outcome of regulatory review of Rocket’s product candidates;
|
| | | |
| •
| | the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of Rocket’s product candidates for which Rocket receives marketing approval;
|
| | | |
| •
| | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing its intellectual property rights and defending any intellectual property-related claims;
|
| | | |
| •
| | Rocket’s current licensing agreements or collaborations remaining in effect;
|
the results of our preclinical studies for our current product candidates and any subsequent clinical trials; | | | |
| •
| | Rocket’s ability to establish and maintain additional licensing agreements or collaborations on favorable terms, if at all;
|
the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development, and clinical trials, if any, for our internal product candidates; | | | |
| •
| | the extent to which Rocket acquires or in-licenses other product candidates and technologies; and
|
the costs associated with building out additional laboratory and research capacity; | | | |
| •
| | the costs associated with being a public company.
|
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.
Many of these factors are outside of
Rocket’sour control. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and
Rocketwe may never generate the necessary data or results required to obtain regulatory and marketing approval and achieve product sales. In addition,
Rocket’sour product candidates, if approved, may not achieve commercial success. Accordingly,
Rocketwe will need to continue to rely on additional financing to achieve
itsour business objectives.
27
To the extent that additional capital is raised through the sale of equity or equity-linked securities, the issuance of those securities could result in substantial dilution for
Rocket’sour current
shareholdersstockholders and the terms may include liquidation or other preferences that adversely affect the rights of
Rocket’sour current
shareholders.stockholders. Adequate additional financing may not be available to
Rocketus on acceptable terms, or at all.
RocketWe also could be required to seek funds through arrangements with partners or otherwise that may require
Rocketus to relinquish rights to
itsour intellectual property,
itsour product candidates or otherwise agree to terms unfavorable to
Rocket.Rocket’s limited operating history may make it difficult for Rocket to evaluate the success of its business to date and to assess Rocket’s future viability.
Rocket’s operations to dateus.
We have
predominantly focused on organizing and staffing its company, business planning, raising capital, acquiring its technology, administering and expanding its gene therapy platforms, identifying potential product candidates, undertaking research, preclinical studies and clinical trials of its product candidates and establishing licensing arrangements and collaborations. Rocket has not yet completed clinical trials of its product candidates, obtained marketing approvals, manufactured a commercial-scale product or conducted sales and marketing activities necessary for successful commercialization. Consequently, any predictions made about Rocket’s future success or viability may not be as accurate as they could be if Rocket had a longer operating history.In addition, as a new business, Rocket may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. Rocket expects to eventually transition from a company with a licensing and research focus to a company that is also capable of supporting clinical development activities and Rocket may need to transition to supporting commercial activities in the future. Rocket cannot guarantee that it will be successful in these transitions.
Rocket’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss (“NOL”) carryforwards and other pre-change tax attributes to offset its post-change income may be limited. Rocket may experience ownership changes in the future. As a result, if Rocket earns net taxable income, Rocket’s ability to use its pre-change net operating loss carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to Rocket. Furthermore, Rocket’s ability to use net operating loss carryforwards to offset U.S. federal taxable income in the future may be further limited by certain provisions set forth in The Tax Cuts and Jobs Act, which could potentially result in increased future tax liability to Rocket. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. At December 31, 2017, Private Rocket had net operating losses of approximately $24.8 million for New York City tax purposes. As of December 31, 2017, Rocket had no unrecognized tax benefits or liabilities for uncertain tax positions. Rocket files income tax returns in the United States and New York State and New York City, but for the year ended December 31, 2017, did not report any income effectively connected with a U.S. trade or business.
As of December 31, 2017, Inotek had federal NOL carryforwards for income tax purposes of $127.1 million that will expire at various dates through 2037 and state NOL carryforwards of $83.4 million that will expire at various dates through 2037, available to reduce future federal and state income taxes, if any. As of December 31, 2017, Inotek had federal research and development tax credits of $5.2 million and state research and development tax credits of $0.8 million. The pre-change NOL carryforwards, although subject to an annual limitation, as well as any post-change NOL carryforwards, can be utilized in future years, provided that sufficient income is generated and no future ownership changes occur that may limit Inotek’s NOL carryforwards. Additionally, the Reverse Merger on January 4, 2018 is expected to significantly limit utilization of Inotek’s NOL carryforwards as the Reverse Merger was considered to be an ownership change, though the actual amount of the NOL limitation has not yet been determined.
Rocket has never generated any revenue from product sales and may never be profitable.
Rocket’s
Our ability to generate revenue and achieve profitability depends on
Rocket’sour ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory, pricing and reimbursement approvals necessary to commercialize
itsour product candidates.
Rocket doesWe do not anticipate generating revenues from product sales for the foreseeable future, if ever.
Rocket’sOur ability to generate future revenues from product sales depends heavily on
itsour success in:
| | | |
| •
| | completing research and preclinical and clinical development of Rocket’scompleting research and preclinical and clinical development of our product candidates;
|
| | | |
| •
| | seeking and obtaining regulatory and marketing approvals for product candidates for which Rocket completesseeking 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; 28
| | | |
| | | |
| •
| | developing a sustainable, commercial-scale, reproducible, and transferable manufacturing process for Rocket’s 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; | | | |
| •
| | 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 Rocket’s 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; | | | |
| •
| | launching and commercializing product candidates for which Rocket obtains 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 sufficient pricing and reimbursement for Rocket’s product candidates from private and governmental payors;
|
obtaining market acceptance of our product candidates and gene therapy as a viable treatment option; | | | |
| •
| | obtaining market acceptance of Rocket’s product candidates and gene therapy as a viable treatment option;
|
addressing any competing technological and market developments; | | | |
| •
| | addressing any competing technological and market developments;
|
identifying and validating new gene therapy product candidates; | | | |
| •
| | identifyingnegotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter; and validating new gene therapy product candidates;
|
| | | |
| •
| | negotiating favorable terms in any collaboration, licensing or other arrangements into which Rocket may enter; and
|
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how. | | | |
| •
| | maintaining, protecting and expanding Rocket’s portfolio of intellectual property rights, including patents, trade secrets and know-how.
|
Even if one or more of the product candidates that
Rocketwe will develop is approved for commercial sale,
Rocket anticipateswe anticipate incurring significant costs associated with commercializing any approved product candidate.
Rocket’sOur expenses could increase beyond expectations if
Rocket iswe are required by the FDA, the EMA, or other regulatory agencies, domestic or foreign, to perform clinical and other studies in addition to those that
Rocketwe currently
anticipates.anticipate. Even if
Rocket is able towe generate revenues from the sale of any approved products,
Rocketwe may not become profitable and may need to obtain additional funding to continue operations.
Risks Related to
Clinical Development and Product Regulatory Matters
Rocket’s
Risks Related to Clinical Development of our Product Candidates
We may encounter substantial delays in commencement, enrollment or completion of our clinical trials or may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, which could prevent us from commercializing our current and future product candidates on a timely basis, if at all.
Before obtaining marketing approval from regulatory authorities for the sale of our current and future product candidates, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical trials are expensive, time-consuming, and outcomes are uncertain.
Our experience with clinical trials has been limited. We have initiated Rocket-sponsored clinical trials for FA, LAD-I, PKD, Danon disease and IMO, but have not completed any clinical trials to date. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A clinical trial may be delayed or halted at any stage of testing for various reasons, including:
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 domestic or foreign clinical sites;
a shutdown of the U.S. government, including the FDA;
public health crises such as pandemics and epidemics; or
natural disasters at any of our clinical sites.
In addition, to the extent we seek to obtain regulatory approval for our product candidates in foreign countries, our ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
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.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate planned clinical trials, the occurrence of any of which would harm our business, financial condition, results of operations and prospects.
Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. We may not be able to identify, recruit and enroll enough patients, or those with required or desired characteristics, to complete clinical trials in a timely manner. Patient enrollment and trial completion is affected by numerous factors including:
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.
In particular, each of the conditions for which we plan to evaluate our current product candidates are rare genetic diseases with limited patient pools from which to draw for clinical studies. The process of finding and diagnosing patients may prove costly. In some cases, potential patients may be located outside of the U.S., and immigration related issues, including government policy changes, may introduce additional delays into the enrollment process. Finally, the treatment process for our LVV programs requires that the cells be obtained from patients and then shipped to a transduction facility within the required timelines, and this may introduce unacceptable shipping-related delays to the process.
We have not completed any clinical studies of our current product candidates. Initial or interim results in our ongoing clinical studies may not be indicative of results obtained when these studies are completed. Furthermore, success in early clinical studies may not be indicative of results obtained in later studies.
We have initiated our sponsored clinical trials for FA, LAD-I, PKD, IMO and Danon disease but have not completed any clinical trials to date. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Study designs and results from previous or ongoing studies and clinical trials are not necessarily predictive of future study or clinical trial results, and initial or interim results may not continue or be confirmed upon completion of the study or trial. Positive data may not continue or occur for subjects in our clinical studies or for any future subjects in our ongoing or future clinical studies and may not be repeated or observed in ongoing or future studies involving our product candidates. Furthermore, our product candidates may also fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical studies. We cannot guarantee that any of these studies will ultimately be successful or that preclinical or early-stage clinical studies will support further clinical advancement or regulatory approval of our product candidates.
Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.
Our product candidates may cause undesirable and unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.
Gene therapy is still a relatively new approach to disease treatment and adverse side effects could develop with our product candidates. There also is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material.
Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction soon after administration which could substantially limit the effectiveness and durability of the treatment. If certain side effects are observed in testing of our potential product candidates, we may decide or be required to halt or delay further clinical development of our product candidates.
In addition to side effects caused by the product candidate, the administration process or related procedures associated with a given product candidate also can cause adverse side effects. If any such adverse events occur, our clinical trials could be suspended or terminated. Under certain circumstances, the FDA, the European Commission, the EMA or other regulatory authorities could order us to cease further development of, or deny approval of, our product candidates for any or all targeted indications. Moreover, if we elect or are required, to not initiate or to delay, suspend or terminate any future clinical trial of any of our product candidates, the commercial prospects of such product candidates may be harmed and our ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other product candidates, and may harm our business, financial condition and prospects significantly.
Furthermore, if undesirable side effects caused by our product candidate are identified following regulatory approval of a product candidate, such as in long-term follow-up studies, several potentially significant negative consequences could result, including:
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.
Any of these occurrences may harm our business, financial condition and prospects significantly.
Risks Related to Government Regulation
Our gene therapy product candidates are based on novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval. Currently, only a few gene
and cell therapy products have been approved in the United States and the European Union.
Rocket has
We have concentrated
its research and developmentour R&D efforts to date on a gene therapy platform, and
Rocket’sour future success depends on the successful development of viable gene therapy product candidates.
RocketWe cannot guarantee that
itwe will not experience problems or delays in developing current or future product candidates or that such problems or delays will not cause unanticipated costs, or that any such development problems or delays can be resolved.
RocketWe may also experience unanticipated problems or delays in developing
Rocket’sour manufacturing capacity or transferring
Rocket’sour manufacturing process to commercial partners, which may prevent
Rocketus from completing
itsour clinical studies or commercializing
itsour products on a timely or profitable basis, if at all.
In addition, the clinical study requirements of the FDA,
the European Medicines Agency, or the EMA, and other regulatory agencies and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as
Rocket’sours can be more expensive and take longer than for other, better known or more extensively studied pharmaceutical or other product candidates. Currently, only a few gene
and cell therapy products have received marketing authorization in the U.S. or the
European Union,EU, including Novartis Pharmaceuticals’ Kymriah
and Zolgensma (developed by AveXis), Kite Pharma’s Yescarta,
GlaxoSmithKline’s Strimvelis and Spark Therapeutics’ Luxturna. It is therefore difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for
Rocket’sour product candidates in the
United States,U.S., the
European UnionEU or other jurisdictions. Approvals by the EMA may not be indicative of what the FDA may require for approval. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approvals necessary to bring a potential product to market could decrease
Rocket’sour ability to generate sufficient product revenue and
Rocket’sour business, financial condition, results of operations and prospects could be materially harmed.
Regulatory requirements governing gene therapy products have evolved and may continue to change in the future. For example,
CBERFDA’s Center for Biologics Evaluation and Research (“CBER”) may require
Rocketus to perform additional nonclinical studies or clinical trials that may increase
Rocket’sour development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of
Rocket’sour gene therapy product candidates or lead to significant post-approval limitations or restrictions.
29
Additionally, the FDA continues to develop its approach to assessing gene and cell therapy products. For example, the agency has released a series of draft and final guidance documents relating to, among other topics, various aspects of gene therapy product development, review, and approval, including aspects relating to clinical and manufacturing issues related to gene therapy products. In January 2020, FDA released a final guidance with recommendations for long-term follow-up studies of patients following human gene therapy administration due to the increased risk of undesirable and unpredictable outcomes with gene therapies that may present as delayed adverse events. The final guidance advises that patients treated with gene therapies that incorporate integrating vectors, such as lentiviral vectors, undergo long-term safety and efficacy follow up of fifteen years post therapy while patients treated with gene therapies that incorporate AAV vectors undergo long-term safety and efficacy follow-up as long as five years post therapy. We cannot be certain whether such guidance, or others that FDA may issue, will adversely impact our gene therapy candidates or the duration or expense of any applicable regulatory development and review processes.
In addition,
the EMA’s
CATCommittee for Advanced Therapies (“CAT”) and other regulatory review committees and advisory groups and any new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we will be required to consult with these regulatory and advisory groups and comply with applicable guidelines. If we fail to do so, we may be required to delay or discontinue development of certain of our product candidates. These additional processes may result in a review and approval process that is longer than we otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate product revenue, and our business, financial condition, results of operations and prospects would be materially harmed.
Rocket may encounter substantial delays in commencement, enrollment or completion
Even though we have obtained orphan designation for certain of
Rocket’s clinical trials or may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities, which could prevent Rocket from commercializing its current and futureour product candidates,
on a timely basis, if at all.Before obtaining marketing approval from regulatory authorities for the sale of Rocket’s current and future product candidates, Rocket must conduct extensive clinical trials to demonstrate the safety and efficacy of Rocket’s product candidates. Clinical trials are expensive, time-consuming, and outcomes are uncertain.
To date, Rocket’s experience with clinical trials has been limited. Rocket’s only clinical programs to date have been performed under a physician-sponsored investigational new drug application, or IND, held by the Fred Hutchinson Cancer Research Center in Seattle, Washington, or Hutch, and under an Investigational Medicinal Product Dossier, or IMPD, in Spain sponsored by CIEMAT. The clinical trials performed by these sponsors are for a lentiviral treatment for Fanconi Anemia, a rare mutation of the FANC-A gene, which are still ongoing. Rocket intends to assume responsibility for or obtain the authority to reference the clinical trials performed under one or both of the IND and IMPD held by its collaborators, but has not completed any clinical trials to date. Rocket cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A clinical trial failure can occur at any stage of testing.
Identifying and qualifying patients to participate in clinical trials of Rocket’s product candidates is critical to Rocket’s success. Rocketwe may not be able to identify, recruitrealize the benefits of such designation, including potential marketing exclusivity of our product candidates, if approved.
Regulatory authorities in some jurisdictions, including the United States and
enrollother major markets, may designate drugs intended to treat conditions or diseases affecting relatively small patient populations as orphan drugs. The FDA may designate a
sufficient numberproduct candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of
patients,fewer than 200,000 individuals in the United States, or
those with requireda patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Economic Area (EEA) (the European Union Member States plus Iceland, Liechtenstein and Norway), EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or
desired characteristics, to complete clinical trialstreatment of a life-threatening or chronically debilitating condition affecting not more than 5 in
10,000 persons in the EEA. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment of a
timely manner. Patient enrollmentlife-threatening, seriously debilitating or serious and
trial completionchronic condition and when, without incentives, it is
affected by numerous factors including: | | | |
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| | severity of the disease under investigation;
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| | design of the study protocol;
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| | size of the patient population;
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| | eligibility criteria for the study in question;
|
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| | perceived risks and benefits of the product candidate under study, including as a result of adverse effects observed in similar or competing therapies;
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| | proximity and availability of clinical study sites for prospective patients;
|
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| | availability of competing therapies and clinical studies;
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| | efforts to facilitate timely enrollment in clinical studies;
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| | patient referral practices of physicians; and
|
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| | ability to monitor patients adequately during and after treatment.
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In particular, eachunlikely that sales of the conditionsdrug in the EEA would be sufficient to justify the necessary investment in developing the drug or biologic product. In either case, the applicant for which Rocket plansorphan designation must also demonstrate that there exists no satisfactory method of diagnosis, prevention, or treatment of the condition in question that has been authorized in the EEA or, if such method exists, the product has to evaluate its currentbe of significant benefit compared to products available for the condition.
We have received orphan designation from the FDA and the EU for RP-L102 for the treatment of Fanconi Anemia, for RP-L201 for the treatment of Leukocyte Adhesion Deficiency-1, for RP-L301 for the treatment of Pyruvate Kinase Deficiency, and FDA orphan designation for RP-A501 for treatment of Danon Disease and RP-401 for the treatment of Infantile Malignant Osteopetrosis. To date, we have not requested orphan drug designation (or the foreign equivalent) for any other product candidates,
are rare genetic diseases with limited patient pools from which to draw for clinical studies.and even if we do in the future there can be no assurances that the FDA or foreign regulatory authorities will grant any of our product candidates such designation. Additionally, the
process of finding and diagnosing patients may prove costly. Finally, the treatment process requires that the cells be obtained from patients and then shipped to a transduction facility within the required timelines, and this may introduce unacceptable shipping-related delays to the process.In addition, to the extent Rocket seeks to obtain regulatory approval for its product candidates in foreign countries, Rocket’s ability to successfully initiate, enroll and complete a clinical study in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
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| | difficulty in establishing or managing relationships with clinical research organizations, or CROs, and physicians;
|
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| | different standards for the conduct of clinical trials;
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30
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| | absence in some countries of established groups with sufficient regulatory expertise for review of AAV gene therapy protocols;
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| | Rocket’s inability to locate qualified local partners or collaborators for such clinical trials; and
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| | 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.
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If Rocket has difficulty enrolling a sufficient number of patients to conduct its clinical trials as planned, Rocket may need to delay, limit or terminate planned clinical trials, the occurrencedesignation of any of our product candidates as an orphan product does not mean that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which would harmit has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or foreign regulatory authorities from approving another marketing application for a product that constitutes the same drug (or “similar medicinal product” in the EEA, which is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication) treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our business, financialorphan drug designation), we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the EEA. The exclusivity period in the EEA can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition resultsin the United States. Even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. In the EEA, marketing authorization may be granted to a similar medicinal product for the same orphan indication if:
the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;
the holder of operationsthe marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or
the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal product.
A Fast Track or regenerative medicine advanced therapy, or RMAT, designation by the FDA, even if granted for any of our current or future product candidates, may not lead to a faster development or regulatory review or approval process, and prospects. Moreover, Rocket intendsdoes not increase the likelihood that our current product candidate and any future product candidates will receive marketing approval.
If a product candidate is intended for the treatment of a serious or life-threatening condition and the product demonstrates the potential to relyaddress unmet medical needs for this condition, the sponsor may apply for FDA Fast Track designation for a particular indication. We have received fast track designation for RP-A501 for Danon disease, RP-L102 for FA, RP-L201 for LAD-I, RP-L301 for PKD and RP-L401 for IMO, and we may seek Fast Track designation for future product candidates, but there is no assurance that the FDA will grant this status to any of our proposed product candidates. Marketing applications filed by sponsors of products in fast-track development may qualify for priority review under the policies and procedures offered by the FDA.
A company may request RMAT designation of its product candidate, and FDA may grant such designation if the product meets the following criteria: (1) it is a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, with limited exceptions; (2) it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition; and (3) preliminary clinical evidence indicates that the drug has the potential to address unmet medical needs for such a disease or condition. We have received RMAT designation for RP-L102 for FA. RMAT designation provides potential benefits that include more frequent meetings with FDA to discuss the development plan for the product candidate, and potential eligibility for rolling review and priority review. Products granted RMAT designation may also be eligible for accelerated approval on the nonclinical studiesbasis of a surrogate or intermediate endpoint reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a meaningful number of sites, including through expansion of trials to additional sites.
The FDA has broad discretion whether or not to grant Fast Track or RMAT designation, so even if we believe a particular product candidate is eligible for such designations, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track or RMAT designation, we may not experience a faster development process, review or approval compared to conventional FDA development, review, and approval timelines, and receiving a Fast Track or RMAT designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program.
Accelerated approval by the FDA, and conditional approval by the European Medicines Agency, or EMA, may not lead to a faster development process or regulatory review and does not increase the likelihood that our product candidates will receive marketing approval. If we are not successful with this process, the development or commercialization of our product candidates for which we seek accelerated approval or conditional approval could be delayed, abandoned or become significantly more costly.
We may seek approval of using the FDA’s accelerated approval and the EMA’s conditional approval pathways. While we may utilize trial designs to support accelerated approval, such product candidates may not be subject to faster development or regulatory review timelines.
As a condition of approval, regulatory agencies may impose specific obligations with defined timelines, including to perform adequate and well-controlled post-marketing clinical trials. These confirmatory trials performed by Hutch and CIEMAT, andmust be completed with due diligence. In addition, the FDA currently requires as a condition of accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of a product. If the FDA or the regulatory authority in any other country inEMA do not approve our product candidates for which we seek accelerated approval or conditional approval, but instead require the completion of a full Phase 3 clinical trial or trials prior to the filing of marketing applications, the development and commercialization timeline of such product candidates will be delayed. Even if we do receive accelerated approval or conditional approval, we may not ultimately receive full approval from the regulatory agencies. The additional data generated through post-marketing clinical trials may not confirm that the benefit-risk balance of any of our product candidates that receive accelerated approval is positive or the burden to further complete the obligations may become too high.
In the European Economic Area, the conditional marketing authorization is subject to an annual renewal procedure that assess the marketing authorization holder’s compliance with the specific obligations of the authorization. If conditions are not complied with, the EMA may decide to
perform clinical trialsextend the timeline for the existing obligations, change the scope of such obligations or
seek approvaladd new obligations, which may
not accept that results of the Hutchrequire additional financial resources and
CIEMAT studies and trials. Any inability to successfully complete preclinical studies and clinical trials could result in additional costs to Rocket or impair Rocket’s ability to generate revenues from product sales, regulatory and commercialization milestones and royalties.Rocket has not completed any clinical studies of its current product candidates. Initial results in Rocket’s ongoing clinical studiestime. We may not be indicativeable to comply with such changes or additional obligations and may need to withdraw the marketing authorization. The EMA may also decide not to renew the conditional marketing authorization, although such measure is rarely applied in practice. An analysis of resultsreimbursement decisions for conditionally authorized medicines in the European Union has shown some delays in the timeline for reaching a positive health technology recommendation. If this happens for any product candidate for which we seek conditional approval, it may delay the timing and success of the commercialization of such product. Finally, if new data obtained whenfrom fulfilment of the conditions of the conditional authorization or otherwise show that our product’s benefits no longer outweigh its risks, the EMA can take regulatory action, such as suspending or revoking the conditional marketing authorization.
We have received rare pediatric disease designation for RP-A501 for Danon disease, RP-L102 for FA, RP-L201 for LAD-I, and RP-L401 for IMO. However, a marketing application for these studies are completed. Furthermore, success in early clinical studiesproduct candidates, if approved, may not be indicativemeet the eligibility criteria for a rare pediatric disease priority review voucher.
We have received rare pediatric disease designation for RP-A501 for Danon disease, RP-L102 for FA, RP-L201 for LAD-I, and RP-L401 for IMO. Designation of
results obtaineda biological product as a product for a rare pediatric disease does not guarantee that a BLA for such biological product will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act (“FDCA”) , we will need to request a rare pediatric disease priority review voucher in
later studies.Rocket’s Fanconi Anemia gene therapy treatments are currently in clinical trials being conducted by Rocket’s partners, Hutch and CIEMAT. Several of Rocket’s other gene therapy programs are in the preclinical stages. Study designs and results from previous or ongoing studies and clinical trials are not necessarily predictive of future study or clinical trial results, and initial or interim resultsour original BLA for our product candidates for which we have received rare pediatric disease designation. The FDA may not continue or be confirmed upon completion of the study or trial. Positive data may not continue or occur for subjects in Rocket’s clinical studies ordetermine that a BLA for any future subjects in Rocket’s ongoing or future clinical studies, and may not be repeated or observed in ongoing or future studies involving Rocket’s product candidates. Furthermore, Rocket’ssuch product candidates, if approved, do not meet the eligibility criteria for a priority review voucher.
The authority for the FDA to award rare pediatric disease priority review vouchers for biological products after September 30, 2024 is currently limited to biological products that receive rare pediatric disease designation on or prior to September 30, 2024, and FDA may
also failonly award rare pediatric disease priority review vouchers through September 30, 2026. However, it is possible the authority for FDA to
show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through initial clinical studies. Rocket cannot guarantee that any of these studiesaward rare pediatric disease priority review vouchers will
ultimately be
successful or that preclinical or early stage clinical studies will support further
clinical advancement or regulatory approval of Rocket’s product candidates.Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.
extended by Congress.
Even if
Rocketwe successfully
completescomplete the necessary preclinical studies and clinical trials,
Rocketwe cannot predict when, or if,
Rocketwe will obtain regulatory approval to commercialize a product candidate and the approval may be for a
more narrownarrower indication than
Rocket seeks.Rocketwe seek.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate.
Rocket hasWe have not received approval from regulatory authorities in any jurisdiction to market any of
itsour product candidates. Even if
Rocket’sour product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, issue a complete response letter, or ultimately,
Rocketwe may not be able to obtain regulatory approval. In addition,
Rocketwe may experience delays or rejections if an FDA Advisory Committee recommends disapproval or restrictions on use. In addition,
Rocketwe may experience delays or rejections based upon additional government regulation from future legislation or administrative actions, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that
Rocket’sour data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of data obtained from preclinical and clinical testing could delay, limit or prevent the receipt of marketing approval for a product candidate.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or
Risk Evaluation and Mitigation Strategies, or REMS.other labeling changes. These regulatory authorities may require precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials.
Regulatory authorities may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a Risk Evaluation and Mitigation Strategy, or REMS, or equivalent requirement. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of
Rocket’sour product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for
Rocket’sour product candidates and materially harm
itsour business, financial condition, results of operations and prospects.
31
Even if
Rocket obtainswe obtain regulatory approval for a product candidate,
itsour products will remain subject to regulatory scrutiny.
Even if
Rocket obtainswe obtain regulatory approval in a jurisdiction, the applicable regulatory authority may still impose significant restrictions on the indicated uses or marketing of
Rocket’sour product candidates or impose ongoing requirements for potentially costly post-approval studies, post-market surveillance or patient or drug restrictions. Additionally, the holder of an approved
Biologics License Application, or BLA is obligated to monitor and report adverse events and any failure of a product to meet the specifications in the BLA. The holder of an approved BLA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. FDA guidance advises that patients treated with some types of gene therapy undergo follow-up observations for potential adverse events for as long as 15 years. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with
good manufacturing practices, or GMP, and current good tissue practice,
or cGMP,as well as adherence to commitments made in the BLA. If
Rocketwe or a regulatory agency
discoversdiscover previously unknown problems with a product such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions
relative toon that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If
Rocket failswe fail to comply with applicable regulatory requirements following approval of any of
itsour product candidates, a regulatory agency may take a variety of actions, including:
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| | issue a warning letter asserting that Rocket isissue a warning letter asserting that we are in violation of the law;
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| | seek an injunction or impose civil or criminal penalties or monetary fines; |
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| | suspend or withdraw regulatory approval;
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suspend any ongoing clinical studies; | | | |
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| | suspend any ongoing clinical studies;
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refuse to approve a pending marketing application, such as a BLA or supplements to a BLA submitted by us; | | | |
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| | refuse to approve a pending marketing application, such as a BLAseize products; or supplements to a BLA submitted by Rocket;
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refuse to allow us to enter into supply contracts, including government contracts. | | | |
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| | refuse to allow Rocket to enter into supply contracts, including government contracts.
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Any government investigation of alleged violations of law could require
Rocketus to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit
Rocket’sour ability to commercialize
itsour product candidates and generate revenues and could harm
itsour business, financial condition, results of operations and prospects.
In addition, the FDA’s policies, and those of comparable foreign regulatory authorities, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of
Rocket’sour product candidates.
RocketWe cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative actions, either in the U.S. or abroad. If
Rocket iswe are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if
Rocket iswe are not able to maintain regulatory compliance,
Rocketwe may lose any marketing approval which
Rocketwe may have obtained and
Rocketwe may not achieve or sustain profitability, which would materially harm
Rocket’sour business, financial condition, results of operations and prospects.
Rocket
We may never obtain FDA
or EMA approval for any of
itsour product candidates in the
United States,U.S. or the EU, and even if
Rocket does, Rocketwe do, we may never obtain approval for or commercialize any of
itsour product candidates in any other jurisdiction, which would limit
Rocket’sour ability to realize
itsour full market potential.
In order to eventually market any of
Rocket’sour product candidates in any particular
foreign jurisdiction,
Rocketwe must establish and comply with numerous and varying regulatory requirements regarding safety and efficacy on a jurisdiction-by-jurisdiction basis. Approval by the FDA in the
United States,U.S. or the EMA in the EU, if obtained, does not ensure approval by regulatory authorities in other countries or jurisdictions. In addition, preclinical studies and clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for
Rocketus and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of
Rocket’sour products in those countries. The foreign regulatory approval process involves
32
similar risks to those associated with FDA and EMA approval. Rocket doesWe do not have any product candidates approved for sale in any jurisdiction, including international markets, nor has Rockethave we attempted to obtain such approval. If Rocket failswe fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, Rocket’sour target market will be reduced and Rocket’sour ability to realize the full market potential of itsour products will be unrealized.
Rocket’s
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
The U.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates
may cause undesirable and unforeseen side effects or
be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.Gene therapy is still a relatively new approach to disease treatment and adverse side effects could develop with Rocket’s product candidates. There also is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biologic activity of the genetic material or other components of products used to carry the genetic material.
Possible adverse side effects that could occur with treatment with gene therapy products include an immunologic reaction soon after administration which could substantially limit the effectiveness and durability of the treatment. If certain side effects are observed in testing of Rocket’s potentialany future product candidates, Rocket may deciderestrict or be requiredregulate post-approval activities and affect our ability to haltprofitably sell any product for which we obtain marketing approval. Changes in regulations, statutes or delay further clinical developmentthe interpretation of itsexisting regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product candidates.
In addition to side effects caused bylabeling; (iii) the product candidate, the administration processrecall or related procedures associated with a given product candidate also can cause adverse side effects.discontinuation of our products; or (iv) additional record-keeping requirements. If any such adverse events occur, Rocket’s clinical trialschanges were to be imposed, they could adversely affect the operation of our business.
In the United States, there have been and continue to be legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the ACA, was passed, which substantially changed the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% (increased to 70% pursuant to the Bipartisan Budget Act of 2018, effective as of January 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and constitutional challenges in the United States Supreme Court; the Trump Administration issued various Executive Orders which eliminated cost sharing subsidies and various provisions that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices; and Congress has introduced several pieces of legislation aimed at significantly revising or repealing the ACA. The United States Supreme Court is expected to rule on a legal challenge to the constitutionality of the ACA in early 2021. The implementation of the ACA is ongoing, the 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. Litigation and legislation related to the ACA are likely to continue, with unpredictable and uncertain results. It is unclear whether the ACA will be overturned, repealed, replaced, or further amended. We cannot predict what affect further changes to the ACA would have on our business, especially given the new administration.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. In August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals for deficit reduction of at least $1.2 trillion for the years 2013 through 2021. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction, which triggered the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of, up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless Congress takes additional action. However, the Medicare sequester reductions under the Budget Control Act are suspended from May 1, 2020 through May 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this suspension until the end of the pandemic. In January 2013, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The Trump administration’s budget proposal for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. However, it is unclear whether the Biden administration will challenge, reverse, revoke or terminated. Underotherwise modify these executive and administrative actions after January 20, 2021. Additionally, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain circumstances,federal healthcare programs, incentivize manufacturers to lower the FDA,list price of their products and reduce the European Commission,out-of-pocket costs of drug products paid by consumers. HHS has already started the EMAprocess of soliciting feedback on some of these measures and, at the same time, is immediately implementing others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy for prior authorization, Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. It is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify these executive and administrative actions after January 20, 2021.
In addition, there have been several changes to the 340B drug pricing program, which imposes ceilings on prices that drug manufacturers can charge for medications sold to certain health care facilities. On December 27, 2018, the District Court for the District of Columbia invalidated a reimbursement formula change under the 340B drug pricing program, and CMS subsequently altered the FYs 2019 and 2018 reimbursement formula on specified covered outpatient drugs (“SCODs”). The court ruled this change was not an “adjustment” which was within the Secretary’s discretion to make but was instead a fundamental change in the reimbursement calculation. However, most recently, on July 31, 2020, the U.S. Court of Appeals for the District of Columbia Circuit overturned the district court’s decision and found that the changes were within the Secretary’s authority. On September 14, 2020, the plaintiffs-appellees filed a Petition for Rehearing En Banc (i.e., before the full court), but was denied on October 16, 2020. It is unclear how these developments could affect covered hospitals who might purchase our future products and affect the rates we may charge such facilities for our approved products in the future, if any. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, Congress has indicated that it may continue to seek new legislative and/or administrative measures to control drug costs.
Further, on July 24, 2020 and September 13, 2020, President Trump signed a series of Executive Orders aimed at lowering drug prices and at implementing several of the administration’s proposals. On November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified Part B providers and will apply in all U.S. states and territories for a seven-year period beginning January 1, 2021 and ending December 31, 2027. The Interim Final Rule has not been finalized and is subject to revision and challenge. Additionally, on November 20, 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Implementation of the amendments to the discount safe harbor have been delayed until at least January 1, 2023. Although a number of these, and other proposed measures will require authorization through additional legislation to become effective, and the Biden administration may reverse or otherwise change these measures, Congress has indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors.
There have been, and likely will continue to be, legislative and regulatory authoritiesproposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our product. Such reforms could order Rocket to cease further development of, or deny approval of, Rocket’shave an adverse effect on anticipated revenue from product candidates that we may successfully develop and for any or all targeted indications. Moreover, if Rocket elects, or is required, to not initiate or to delay, suspend or terminate any future clinical trial of any of its product candidates, the commercial prospects of such product candidateswhich we may be harmedobtain regulatory approval and Rocket’s ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm Rocket’saffect our overall financial condition and ability to develop other product candidates,candidates.
The United Kingdom’s withdrawal from the European Union could result in increased regulatory and
legal complexity, which may
harm Rocket’smake it more difficult for us to do business
financial conditionin Europe and
prospects significantly.Furthermore, if undesirable side effects caused by Rocket’s product candidate are identified followingimpose additional challenges in securing regulatory approval of a product candidate, several potentially significant negative consequences could result, including:
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| | regulatory authorities may suspend or withdraw approvals of such product candidate;
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| | regulatory authorities may require additional warnings on the label;
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| | Rocket may be required to change the way a product candidate is administered or conduct additional clinical trials; and
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Any of these occurrences may harm Rocket’s business, financial condition and prospects significantly.
Rocket may be unable to obtain orphan drug designation or exclusivity for some product candidates. If Rocket’s competitors are able to obtain orphan drug exclusivity for products that constitute the same drug and treat the same indications as itsour product candidates Rocket may not be ablein Europe and/or the United Kingdom.
We currently have clinical trial sites in the United Kingdom, contract laboratories in the United Kingdom conducting testing for our global clinical trials, and other collaborators and potential collaborators in the United Kingdom and throughout Europe. Pursuant to
have competing products approved byArticle 50 of the
applicable regulatory authority forTreaty on EU, the UK ceased being a
significantMember State of the EU on January 31, 2020. There was a transitional period,
of time.Regulatory authoritiesduring which EU laws, including pharmaceutical laws, continued to apply in some jurisdictions, including the U.S. andUK, however this ended on December 31, 2020. The UK reached a trade agreement with the European Union may designate drugs for relatively small patient populations as orphan drugs.on December 24, 2020, which became provisionally applicable on January 1, 2021 and will become formally applicable once ratified by both the UK and the EU. Under the Orphan Drug Actterms of 1983, the FDA may designatedeal, the EU and UK have separate regulatory regimes for pharmaceutical products, although there are some provisions for mutual recognition of standards, for example with regards to GMP. For instance, the UK will now no longer be covered by the centralized procedure for obtaining EEA-wide marketing authorizations for medicinal products, and a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient populationseparate process for authorization of fewer than 200,000 individualsmedicinal products will be required in the U.S.,UK, resulting in an authorization covering the UK or a patient population greater than 200,000 in the U.S. where there is no reasonable expectationGreat Britain (England, Scotland and Wales) only. The UK’s Medicines and Healthcare products Regulatory Agency (MHRA) has recently published detailed guidance for industry and organizations to follow now that the cost of developing the drugtransition period is over, which will be recovered from sales inupdated as the U.S. In the European Union, following the opinionUK’s regulatory position on medicinal products and medical devices evolves over time.
The cumulative effects of the EMA’s Committee for Orphan Medicinal Products,disruption to the European Commission grants orphan drug designationregulatory framework may add considerably to promote the development lead time to marketing authorization and commercialization of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union and/or the United Kingdom. It is possible that there will be increased regulatory complexities which can disrupt the timing of our clinical trials and regulatory approvals. In addition, changes in, and legal uncertainty with regard to, national and international laws and regulations may present difficulties for our clinical and regulatory strategy.
In addition, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with the European Union. Given these possibilities and others we may not anticipate, as well as the absence of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union would have and how such withdrawal would affect us, and the full extent to which our business could be sufficientadversely affected.
Risks Related to justifyNoncompliance with Applicable Laws or Regulations
If we are successful in commercializing any product, our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.
Healthcare providers, physicians and third-party payors will play a primary role in the
necessary investment in developing the drug or biologic product.33
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indicationrecommendation and prescription of any products for which itwe obtain regulatory approval. Our arrangements with third-party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute any products for which we obtain regulatory approval. These include the following:
The federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, paying, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation or arranging of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. This statute has such designation,been interpreted to apply to arrangements between pharmaceutical manufacturers on the product is entitledone hand, and prescribers, purchasers and formulary managers, among others, on the other. A person or entity can be found guilty of violating the federal Anti-Kickback Statute without actual knowledge of the statute or specific intent to violate it. In addition, the government may assert 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 civil False Claims Act or federal civil money penalties statute. On November 20, 2020, OIG finalized further modifications to the federal Anti-Kickback Statute. Under the final rules, OIG added safe harbor protections under the Anti-Kickback Statute for certain coordinated care and value-based arrangements among clinicians, providers, and others. These rules (with exceptions) became effective January 19, 2021. We continue to evaluate what effect, if any, these rules will have on our business;
The federal civil and criminal false claims laws, including the federal civil False Claims Act, and federal civil monetary penalties laws which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false, fictitious or fraudulent; knowingly making or causing a false statement or record material to a periodfalse or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government A claim that includes items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim under the federal civil False Claims Act. Manufacturers can be held liable under the False Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The False Claims Act also permits a private individual acting as a “whistleblower” to bring qui tam actions on behalf of the federal government alleging violations of the False Claims Act and to share in any monetary recovery;
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it;
HIPAA, as amended by the Health Information Technology and Clinical Health Act, or HITECH, and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” those independent contractors or agents of covered entities that create, receive, maintain, transmit or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, 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 attorney’s fees and costs associated with pursuing federal civil actions. In addition, there may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;
The federal Physician Payments Sunshine Act created under the Affordable Care Act and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to HHS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;
Federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and
Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope and apply regardless of payor. These laws are enforced by various state agencies and through private actions. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant federal government compliance guidance, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and restrict marketing practices or require disclosure of marketing exclusivity,expenditures or drug pricing. Some state and local laws require the registration of pharmaceutical sales representatives. State and foreign laws also govern the privacy and security of health information in some circumstances. These data privacy and security laws may differ from each other in significant ways and often are not pre-empted by HIPAA, which precludesmay complicate compliance efforts.
Efforts to ensure that our business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant administrative, civil and criminal penalties, damages, fines, disgorgement, the FDAexclusion from participation in federal and state healthcare programs, individual imprisonment, reputational harm, and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the European Commissionphysicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from approving another marketing application for a productgovernment funded healthcare programs.
If we fail to comply with applicable U.S. and foreign privacy and data protection laws and regulations, we may be subject to liabilities that constitutesadversely affect our business, operations and financial performance.
We may also be subject to or affected by foreign laws and regulation, including regulatory guidance, governing the same drug treating the same indication forcollection, use, disclosure, security, transfer and storage of personal data, such as information that marketing exclusivity period, exceptwe collect about patients and healthcare providers in limited circumstances. If another sponsor receives such approval before Rocket does (regardless of Rocket’s orphan drug designation), Rocket will be precluded from receiving marketing approval for Rocket’s product for the applicable exclusivity period. The applicable period is seven yearsconnection with clinical trials and our other operations in the U.S. and 10 yearsabroad. For example, the E.U.’s General Data Protection Regulation (“GDPR”), which introduces strict requirements for processing personal data. The GDPR increases 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 sensitive personal data, such as physical health conditions, imposes heightened compliance burdens under the GDPR and is a topic of active interest among foreign regulators. In addition, the GDPR provides for breach reporting requirements, more robust regulatory enforcement and fines 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 the various requirements, significant effort and expense has been, and 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 affect our business operations if compliance becomes substantially more costly than under current requirements.
The global legislative and regulatory landscape for privacy and data protection continues to evolve, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. This evolution may create uncertainty in our business, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the European Union. The exclusivity period in the U.S. can be extended by six months if the BLA sponsor submits pediatric datafuture.
It is possible that fairly respond to a written request from the FDA for such data. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivityeach of these privacy laws may be revoked if any regulatory agency determinesinterpreted and applied in a manner that is inconsistent with our practices. Any failure or perceived failure by us to comply with federal, state, or foreign laws or self-regulatory standards could result in negative publicity, diversion of management time and effort and proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. As we continue to expand into other foreign countries and jurisdictions, we may be subject to additional laws and regulations that may affect how we conduct business.
We are subject to environmental, health and safety laws and regulations, and we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities.
Our operations, including our development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations. These laws and regulations govern, among other things, the requestcontrolled use, handling, release and disposal of and the maintenance of a registry for, designation was materially defectivehazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens. If we fail to comply with such laws and regulations, we could be subject to fines or if the manufacturer is unableother sanctions.
As with other companies engaged in similar activities, we face a risk of environmental liability inherent in our activities, including liability relating to
assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.Even if Rocket requests orphan drug designation for any of its product candidates, Rocket cannot guarantee that the FDA or the European Commission will grant any of its product candidates such designation. Additionally, the designation of any of Rocket’s product candidates as an orphan product does not guarantee that any regulatory agency will accelerate regulatory reviewreleases of or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agencyexposure to grant orphan drug designation to product candidates of other companies that treat the same indications as Rocket’s product candidates prior to Rocket’s product candidates receiving exclusive marketing approval.
Even if Rocket obtains orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition. In the U.S., even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drughazardous or is clinically superior in that it is shown to be safer,biological materials. Environmental, health and safety laws and regulations are becoming more effective or makes a major contribution to patient care. In the European Union, marketing authorizationstringent. We may be grantedrequired to a similar medicinal product forincur substantial expenses in connection with future environmental compliance or remediation activities, in which case, the same orphan indication if:
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Risks Related to Manufacturing, Commercialization and Development and Commercialization of Rocket’sOur Product Candidates
