| | | | | | | | | Product
|
|
| | | | Product | Mode of Delivery |
Indication | Indication
|
|
Current Status
STUDY NAME |
| Our Territory | Tyvaso (treprostinil) |
Inhaled | Inhaled
|
| Pulmonary hypertension associated with chronic obstructive pulmonary disease (WHO Group 3) |
| Phase III
PERFECT |
| Worldwide | Treprostinil Technosphere®
Tyvaso (treprostinil) |
Inhaled | Inhaled dry powder
Chronic fibrosing interstitial lung disease |
| PAH
|
| Phase III
BREEZE TETON |
| Worldwide | Orenitram
(treprostinil)
OreniPro (once-daily, oral treprostinil prodrug) |
Oral | Oral
PAH |
Phase I | Pulmonary hypertension associated with left ventricular diastolic dysfunction
(WHO Group 2)
|
| Phase III
SOUTHPAW
|
| Worldwide | RemoPro™ (pain-free subcutaneous Remodulin prodrug) | Continuous subcutaneous | PAH | Phase I | Worldwide | | Unexisome (exosome-based product) | Intravenous | Bronchopulmonary Dysplasia | Phase I | Worldwide | | Ralinepag (IP receptor agonist) |
Oral | Oral
PAH |
| PAH
|
| Phase III
|
| Worldwide, subject to out-licenses granted in the People’s Republic of China and certain other Asian territories | Aurora-GT™Aurora-GT
(eNOS gene therapy)
|
Intravenous | Intravenous
PAH | Phase II
SAPPHIRE
| PAH
|
| Phase II/III
SAPPHIRE
|
| United States | SM04646 (Wnt pathway inhibitor)
|
| Inhaled
|
| Idiopathic pulmonary fibrosis
|
| Phase I
|
| United States and Canada
|
Implantable System for Remodulin On July 30, 2018, we obtained FDA approval of the Implantable System for Remodulin in the United States. We developed this system in collaboration with Medtronic, Inc. (Medtronic). The system incorporates a proprietary Medtronic intravascular infusion catheter with Medtronic’s SynchroMed® II implantable infusion pump and related infusion system components (together referred to as the Implantable System for Remodulin) in order to deliver Remodulin for the treatment of PAH. We believe this technology has the potential to reduce many of the patient burdens and other complications associated with the use of external pumps to administer prostacyclin analogues. The FDA approved Medtronic’s premarket approval application (PMA) for the device in December 2017, and our NDA for the use of Remodulin in the implantable pump in July 2018. Medtronic must satisfy certain conditions to its PMA approval before we can launch the Implantable System for Remodulin. As a result of FDA communications in early 2020, Medtronic has indicated that these conditions will not be satisfied during 2020. We have no control over when or whether these conditions will be met. In February 2019, we entered into a commercialization agreement under which Medtronic will manufacture and supply the Implantable System for Remodulin, and we will manufacture and supply Remodulin for use in the system. Each party will perform certain additional activities to support the commercialization of the Implantable System for Remodulin, and we will reimburse Medtronic’sMedtronic's costs to provide such support. We will pay Medtronic a royalty equal to ten percent of our net sales of Remodulin administered via the Implantable System for Remodulin. We have entered into an agreement with CVS SpecialtyCaremark, L.L.C. (CVS Specialty) to provide refills of implanted pumps at its infusion centers. Once Medtronic satisfies its remaining PMA conditions, we plan to approach the launch in a careful and deliberate manner to ensure the safety of patients and the long-term success of the program. At this time,In December 2019, we are preparing to launch the Implantable System for Remodulin in 2020 at the ten clinical trial sites that participatedannounced a delay in the pivotal DelIVery clinical studypotential launch of the Implantable System for Remodulin and upfrom 2020 to approximately 100 additional sites.2021. These timelines are subject to a number of factors outside of our control, including Medtronic’s satisfaction of its PMA conditions, and the ability of hospitals to complete training and other necessary preparations.preparations, and the potential impact of the COVID-19 pandemic. We are also working with Medtronic to develop a next-generation system incorporating various enhancements. Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. Medtronic entered into a consent decree with the FDA in April 2015, which required Medtronic to complete certain corrections and enhancements to the SynchroMed II pump and the associated quality system. The consent decree restricted Medtronic’s ability to manufacture and distribute the SynchroMed II infusion system, unless specific conditions were met, including retention of a third-party expert to inspect the affected quality system and certify that the quality system complies with the requirements of the consent decree. Medtronic completed the third-party certification audits in January 2017 and successfully completed an FDA inspection in June 2017. After the inspection, the FDA lifted the consent decree restrictions on manufacturing, distribution, and design in September 2017. The consent decree remains in effect, with
ongoing obligations for annual third-party audits continuing until September 2020. Non-compliance by Medtronic with its consent decree could interrupt the manufacture and sale of the Implantable System for Remodulin. RemUnity
Remunity Pump, RemoPro, and RemoProRemoLife In December 2014, we entered into an exclusive agreement with DEKA Research & Development Corp. (DEKA) to develop a pre-filled, semi-disposable system for subcutaneous delivery of treprostinil, which we call the RemUnity system.Remunity Pump for Remodulin. Under the terms of the agreement, we are fundingfunded the development costs related to the RemUnity systemRemunity Pump and will pay product fees and a single-digit royalty to DEKA based on commercial sales of the systemRemunity Pump and the treprostinilRemodulin drug product sold for use with the system. The RemUnity systemRemunity Pump consists of a small, lightweight, durable pump that isand controller intended to have a service life of at least three years. The RemUnity systemRemunity Pump uses disposable cartridges pre-filled exclusively with treprostinil,Remodulin drug product, which can be connected to the pump with less patient manipulation than is typically involved in filling currently-available subcutaneous pumps. In November 2019, we entered into a supply agreement with an affiliate of DEKA to manufacture and supply the Remunity Pump to us. Under the terms of the agreement, we will reimburse all of DEKA’s and its affiliates’ costs to manufacture the Remunity Pump. In May 2019, DEKA obtained FDA 510(k) clearance of a patient-filled version of the RemUnity system and subsequently submittedRemunity Pump. In February 2020, the FDA cleared an additional 510(k) filing to the FDA seeking to enableenabling Remunity cartridges to be pre-filled with Remodulin by contracted specialty pharmacy distributorspharmacies in order to improve convenience for patients. We intendhave begun the process of launching the pharmacy-filled Remunity Pump. However, the launch of the Remunity Pump has been delayed due to COVID-19-related issues impacting DEKA’s ability to make a commercial supply of pumps and ancillary supplies available. We anticipate being able to launch the RemUnity system when thissale of the Remunity Pump in the near term. For additional FDA clearance is obtained. detail, see the section above entitled Impact of COVID-19 on our Business. We are also are developing a version of the system that includeswill include disposable components that are pre-filled as part of the manufacturing process. This version is expected to have an extended shelf life and simplified supply chain and will allow patients to keep more drug product on hand. We are also conducting a series of phase I studies to develop a new prodrug of treprostinil called RemoPro, which is intended to enable subcutaneous delivery of treprostinil therapy without the site pain currently associated with subcutaneous Remodulin. As a prodrug, RemoPro is designed to be inactive in the subcutaneous tissue, which should decrease or eliminate site pain, and to metabolize into treprostinil once it is absorbed into the blood.
Finally, we are also collaborating with Smiths Medical to develop RemoLife, a next-generation pump for Remodulin. In August 2018, we acquired SteadyMed Ltd. (SteadyMed), which is developing Trevyent, a post-phase III development-stage drug-device combination product that combines SteadyMed’s two-day, single use, disposable PatchPump technology with treprostinil, for the subcutaneous treatment of PAH. In August 2017, SteadyMed received a refuse-to-file letter from the FDA with respect to its 505(b)(2) NDA for Trevyent. SteadyMed met with the FDA in November 2017, and the FDA indicated that SteadyMed does not need to conduct any clinical trials to prove the safety or efficacy of Trevyent. We resubmitted thesubmitted a 505(b)(1) NDA on June 27, 2019.Orenitram
In 2013,for Trevyent to the FDA approved Orenitram forin June 2019.
In April 2020, the treatmentFDA issued a complete response letter (CRL) related to our NDA indicating that some of PAH patientsthe deficiencies previously raised by the FDA had not yet been addressed to improve exercise capacity. The primary study that supported efficacyits satisfaction. We have one year from the date of the CRL to resubmit our NDA to the FDA, which is expected to trigger a six-month review period by the FDA. We are in the process of preparing our NDA resubmission, which we expect to file in 2021. OreniPro We are developing an oral prodrug version of Orenitram we call OreniPro, in order to provide increased tolerability and convenience through a once-daily dosing regimen. We commenced a phase I study in early March 2020. Although the study enrollment was a 12-week monotherapy study (FREEDOM-M) in which PAH patientspaused due to COVID-19, we recently resumed patient enrollment. Tyvasowere not on any approved background PAH therapy. In August 2018, we announced that our INCREASE phase IVIII registration study of Orenitram called FREEDOM-EV hadTyvaso in patients with WHO Group 3 pulmonary hypertension associated with interstitial lung disease (including idiopathic pulmonary fibrosis and combined pulmonary fibrosis and emphysema) (PH-ILD). Based on our preliminary analysis of the results, the INCREASE study met its primary endpoint of delayeddemonstrating improvement in six-minute walk distance (6MWD). Tyvaso increased 6MWD by 21 meters versus placebo (p=0.0043, Hodges-Lehmann estimate) after 16 weeks of treatment. Tyvaso also
showed benefits across several key subgroups, including etiology of PH-ILD, disease severity, age, gender, baseline hemodynamics, and dose. Significant improvements were also observed in each of the study’s secondary endpoints, including reduction in the cardiac biomarker NT-proBNP, time to first clinical worsening event. event, change in peak 6MWD at Week 12, and change in trough 6MWD at week 15. Treatment with Tyvaso of up to 12 breaths per session, four times daily, was well tolerated and the safety profile was consistent with previous Tyvaso studies and known prostacyclin-related adverse events. In particular, the preliminary results showed that Orenitram, when taken with an oral PAH background therapy, decreased the risk of a morbidity/mortality event versus placebo by 26 percent (p=0.0391). In December 2018,June 2020, we submitted aan efficacy supplement (sNDA) to our NDAthe Tyvaso new drug application, which we expect to result in revised labeling reflecting the outcome of the INCREASE study. In April 2020, in response to questions we submitted to the FDA seeking approval foralong with a label amendment reflectingpre-sNDA meeting request and briefing package, the FREEDOM-EV results, and we are evaluating whetherFDA indicated that the results couldof the INCREASE study appear to support marketing applications for Orenitram outside the United States. Additional FREEDOM-EV data were presented at a medical conference in January 2019, including data showing a 61 percent decrease in the riskour proposed indication of disease progression fortreatment of patients taking Orenitram, when comparedwith PH-ILD to placebo (p=0.0002). In addition, in participants for which data are available (89 percent), Orenitram was associated with a 37 percent decreased risk of mortality compared with placebo (p=0.0324) at study closure (which includes additional data accrued in the open-label extension study).improve exercise ability and delay clinical worsening. We are also enrolling patients inconducting a phase III registration study called PERFECT, which is a study of Orenitram (SOUTHPAW) to treatTyvaso in patients with WHO Group 2 pulmonary hypertension (specifically associated with left ventricular diastolic dysfunction). 3 PH-COPD. There are presently no FDA approved therapies indicated for the treatment of WHO Group 23 pulmonary hypertension. In the United States alone, we believe there are approximately 30,000 PH-ILD patients and 100,000 PH-COPD patients. Finally, we are commencing a new phase III registration study called TETON, which is a randomized, double-blind, placebo-controlled, 24-week, phase III study of Tyvaso in subjects with chronic fibrosing interstitial lung disease (which includes patients with idiopathic interstitial pneumonias (IIP), chronic hypersensitivity pneumonitis (CHP), and environmental/occupational lung disease). Subjects will be randomized in a 1:1 ratio to receive inhaled treprostinil or placebo. The primary endpoint of this study is planned to be the change from baseline to week 24 in absolute forced vital capacity (FVC). This study was prompted by data from the INCREASE study, which demonstrated improvements in parameters of lung function in pulmonary hypertension patients with fibrotic lung disease (FVC and reduced exacerbations of underlying lung disease). Specifically, in the INCREASE study, treatment with inhaled treprostinil resulted in significant improvements in percent predicted FVC at Weeks 8 and 16, with subjects having underlying etiologies of IIP (Week 8: 1.95%, p=0.0373 and Week 16: 2.88%; p=0.0096) and idiopathic pulmonary fibrosis (Week 8: 2.543%; p=0.0380 and Week 16: 3.504%; p=0.0147) showing greater improvement. Consistent positive effects were also observed in patients with CHP and environmental/occupational lung disease. These data points, combined with substantial preclinical evidence of antifibrotic activity of treprostinil, suggest that inhaled treprostinil may offer a treatment option for patients with fibrotic lung disease. We are evaluating whether the INCREASE results could support marketing applications for Tyvaso outside the United States. Under our BLA approval for Unituxin, the FDA has imposed certain post-marketing requirements and post-marketing commitments on us. We are conducting additional clinical and non-clinicalnonclinical studies to satisfy these requirements and commitments. While we believe we will be able to complete these studies, any failure to satisfy these requirements or commitments could result in penalties, including fines or withdrawal of Unituxin from the market, unless we are able to demonstrate good cause for the failure. We are pursuing a label expansion for Unituxin in combination with two other drugs to treat cancer, irinotecan and temozolomide, for the treatment of pediatric patients with relapsed or refractory neuroblastoma, based on the results of the ANBL1221 study conducted by the Children’s Oncology Group. We met with the FDA in April 2020 to discuss the proposed label expansion, and plan to file a supplemental BLA in the near term. In addition, we are conducting a study (DISTINCT) of Unituxin in adult patients with small cell lung cancer, which is another GD2-expressing cancer. During the fourth quarter of 2017, we completed the phase II portion of the study, and commenced the phase III portion of the study following an interim safety review. The phase III portion of the DISTINCT study is now fully enrolled with 472 patients, and we expect to announce the results by the first quarter of 2020. We are also conducting preclinical research to determine Unituxin’s potential activity against other types of GD2-expressing tumors. These research and development efforts into new indications for Unituxin have been substantially outsourced to a contract research organization called Precision Oncology, LLC. Unituxin therapy is associated with severe side effects, including infections, infusion reactions, hypokalemia, hypotension, pain, fever, and capillary leak syndrome. In post-approval use of Unituxin, the adverse reactions of prolonged urinary retention, transverse myelitis, and reversible posterior leukoencephalopathy syndrome have been observed. Unituxin’s label also includes a boxed warning related to serious infusion reactions and neurotoxicity.
Finally, we are developing a fully humanized (non-chimeric) version of dinutuximab, the active ingredient in Unituxin. We expect this new version to reduce some of the side effects associated with Unituxin, which is a chimeric composed of a combination of mouse and human proteins. Tyvaso
We are enrolling a phase III registration study called INCREASE, which is a study of Tyvaso in patients with WHO Group 3 pulmonary hypertension associated with interstitial lung disease (specifically associated with idiopathic pulmonary fibrosis or combined pulmonary fibrosis and emphysema). The study is now over 90 percent enrolled. We are also enrolling a phase III registration study called PERFECT, which is a study of Tyvaso in patients with WHO Group 3 pulmonary hypertension associated with chronic obstructive pulmonary disease. There are presently no FDA approved therapies indicated for the treatment of WHO Group 3 pulmonary hypertension.
In addition, we are developing new devices to further optimize the delivery of inhaled treprostinil, including a pro re nata (as needed) device called Spiresta™.
Treprostinil Technosphere In September 2018, we entered into a worldwide, exclusive license and collaboration agreement with MannKind Corporation (MannKind) for the development and commercialization ofWe are developing a dry powder formulation of treprostinil called Treprostinil Technosphere for the treatment of PAH. The agreement became effective on October 15, 2018.PAH, under an in-license from MannKind Corporation (MannKind). Treprostinil Technosphere incorporates the dry powder formulation technology and Dreamboat® inhalation device technology used in MannKind’s Afrezza® (insulin human) Inhalation Powder product, which was approved by the FDA in 2014. If the FDA approves Treprostinil Technosphere, we believe this new inhaled treprostinil therapy will provide substantial lifestyle benefits to PAH patients, as compared with Tyvaso therapy, because it will be: (1) less time consuming to administer and easier to maintain as the device and drug will be provided in a pre-filled, single use disposable cassette eliminating the need for cleaning and filling; and (2) mobile and more convenient, as the compact design of the Dreamboat device and drug cassettes used with Treprostinil Technosphere can easily fit into the patient’s pocket and do not require electricity.
We also have the right to develop a single-use device based on MannKind’s Cricket® design. The Cricket device would come pre-loaded with treprostinil and would be discarded immediately after use. In contrast, we envision each Dreamboat device would be re-usable.Under our agreement with MannKind, we are responsible for global development, regulatory and commercial activities related to Treprostinil Technosphere, and we share manufacturing responsibilities with MannKind. We plan to commencecommenced a clinical study (called BREEZE) duringin September 2019 to evaluate the safety and pharmacokinetics of switching PAH patients from Tyvaso to Treprostinil Technosphere, as well asTechnosphere. In March 2020, we commenced a pharmacokineticsecond clinical study in healthy volunteers.volunteers to compare the pharmacokinetics of Treprostinil Technosphere to Tyvaso. The FDA has indicated that these two studies, if successful, will be the only clinical studies necessary to support FDA approval. Under
Unexisome Unexisome is a next generation, development-stage cell therapy utilizing exosomes to treat bronchopulmonary dysplasia (BPD), which is a chronic lung disease that affects newborns (mostly premature newborns) and infants. BPD results from damage to the termslungs caused by mechanical ventilation (respirators) and long-term use of the agreement,oxygen, and impacts approximately 12,000 infants annually. Exosomes are cell-secreted vesicles generated by virtually all cells, including cell types used in therapeutic applications. Exosomes serve as potent vehicles for cell-to-cell communication and include multiple mechanisms of action. In 2019, we paid MannKind $45.0 million following the effectivenesscommenced a phase I safety study of the agreementUnexisome in October 2018,preterm neonates at high risk for BPD. Ralinepag Ralinepag is a next-generation, oral, selective, and we are required to make potential milestone payments to MannKind of up to $50.0 million upon the achievement of specific development targets. The first $12.5 million of these milestone payments became due and was paid in March 2019. MannKind is also entitled to receive low double-digit royalties on our net sales of the product. In addition, we have the option, in our sole discretion, to expand the license to include other active ingredientspotent prostacyclin receptor agonist being developed for the treatment of pulmonary hypertension. We will pay MannKind up to $40.0 million in additional option exercise and development milestone payments for each product (if any) added to the license pursuant to this option, as well as a low double-digit royalty on our net sales of any such product.We also entered into a research agreement with MannKind under which MannKind will conduct research related to products outside the scope of the licensing and collaboration agreement. We paid MannKind $10.0 million in the third quarter of 2018 in consideration for its performance under the research agreement.
Aurora-GT
PAH. We are enrollingconducting two phase III studies of ralinepag: (1) ADVANCE OUTCOMES, which is an event-driven study of ralinepag in PAH patients (with a primary endpoint of time to first clinical worsening event); and (2) ADVANCE CAPACITY, studying the effect of ralinepag on exercise capacity in PAH patients (with a primary endpoint of change in peak oxygen uptake via cardiopulmonary exercise test). Both of these studies are global, multi-center, placebo-controlled trials of patients on approved oral background PAH therapies. Aurora-GT We are conducting a phase II/IIIII study (called SAPPHIRE) of a gene therapy product called Aurora-GT, in which a PAH patient’s own endothelial progenitor cells are isolated, transfected with the gene for human endothelial NO-synthase (eNOS), expanded ex-vivo and then delivered to the same patient. This product is intended to rebuild the blood vessels in the lungs that are destroyed by PAH. This study is being conducted in Canada, and is sponsored by Northern Therapeutics, Inc., a Canadian entity in which we have a 49.7 percent voting stake and a 71.8 percent financial stake. We have the exclusive right to pursue this technology in the United States, and plan to seek FDA approval of Aurora-GT if SAPPHIRE is successful.
LNG01 (formerly SM04646) We are developing LNG01, a Wnt pathway inhibitor formerly known as SM04646, In September 2018, which we entered into an exclusive license agreement within-licensed from Samumed LLC (Samumed) providing us exclusive U.S. and Canadian rights to SM04646, a phase I development-stage Wnt pathway inhibitor being developedin September 2018, for the treatment of idiopathic pulmonary fibrosis (IPF). The Wnt pathway is one of the primary signaling pathways essential for the normal development of all multicellular animals, and for the growth and maintenance of various adult tissues. Recent evidence suggests that aberrant Wnt signaling may be involved in the pathogenesis of chronic lung disease such as IPF. Samumed completed a phase I, multiple dose clinical trial of SM04646 in April 2019. The FDA has granted orphan drug designation for SM04646 for the treatment of IPF. Under our agreement with Samumed, we paid Samumed $10.0 million up-front,2019, and we will pay Samumed additional consideration of up to $340.0 million in
developmental milestone payments, plus up to low double-digit royalties on our net sales of the product. Under the terms of the agreement, our subsidiary, Lung Biotechnology PBC, will conduct and fund all development, regulatory and commercialization activities for SM04646 in the United States and Canada. Samumed retains development and commercialization rights for SM04646 for all markets outside of these two countries.
Ralinepag
On November 15, 2018, we entered into an exclusive license agreement with Arena Pharmaceuticals, Inc. (Arena) related to ralinepag, a next-generation, oral, selective and potent prostacyclin receptor agonist being developed for the treatment of PAH. On January 24, 2019, in connection with the closing of the transactions contemplated by the license agreement: (1) Arena granted to us perpetual, irrevocable and exclusive rights throughout the universe to develop, manufacture and commercialize ralinepag; (2) Arena transferred to us certain other assets related to ralinepag, including, among others, related domain names and trademarks, permits, certain contracts, inventory, regulatory documentation, Investigational New Drug (IND) Application No. 109021 (related to ralinepag) and non-clinical, pre-clinicalis planning additional nonclinical and clinical trial data; (3) we assumed certain limited liabilities from Arena, including, among others, all obligations arising after the closing under the assumed contracts and the IND described above; and (4) we paid Arena an upfront payment of $800.0 million, which we expensed as acquired in-process research and development and included within research and development expenses on our consolidated statements of operations for the three months ended March 31, 2019. We will also pay Arena: (1) a one-time payment of $250.0 million for the first, if any, marketing approval we receive in the United States for an inhaled version of ralinepag to treat PAH; (2) a one-time payment of $150.0 million for the first, if any, marketing approval we receive in any of Japan, France, Italy, the United Kingdom, Spain or Germany for an oral version of ralinepag to treat any indication; and (3) low double-digit, tiered royalties on net sales of any pharmaceutical product containing ralinepag as an active ingredient, subject to certain adjustments for third party license payments.
We are continuing the ongoing phase III ADVANCE OUTCOMES study initiated by Arena, which is an event-driven study of ralinepag in PAH patients, with a primary endpoint of time to first clinical event. We are also planning one additional phase III trial, called ADVANCE CAPACITY, studying the effect of ralinepag on exercise capacity in PAH patients (with a primary endpoint of change in peak oxygen uptake via cardiopulmonary exercise test). Both of these studies are global, multi-center, placebo-controlled trials of patients on approved oral background PAH therapies. In May 2019, we decided not to initiate a third potential phase III study, previously referred to as ADVANCE ENDURANCE, with a primary endpoint of change in six-minute walk distance. We believe this decision will accelerate the timeline for enrollment of the other two studies, which we believe have a greater probability of success.
studies. Each year, end stageend-stage organ failure kills millions of people. A significant number of these patients could have benefited from an organ transplant. Unfortunately, the number of usable, donated organs available for transplantation has not grown significantly over the past half century while the need has soared. Our long-term goals are aimed at addressing this shortage. With advances in technology, we believe that creating an unlimited supply of tolerable manufactured organs is now principally an engineering challenge, and we are dedicated to finding engineering solutions. Since 2011, we have been engaged in research and development of a variety of technologies designed to increase the supply of transplantable organs and tissues and to improve outcomes for transplant recipients. These programs include preclinical research and development of alternative tissue
sources through tissue and organ xenotransplantation, regenerative medicine, biomechanical lungs, and other technologies to create engineered organs and organ tissues. Although our primary focus is on engineered lungs, we are also developing technologytechnologies for other engineered organs, such as kidneys and hearts, and our manufactured lungs, kidneys and hearts have set records for viability in FDA-required animal models. In February 2018, we reached a significant milestone by achieving 30-day survival of our genetically modified porcine lungs in FDA-required animal models. In 2019, we entered into a collaboration agreement with the University of Alabama at Birmingham to develop a pilot-scale, designated pathogen-free facility to house genetically modified pigs, with a goal of commencing human clinical trials of xenotransplanted kidneys from pigs to humans in the near term. We are also developing technologies to improve outcomes for lung transplant recipients and to increase the supply of donor lungs through ex-vivo lung perfusion. While we continue to develop and commercialize therapies for rare and life-threatening conditions, we view organ manufacturing as the ultimate technology solution for a broad array of diseases, many of which (such as PAH) have proven incurable thus farto date through more traditional pharmaceutical and biologic therapies. For this reason, in 2015 we created a wholly-owned public benefit corporation called Lung Biotechnology PBC, chartered with the express purpose of “address[ing] the acute national shortage of transplantable lungs and other organs with a variety of technologies that either delay the need for such organs or expand the supply.”
Our prospects for revenue growth in 2020 have become more difficult to project in light of the effects of the COVID-19 pandemic, as described above under Overview—Impacts of COVID-19 on our Business. We continue to anticipate negative impacts on revenue arising from continued generic competition for Adcirca, and for Remodulin in 2019Europe. We will be able to keep selling Adcirca after the end of this year; in June 2020 we expect revenues will decrease as comparedamended the term of our license agreement related to 2018, largely dueAdcirca to extend the anticipated impactterm of a full yearthe agreement through December 31, 2023. Previously the agreement was scheduled to expire at the end of competition from generic versions of Adcirca, the first of which launched in August 2018.2020. We believe we willour pipeline of new products and potential label expansions for existing products should result in a return to revenue growth in the near term, although the precise timing depends on a number of factors, including factors that we cannot control. Refer to the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q. We believe future revenue growth will be driven by commercializing six key therapeutic platforms in our pipeline, each of which isare comprised of multiplethe enabling technologies:
technologies described below: | | | Platform
|
| Enabling Technologies
| Platform | Enabling Technologies | | Remodulin (parenteral treprostinil) |
| RemUnity,Remunity Pump, Implantable System for Remodulin, Trevyent, RemoLife, RemoPro
| Tyvaso (inhaled treprostinil) | INCREASE
| INCREASE study, PERFECT study, Spiresta, Treprostinil Technosphere,
TETON study | Orenitram (oral treprostinil) |
| FREEDOM-EV results, SOUTHPAW study
OreniPro | Unituxin (dinutuximab) |
| DISTINCT study (small cell lung cancer), humanizedHumanized dinutuximab, additional GD2-expressing tumors
| New Chemical Entities and New Biologics | Ralinepag, LNG01,
| ralinepag, SM04646, SAPPHIREstudy (gene therapy), Unexisome™ (exosome product for the treatment of bronchopulmonary dysplasia)
Unexisome | Organ Manufacturing and Transplantation |
| xenotransplantation,Xenotransplantation, three-dimensional organ printing, regenerative medicine, ex-vivo lung perfusion
|
We believe this diverse portfolio of six therapeutic platforms, each with multiple enabling technologies, will lead to significant revenue growth over the medium- and longer-term. For further details regarding our research and development initiatives, refer to the section above entitled Research and Development. We also anticipate growth in Orenitram revenues as a result of the expansion of Orenitram’s FDA-approved labeling to reflect the results of the FREEDOM-EV study, which expanded the Orenitram label to indicate that it also delays disease progression, in addition to improving exercise capacity. We believe these clinical results and updated labeling will result in increased use of Orenitram. Our ability to achieve theseour objectives, grow our business and maintain profitability will depend on many factors, including among others: (1) the timing and outcome of preclinical research, clinical trials and regulatory approvals for products we develop; (2) the timing and degree of our success in commercially launching new products; (3) the demand for our products; (4) the price of our products and the reimbursement of our products by public and private health insurance organizations; (5) the competition we face within our industry, including competition from generic companies;companies and new PAH therapies; (6) our ability to effectively manage our business in an increasingly complex legal and regulatory environment; (7) our ability to defend against challenges to our patents; (8) the duration and (8)severity of the COVID-19 pandemic; and (9) the risks identified in Part II, Item 1A—Risk Factors, included in this Quarterly Report on Form 10-Q.
We operate in a highly competitive market in which a small number of large pharmaceutical companies control a majority of available PAH therapies. These pharmaceutical companies are well established in the market and possess greater financial, technical, and marketing resources than we do. In addition, there are a number of investigational products in late-stage development that, if approved, may erode the market share of our existing commercial therapies and make market acceptance more difficult to achieve for any therapies we attempt to market in the future. Three and Six Months Ended June 30, 20192020 and June 30, 20182019 The following table below presents the components of total revenues (dollars in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | 2020 | | 2019 | | | Net product sales: | |
| | |
| | | | |
| | | | | | | | | | Remodulin | $ | 119.0 |
| | $ | 155.8 |
| | $ | (36.8 | ) | | (24 | )% | | $ | 264.3 |
| | $ | 311.3 |
| | $ | (47.0 | ) | | (15 | )% | | Tyvaso | 119.2 |
| | 109.6 |
| | 9.6 |
| | 9 | % | | 222.1 |
| | 213.4 |
| | 8.7 |
| | 4 | % | | Orenitram | 75.4 |
| | 54.0 |
| | 21.4 |
| | 40 | % | | 144.4 |
| | 112.4 |
| | 32.0 |
| | 28 | % | | Unituxin | 29.0 |
| | 25.1 |
| | 3.9 |
| | 16 | % | | 55.6 |
| | 50.0 |
| | 5.6 |
| | 11 | % | | Adcirca | 19.4 |
| | 29.1 |
| | (9.7 | ) | | (33 | )% | | 31.9 |
| | 49.1 |
| | (17.2 | ) | | (35 | )% | | Total revenues | $ | 362.0 |
| | $ | 373.6 |
| | $ | (11.6 | ) | | (3 | )% | | $ | 718.3 |
| | $ | 736.2 |
| | $ | (17.9 | ) | | (2 | )% |
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Net product sales: | | | | | | | | | | | | | | | | | | Remodulin | | $ | 155.8 | | $ | 159.5 | | (2) | % | $ | 311.3 | | $ | 286.3 | | 9 | % | Tyvaso | | | 109.6 | | | 105.9 | | 3 | % | | 213.4 | | | 200.5 | | 6 | % | Orenitram | | | 54.0 | | | 49.5 | | 9 | % | | 112.4 | | | 101.7 | | 11 | % | Unituxin | | | 25.1 | | | 19.8 | | 27 | % | | 50.0 | | | 37.8 | | 32 | % | Adcirca | | | 29.1 | | | 109.8 | | (73) | % | | 49.1 | | | 207.4 | | (76) | % | Total revenues | | $ | 373.6 | | $ | 444.5 | | (16) | % | $ | 736.2 | | $ | 833.7 | | (12) | % |
Revenues forIn April 2020, we saw a reduction in new patient prescriptions and new patient starts across all of our treprostinil-based products in the three and six months ended June 30, 2019 decreased by $70.9 million and $97.5 million, respectively, as compared to the same periods in 2018.
Remodulin net product sales decreased by $3.7 million for the three months ended June 30, 2019, as compared to the same period in 2018. $10.3 million of the decreaseUnited States, which we believe was due to price reductions, primarilythe inability or reluctance of patients to visit their physicians’ offices to determine whether our international distributors, partially offset by a net increase in total quantities shippedmedicines may be appropriate. During the remainder of $9.4 million. The net increase in shipments was due to higher quantities sold to our international distributors, partially offset by lower quantities sold to domestic distributors. Changes in quarterly Remodulin sales do not precisely reflect underlying patient demand or changes in patient census as, during the three months ended June 30, 2019, there was an increase insecond quarter, the number of new U.S. patients being treated withpatient prescriptions grew, and as of the end of the second quarter nearly reached pre-pandemic levels for all of our products. Refer to Overview—Impacts of COVID-19 on our Business for additional discussion.
Decreases in Remodulin as compared to the same period in 2018. Remodulin net product sales increased by $25.0 million for the six months ended June 30, 2019, as compared to the same period in 2018, due to an increase in total quantities shipped of $36.6 million, primarily to our international distributors, partially offset by an increase in gross-to-net revenue reductions of $8.7 million.Tyvaso net product sales for the three and six months ended June 30, 2020, compared to the same period in 2019, increasedwere driven by $3.7$22.7 million and $12.9$27.0 million decreases in sales outside the United States, respectively, asprimarily due to a decrease in quantities sold, which we believe resulted from generic competition and the impact of COVID-19. Reduction in U.S. Remodulin net product sales, compared to the same periods in 2018. These increases2019, of $14.1 million and $20.1 million for the three and six-month periods ended June 30, 2020, respectively, were primarily due to a price increase implementeddecrease in January 2019 and an increase inquantities sold, which we believe was mainly due to the numberimpact of patients being treated with Tyvaso, partially offset by higher gross-to-net revenue reductions.
COVID-19 as described above under Overview—Impacts of COVID-19 on our Business. Orenitram net product sales for the three and six months ended June 30, 20192020, increased by $4.5 million and $10.7 million, respectively, as compared to the same periods in 2018. These increases were2019, primarily due toresulting from an increase in thequantities sold, reflecting a growing number of patients being treated with Orenitram and a price increase implemented in January 2019.Unituxin net product sales forthat we believe has been driven by the three and six months ended June 30, 2019 increased by $5.3 million and $12.2 million, respectively, as comparedexpansion of Orenitram’s labeling to reflect the same periods in 2018. These increases were due to an increase in the number of vials sold and a price increase implemented in April 2019.
FREEDOM-EV clinical trial results. Adcirca net product sales for the three and six months ended June 30, 20192020, decreased by $80.7 million and $158.3 million, respectively, as compared to the same periods in 2018. These decreases were primarily2019, due to a decreasecontinuing decline in bottles sold following the onsetas a result of generic competition for Adcirca beginning in August 2018.Adcirca. We recognize revenues net of: (1) rebates and chargebacks; (2) prompt pay discounts; (3) allowance for sales returns; and (4) distributor fees. These are referred to as gross-to-net deductions and are primarily based on estimates reflecting historical experiences as well as contractual and statutory requirements. We currently estimate our allowance for sales returns using reports from our distributors and available industry data, including our estimate of inventory remaining in the distribution channel. The tables below include a reconciliation of the liability accounts associated with these deductions (in millions):
| | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2019 | | | Rebates and | | Prompt Pay | | Allowance for | | Distributor | | | | | | Chargebacks | | Discounts | | Sales Returns | | Fees | | Total | Balance, April 1, 2019 | | $ | 55.6 | | $ | 3.0 | | $ | 22.8 | | $ | 2.9 | | $ | 84.3 | Provisions attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | 43.7 | | | 8.1 | | | (1.7) | | | 4.2 | | | 54.3 | Prior periods | | | 3.3 | | | — | | | — | | | 0.2 | | | 3.5 | Payments or credits attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | (5.3) | | | (5.0) | | | — | | | (1.1) | | | (11.4) | Prior periods | | | (36.8) | | | (2.7) | | | (0.5) | | | (2.9) | | | (42.9) | Balance, June 30, 2019 | | $ | 60.5 | | $ | 3.4 | | $ | 20.6 | | $ | 3.3 | | $ | 87.8 |
| | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2018 | | | Rebates and | | Prompt Pay | | Allowance for | | Distributor | | | | | | Chargebacks | | Discounts | | Sales Returns | | Fees | | Total | Balance, April 1, 2018 | | $ | 83.4 | | $ | 4.0 | | $ | 7.3 | | $ | 5.8 | | $ | 100.5 | Provisions attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | 67.0 | | | 10.8 | | | 0.4 | | | 5.2 | | | 83.4 | Prior periods | | | 2.5 | | | — | | | — | | | 0.1 | | | 2.6 | Payments or credits attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | (11.7) | | | (6.0) | | | — | | | (1.1) | | | (18.8) | Prior periods | | | (56.0) | | | (3.7) | | | (0.8) | | | (4.0) | | | (64.5) | Balance, June 30, 2018 | | $ | 85.2 | | $ | 5.1 | | $ | 6.9 | | $ | 6.0 | | $ | 103.2 |
| | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2019 | | | Rebates and | | Prompt Pay | | Allowance for | | Distributor | | | | | | Chargebacks | | Discounts | | Sales Returns | | Fees | | Total | Balance, January 1, 2019 | | $ | 54.7 | | $ | 3.2 | | $ | 22.4 | | $ | 4.8 | | $ | 85.1 | Provisions attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | 91.0 | | | 15.7 | | | (0.8) | | | 8.2 | | | 114.1 | Prior periods | | | 1.9 | | | — | | | — | | | — | | | 1.9 | Payments or credits attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | (42.6) | | | (12.5) | | | — | | | (5.0) | | | (60.1) | Prior periods | | | (44.5) | | | (3.0) | | | (1.0) | | | (4.7) | | | (53.2) | Balance, June 30, 2019 | | $ | 60.5 | | $ | 3.4 | | $ | 20.6 | | $ | 3.3 | | $ | 87.8 |
| | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2018 | | | Rebates and | | Prompt Pay | | Allowance for | | Distributor | | | | | | Chargebacks | | Discounts | | Sales Returns | | Fees | | Total | Balance, January 1, 2018 | | $ | 74.0 | | $ | 4.7 | | $ | 7.2 | | $ | 3.4 | | $ | 89.3 | Provisions attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | 129.3 | | | 19.7 | | | 1.1 | | | 10.0 | | | 160.1 | Prior periods | | | 3.3 | | | — | | | — | | | — | | | 3.3 | Payments or credits attributed to sales in: | | | | | | | | | | | | | | | | Current period | | | (69.1) | | | (14.7) | | | — | | | (4.1) | | | (87.9) | Prior periods | | | (52.3) | | | (4.6) | | | (1.4) | | | (3.3) | | | (61.6) | Balance, June 30, 2018 | | $ | 85.2 | | $ | 5.1 | | $ | 6.9 | | $ | 6.0 | | $ | 103.2 |
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2020 | | | Rebates and Chargebacks | | Prompt Pay Discounts | | Allowance for Sales Returns | | Distributor and Other Fees | | Total | | Balance, April 1, 2020 | $ | 53.2 |
| | $ | 2.6 |
| | $ | 13.6 |
| | $ | 4.4 |
| | $ | 73.8 |
| | Provisions attributed to sales in: | | | | | | | | | | | Current period | 46.0 |
| | 7.7 |
| | — |
| | 5.3 |
| | 59.0 |
| | Prior periods | (1.2 | ) | | — |
| | — |
| | (0.7 | ) | | (1.9 | ) | | Payments or credits attributed to sales in: | | | | | | | | | | | Current period | (6.6 | ) | | (5.2 | ) | | — |
| | (1.2 | ) | | (13.0 | ) | | Prior periods | (36.5 | ) | | (2.5 | ) | | (0.4 | ) | | (3.1 | ) | | (42.5 | ) | | Balance, June 30, 2020 | $ | 54.9 |
| | $ | 2.6 |
| | $ | 13.2 |
| | $ | 4.7 |
| | $ | 75.4 |
| | | | | | | | | | | | | | Three Months Ended June 30, 2019 | | | Rebates and Chargebacks | | Prompt Pay Discounts | | Allowance for Sales Returns | | Distributor and Other Fees | | Total | | Balance, April 1, 2019 | $ | 55.6 |
| | $ | 3.0 |
| | $ | 22.8 |
| | $ | 2.9 |
| | $ | 84.3 |
| | Provisions attributed to sales in: | | | | | | | | | | | Current period | 43.7 |
| | 8.1 |
| | (1.7 | ) | | 4.2 |
| | 54.3 |
| | Prior periods | 3.3 |
| | — |
| | — |
| | 0.2 |
| | 3.5 |
| | Payments or credits attributed to sales in: | | | | | | | | | | | Current period | (5.3 | ) | | (5.0 | ) | | — |
| | (1.1 | ) | | (11.4 | ) | | Prior periods | (36.8 | ) | | (2.7 | ) | | (0.5 | ) | | (2.9 | ) | | (42.9 | ) | | Balance, June 30, 2019 | $ | 60.5 |
| | $ | 3.4 |
| | $ | 20.6 |
| | $ | 3.3 |
| | $ | 87.8 |
| | | | | | | | | | | | | | Six Months Ended June 30, 2020 | | | Rebates & Chargebacks | | Prompt Pay Discounts | | Allowance for Sales Returns | | Distributor Fees | | Total | | Balance, January 1, 2020 | $ | 51.7 |
| | $ | 2.6 |
| | $ | 14.2 |
| | $ | 4.1 |
| | $ | 72.6 |
| | Provisions attributed to sales in: | | | | | | | | | | | Current period | 90.1 |
| | 15.2 |
| | — |
| | 9.9 |
| | 115.2 |
| | Prior periods | 0.4 |
| | — |
| | — |
| | (0.3 | ) | | 0.1 |
| | Payments or credits attributed to sales in: | | | | | | | | | | | Current period | (46.5 | ) | | (12.7 | ) | | — |
| | (5.2 | ) | | (64.4 | ) | | Prior periods | (40.8 | ) | | (2.5 | ) | | (1.0 | ) | | (3.8 | ) | | (48.1 | ) | | Balance, June 30, 2020 | $ | 54.9 |
| | $ | 2.6 |
| | $ | 13.2 |
| | $ | 4.7 |
| | $ | 75.4 |
| | | | | | | | | | | | | | Six Months Ended June 30, 2019 | | | Rebates & Chargebacks | | Prompt Pay Discounts | | Allowance for Sales Returns | | Distributor Fees | | Total | | Balance, January 1, 2019 | $ | 54.7 |
| | $ | 3.2 |
| | $ | 22.4 |
| | $ | 4.8 |
| | $ | 85.1 |
| | Provisions attributed to sales in: | | | | | | | | | | | Current period | 91.0 |
| | 15.7 |
| | (0.8 | ) | | 8.2 |
| | 114.1 |
| | Prior periods | 1.9 |
| | — |
| | — |
| | — |
| | 1.9 |
| | Payments or credits attributed to sales in: | | | | | | | | | | | Current period | (42.6 | ) | | (12.5 | ) | | — |
| | (5.0 | ) | | (60.1 | ) | | Prior periods | (44.5 | ) | | (3.0 | ) | | (1.0 | ) | | (4.7 | ) | | (53.2 | ) | | Balance, June 30, 2019 | $ | 60.5 |
| | $ | 3.4 |
| | $ | 20.6 |
| | $ | 3.3 |
| | $ | 87.8 |
|
The table below summarizes cost of product sales by major category (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Category: | | | | | | | | | | | | | | | | | | Cost of product sales | | $ | 28.9 | | $ | 61.1 | | (53) | % | $ | 56.9 | | $ | 120.2 | | (53) | % | Share-based compensation (benefit) expense (1) | | | (2.2) | | | 0.6 | | (467) | % | | (1.1) | | | (5.3) | | 79 | % | Total cost of product sales | | $ | 26.7 | | $ | 61.7 | | (57) | % | $ | 55.8 | | $ | 114.9 | | (51) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | 2020 | | 2019 | | | Category: | |
| | |
| | | | |
| | | | | | | | | | Cost of product sales | $ | 23.9 |
| | $ | 28.9 |
| | $ | (5.0 | ) | | (17 | )% | | $ | 46.1 |
| | $ | 56.9 |
| | $ | (10.8 | ) | | (19 | )% | Share-based compensation expense (benefit)(1) | 2.0 |
| | (2.2 | ) | | 4.2 |
| | 191 | % | | 3.2 |
| | (1.1 | ) | | 4.3 |
| | 391 | % | | Total cost of product sales | $ | 25.9 |
| | $ | 26.7 |
| | $ | (0.8 | ) | | (3 | )% | | $ | 49.3 |
| | $ | 55.8 |
| | $ | (6.5 | ) | | (12 | )% |
________________________ | | | (1) | Refer to Share-Based Compensation section below for discussion. |
Cost of product sales, excluding share-based compensation. The decrease in cost of product sales of $32.2 million for the three and six months ended June 30, 2019,2020, as compared to the same periodperiods in 2018,2019, was primarily attributable to a $34.4 million decreasedecreases in royalty expense for Adcirca, becauseas fewer bottles were sold due to the launchas a result of generic versions of Adcirca beginning in August 2018. The decrease in cost of product sales of $63.3 millioncompetition for the six months ended June 30, 2019, as compared to the same period in 2018, was primarily attributable to a $67.2 million decrease in the royalty expense for Adcirca for the reason noted above.
Adcirca.The table below summarizes research and development expense by major category (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Category: | | | | | | | | | | | | | | | | | | Research and development projects | | $ | 95.8 | | $ | 79.1 | | 21 | % | $ | 989.6 | | $ | 137.3 | | 621 | % | Share-based compensation (benefit) expense (1) | | | (9.9) | | | 3.2 | | (409) | % | | (6.3) | | | (19.3) | | 67 | % | Total research and development expense | | $ | 85.9 | | $ | 82.3 | | 4 | % | $ | 983.3 | | $ | 118.0 | | 733 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | 2020 | | 2019 | | | Category: | |
| | |
| | | | |
| | | | | | | | | | Research and development projects | $ | 78.3 |
| | $ | 95.8 |
| | $ | (17.5 | ) | | (18 | )% | | $ | 146.9 |
| | $ | 989.6 |
| | $ | (842.7 | ) | | (85 | )% | Share-based compensation expense (benefit)(1) | 11.4 |
| | (9.9 | ) | | 21.3 |
| | 215 | % | | 16.0 |
| | (6.3 | ) | | 22.3 |
| | 354 | % | | Total research and development expense | $ | 89.7 |
| | $ | 85.9 |
| | $ | 3.8 |
| | 4 | % | | $ | 162.9 |
| | $ | 983.3 |
| | $ | (820.4 | ) | | (83 | )% |
________________________ | | | (1) | Refer to Share-Based Compensation section below for discussion. |
Research and development expense, excluding share-based compensation.The increase in research Research and development expense of $16.7 million for the three months ended June 30, 2019,2020 decreased as compared to the same period in 2018, was driven by continued investment in our product pipeline. Research and development expense for the treatment of cardiopulmonary diseases increased by $19.0 million for the three months ended June 30, 2019, as compared to the same period in 2018,primarily due to: (1) $11.7 millionthe completion of expenditures associated with the phase III ADVANCE studiesBEAT study of ralinepag duringesuberaprost in April 2019 and the three months ended June 30, 2019;phase III DISTINCT study of Unituxin in February 2020; and (2) increaseda decrease in spending of $2.2 million on the development ofdue to terminated drug delivery devices; and (3)device projects, including an $8.8 million in-process research and development (IPR&D) impairment charge related to the termination of a license agreement which occurred during the three months ended June 30, 2019. The increase in total research Research and development expense was partially offset by a $5.4 million decrease in expense for cancer-related projects driven by the decrease in spending on the DISTINCT study, which is now fully-enrolled.The increase in research and development expense of $852.3 million for the six months ended June 30, 2019,2020 decreased as compared to the same period in 2018, was driven by continued investment in our product pipeline. Research and development expense for the treatment of cardiopulmonary diseases increased by $848.2 million for the six months
ended June 30, 2019, as compareddue to the same period in 2018, due to: (1) ana one-time, $800.0 million upfront payment to Arena under our license agreement related to ralinepag and $20.6 million of expenditures associated with the phase III ADVANCE studies of ralinepag during the six months ended June 30, 2019;2019. The remainder of the decrease resulted primarily from: (1) the completion of the phase III BEAT study of esuberaprost in April 2019 and the phase III DISTINCT study of Unituxin in February 2020; and (2) a $12.5 million payment under our license and collaboration agreement with MannKind; (3) increaseddecrease in spending of $7.8 million on the development ofdue to terminated drug delivery devices; and (4)device projects, including an $8.8 million IPR&D impairment charge related to the termination of a license agreement during the six months ended June 30, 2019.
Selling, General, and Administrative The table below summarizes selling, general, and administrative expense by major category (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Category: | | | | | | | | | | | | | | | | | | General and administrative | | $ | 51.0 | | $ | 50.8 | | — | % | $ | 104.9 | | $ | 103.7 | | 1 | % | Sales and marketing | | | 13.7 | | | 15.6 | | (12) | % | | 27.3 | | | 28.8 | | (5) | % | Share-based compensation (benefit) expense (1) | | | (25.1) | | | 16.7 | | (250) | % | | (0.6) | | | (56.0) | | 99 | % | Total selling, general and administrative expense | | $ | 39.6 | | $ | 83.1 | | (52) | % | $ | 131.6 | | $ | 76.5 | | 72 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | 2020 | | 2019 | | | Category: | |
| | |
| | | | |
| | | | | | | | | | General and administrative | $ | 54.8 |
| | $ | 51.0 |
| | $ | 3.8 |
| | 7 | % | | $ | 109.8 |
| | $ | 104.9 |
| | $ | 4.9 |
| | 5 | % | | Sales and marketing | 12.7 |
| | 13.7 |
| | (1.0 | ) | | (7 | )% | | 25.7 |
| | 27.3 |
| | (1.6 | ) | | (6 | )% | Share-based compensation expense (benefit)(1) | 38.4 |
| | (25.1 | ) | | 63.5 |
| | 253 | % | | 63.4 |
| | (0.6 | ) | | 64.0 |
| | NM(2) |
| | Total selling, general, and administrative expense | $ | 105.9 |
| | $ | 39.6 |
| | $ | 66.3 |
| | 167 | % | | $ | 198.9 |
| | $ | 131.6 |
| | $ | 67.3 |
| | 51 | % |
________________________ | | | (1) | Refer to Share-Based Compensation below for discussion. |
| | | (2) | Calculation is not meaningful. |
Share-Based Compensation The table below summarizes share-based compensation expense (benefit) expense by major category (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Category: | | | | | | | | | | | | | | | | | | Stock options | | $ | 18.1 | | $ | 15.5 | | 17 | % | $ | 33.8 | | $ | 28.2 | | 20 | % | Restricted stock units | | | 3.8 | | | 2.0 | | 90 | % | | 6.0 | | | 2.9 | | 107 | % | STAP awards | | | (59.4) | | | 2.7 | | NM | (1) | | (48.4) | | | (112.3) | | 57 | % | Employee stock purchase plan | | | 0.3 | | | 0.3 | | — | % | | 0.6 | | | 0.6 | | — | % | Total share-based compensation (benefit) expense | | $ | (37.2) | | $ | 20.5 | | (281) | % | $ | (8.0) | | $ | (80.6) | | 90 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | | 2020 | | 2019 | | | | Category: | |
| | |
| | | | |
| | | | | | | | | | Stock options | $ | 9.2 |
| | $ | 18.1 |
| | $ | (8.9 | ) | | (49 | )% | | $ | 25.6 |
| | $ | 33.8 |
| | $ | (8.2 | ) | | (24 | )% | | Restricted stock units | 5.5 |
| | 3.8 |
| | 1.7 |
| | 45 | % | | 9.5 |
| | 6.0 |
| | 3.5 |
| | 58 | % | | STAP awards | 36.7 |
| | (59.4 | ) | | 96.1 |
| | 162 | % | | 46.8 |
| | (48.4 | ) | | 95.2 |
| | 197 | % | | Employee stock purchase plan | 0.4 |
| | 0.3 |
| | 0.1 |
| | 33 | % | | 0.7 |
| | 0.6 |
| | 0.1 |
| | 17 | % | | Total share-based compensation expense (benefit) | $ | 51.8 |
| | $ | (37.2 | ) | | $ | 89.0 |
| | 239 | % | | $ | 82.6 |
| | $ | (8.0 | ) | | $ | 90.6 |
| | NM(1) |
|
________________________ (1)
| | | (1) | Calculation is not meaningful. |
The table below summarizes share-based compensation expense (benefit) expense by line item on our consolidated statements of operations (dollars in millions):
| | | | | | | | | | | | | | | | | | | | Three Months Ended | | | | Six Months Ended | | | | | | June 30, | | Percentage | | June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change | | Cost of product sales | | $ | (2.2) | | $ | 0.6 | | (467) | % | $ | (1.1) | | $ | (5.3) | | 79 | % | Research and development | | | (9.9) | | | 3.2 | | (409) | % | | (6.3) | | | (19.3) | | 67 | % | Selling, general and administrative | | | (25.1) | | | 16.7 | | (250) | % | | (0.6) | | | (56.0) | | 99 | % | Total share-based compensation (benefit) expense | | $ | (37.2) | | $ | 20.5 | | (281) | % | $ | (8.0) | | $ | (80.6) | | 90 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended
June 30, | | Dollar Change | | Percentage Change | | Six Months Ended
June 30, | | Dollar Change | | Percentage
Change | | | 2020 | | 2019 | | | | 2020 | | 2019 | | | | Cost of product sales | $ | 2.0 |
| | $ | (2.2 | ) | | $ | 4.2 |
| | 191 | % | | $ | 3.2 |
| | $ | (1.1 | ) | | $ | 4.3 |
| | 391 | % | | Research and development | 11.4 |
| | (9.9 | ) | | 21.3 |
| | 215 | % | | 16.0 |
| | (6.3 | ) | | 22.3 |
| | 354 | % | | Selling, general, and administrative | 38.4 |
| | (25.1 | ) | | 63.5 |
| | 253 | % | | 63.4 |
| | (0.6 | ) | | 64.0 |
| | NM(1) |
| | Total share-based compensation expense (benefit) | $ | 51.8 |
| | $ | (37.2 | ) | | $ | 89.0 |
| | 239 | % | | $ | 82.6 |
| | $ | (8.0 | ) | | $ | 90.6 |
| | NM(1) |
|
________________________ | | | (1) | Calculation is not meaningful. |
The increase in share-based compensation benefit of $57.7 millionexpense for the three months ended June 30, 2019,2020, as compared to the same period in 2018,2019, was primarily due to a $62.1 millionan increase in STAP benefitexpense driven by a 33 28 percent decreaseincrease in our stock price for the three months ended June 30, 2019,2020 as compared to a 133 percent increasedecrease in our stock price for the same period in 2018;2019, partially
offset by: (1)by a $2.6 million increasedecrease in stock option expense due to additionalfewer awards granted and outstanding in 2019; and (2) a $1.8 million2020. The increase in restricted stock unit expense due to additional awards granted and outstanding in 2019. For more information, refer to Note 8—Share-Based Compensation to our consolidated financial statements.The decrease in share-based compensation benefit of $72.6 millionexpense for the six months ended June 30, 2019,2020, as compared to the same period in 2018,2019, was primarily due to: (1) a $63.9 million decreaseto an increase in STAP benefitexpense driven by a large37 percent increase in our stock price for the six months ended June 30, 2020 as compared to a 28 percent decrease in our stock price during 2018 and fewer awards outstandingfor the same period in 2019; (2)2019, partially offset by a $5.6 million increasedecrease in stock option expense due to additionalfewer awards granted and outstanding in 2019; and (3) a $3.1 million increase in restricted stock unit expense due2020. For more information, refer to additional awards granted and outstanding in 2019.
Note 8 —Share-Based Compensation to our consolidated financial statements. Other (Expense) Income, (Expense), Net The increasechanges in other (expense) income, (expense), net of $33.7 million and $40.1 million for the three and six months ended June 30, 2019,2020, as compared to the same periods in 2018, was2019, were primarily due to the recognition of a net unrealized gain in publicly-tradedand realized gains and losses on equity securities, including common stock we own in TransMedics, Inc., which completed its initial public offering during the quarter ended June 30, 2019. During the three and six months ended June 30, 2019, we recognized $29.5 million and $32.5 million of net unrealized gains on these securities, based upon changes in their market prices.securities. Refer to Note 3—Investments to our consolidated financial statements.
Income Tax Expense (Benefit) The income
Income tax benefitexpense was $110.7$60.7 million for the six months ended June 30, 2019,2020, as compared to income tax expensebenefit of $109.5$110.7 million for the same period in 2018.2019. The effective income tax rate (ETR) for the six months ended June 30, 2020 and 2019 was 20 percent and 2018 was 28 percent, respectively. For the six months ended June 30, 2020, anticipated tax credits, state audit adjustments, and 21 percent, respectively. We recognized a loss before income taxes,the foreign sales deduction, partially offset by non-deductible compensation and a corresponding incomestate tax benefit, forexpense, decreased our ETR. For the six months ended June 30, 2019, as a result of the one-time $800.0 million payment to Arena in January 2019. As a result of this loss, our anticipated tax credits, and foreign sales deduction, (“FDII”),and state tax benefit partially offset by non-deductible compensation expense,and income tax benefit limitation, increased our tax benefit and resulting ETR for the six months ended June 30, 2019, compareddue to the six months ended June 30, 2018.pre-tax loss that resulted primarily from the upfront $800.0 million payment under our license agreement with Arena. Financial Condition, Liquidity, and Capital Resources We have funded our operations principally through sales of our commercial products and, from time-to-time, third-party financing arrangements. We believe that our current liquidity is sufficient to fund ongoing operations and future business plans as we expect long-term revenues from our commercial products, excluding Adcirca, to continue to grow due to our work on development of new products and label expansions for existing products. Furthermore, our customer base remains stable and we believe it presents minimal credit risk. However, any projections of future cash flows are inherently subject to uncertainty and we may seek other forms of financing. In June 2018, we entered into a credit agreement (the Credit Agreement), which provides an unsecured, revolving line of credit of up to $1.5 billion, withbillion. Our aggregate outstanding balance under the Credit Agreement was $850.0 million and $800.0 million as of December 31, 2019 and June 30, 2020, respectively. We classified the entire outstanding balance under the Credit Agreement, which matures in 2024, as a current maturity date of June 2024, of which $1,050.0 million was outstandingnon-current liability on our consolidated balance sheet as of June 30, 2019.2020. As of December 31, 2019, we classified $250.0 million of the outstanding principal balance as a current liability because we intended, at such time, to repay this amount within one year. As of June 30, 2020 we decided not to repay a portion of the loan within one year out of an abundance of caution given the uncertainty surrounding the current COVID-19 pandemic and its potential impact on our business. Cash and Cash Equivalents and Marketable Investments Cash and cash equivalents and marketable investments comprise the following (dollars in millions):
| | | | | | | | | | | | June 30, | | December 31, | | Percentage | | | | 2019 | | 2018 | | Change | | Cash and cash equivalents | | $ | 881.3 | | $ | 669.2 | | 32 | % | Marketable investments—current | | | 904.9 | | | 746.7 | | 21 | % | Marketable investments—non-current | | | 420.7 | | | 442.6 | | (5) | % | Total cash and cash equivalents and marketable investments | | $ | 2,206.9 | | $ | 1,858.5 | | 19 | % |
| | | | | | | | | | | | | | June 30,
2020 | | December 31,
2019 | | Percentage Change | | Cash and cash equivalents | $ | 685.4 |
| | $ | 738.4 |
| | (7 | )% | | Marketable investments—current | 875.3 |
| | 747.5 |
| | 17 | % | | Marketable investments—non-current | 1,009.4 |
| | 767.5 |
| | 32 | % | | Total cash and cash equivalents and marketable investments | $ | 2,570.1 |
| | $ | 2,253.4 |
| | 14 | % |
Cash flows comprise the following (dollars in millions):
| | | | | | | | | | | | Six Months Ended June 30, | | Percentage | | | | 2019 | | 2018 | | Change | | Net cash (used in) provided by operating activities | | $ | (494.5) | | $ | 455.5 | | (209) | % | Net cash used in investing activities | | $ | (102.9) | | $ | (418.5) | | 75 | % | Net cash provided by financing activities | | $ | 809.5 | | $ | 3.8 | | NM | (1) |
(1) | Calculation is not meaningful. |
| | | | | | | | | | | | | | Six Months Ended June 30, | | Percentage Change | | | 2020 | | 2019 | | | Net cash provided by (used in) operating activities | $ | 378.6 |
| | $ | (494.5 | ) | | 177 | % | | Net cash used in investing activities | $ | (403.0 | ) | | $ | (102.9 | ) | | (292 | )% | | Net cash (used in) provided by financing activities | $ | (28.6 | ) | | $ | 809.5 |
| | (104 | )% |
Our operating assets and liabilities consist primarily of accounts receivable, inventories, accounts payable, accrued expenses, liabilities for our STAP awards, and tax-related payables and receivables.
The increasedecrease of $950.0$873.1 million in net cash used in operating activities for the six months ended June 30, 20192020, as compared to the six months ended June 30, 20182019, was primarily due to: (1) an $842.7 million decrease in research and development expense, excluding share-based compensation expense, primarily driven by an $800.0 million upfront payment related to Arena under our license agreement with Arena;related to ralinepag, which occurred during the six months ended June 30, 2019; (2) a $42.9an $18.7 million decrease in cash flows due to a decrease in accounts payable and accrued expenses; (3) a $31.2 million increase in cash paid for income taxes; and (4)(3) an $8.2 million decrease in cash paid for interest, partially offset by a $16.1$4.7 million increase in cash paid for interest.to settle STAP awards. The increaseremainder of the change in cash used in operating activities was also driven by a decrease in cash receipts due to a decreaseother changes in revenue of $97.5 million. assets and liabilities. Investing Activities The increase in cash used was partially offset by a decrease of $51.3 million in cash paid to settle STAP awards during the six months ended June 30, 2019, as compared to the same period in 2018.Investing Activities
The decrease of $315.6$300.1 million in net cash used in investing activities for the six months ended June 30, 20192020, as compared to the six months ended June 30, 2018,2019, was primarily due to: (1)to a $271.9$335.5 million decreaseincrease in cash used for net purchases of marketable investments; andinvestments, partially offset by: (1) a $14.2 million increase in cash from the sale of investments in equity securities; (2) a $45.7$14.2 million decrease in cash paid to purchase property, plant, and equipment.
equipment; and (3) a $7.0 million decrease in cash paid to purchase investments in privately held companies. The increasedecrease of $805.7$838.1 million in net cash provided by financing activities for the six months ended June 30, 20192020, as compared to the six months ended June 30, 20182019, was primarily due toto: (1) $800.0 million that we borrowed under our Credit Agreement, which was used to fund an $800.0 million upfront payment under our license agreement with Arena.Arena during the six months ended June 30, 2019; and (2) a $50.0 million repayment on our revolving credit facility under the Credit Agreement during the six months ended June 30, 2020, partially offset by a $12.5 million increase in proceeds from the exercise of stock options. Summary of Critical Accounting Policies The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires our management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We continually evaluate our estimates and judgments to determine whether they are reasonable, relevant, and appropriate. These assumptions are frequently developed from historical data or experience, currently available information, and anticipated developments. By their nature, our estimates are subject to an inherent degree of uncertainty; consequently, actual results may differ. We discuss critical accounting policies and estimates that involve a higher degree of judgment and complexity in Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Recently Issued Accounting Standards See Note 2—Basis of Presentation, to our consolidated financial statements for information on our adoption during the current period and anticipated adoption of recently issued accounting standards.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk has not materially changed since December 31, 2018.2019. Item 4. CONTROLS AND PROCEDURES Based on their evaluation, as of June 30, 2019,2020, our Chairman and Chief Executive Officer and Chief Financial Officer and Treasurer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, summarized, processed, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Chief Financial Officer and Treasurer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
Part II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Please refer to Note 12—Litigation to our consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference. Forward-Looking Statements
This Quarterly Report (this Report) on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act) and the Private Securities Litigation Reform Act of 1995. These statements, which are based on our beliefs and expectations as to future outcomes, include, among others, statements relatingrelated to the following:
The potential impact of the COVID-19 pandemic on our business, results of operations, liquidity, and operations and our ability to mitigate those potential impacts;
Expectations of revenues, expenses, profitability, and cash flows;
The sufficiency of our cash on hand to support operations;
Our ability to obtain financing on terms favorable to us or at all;
The maintenance of domestic and international regulatory approvals;
Our ability to maintain attractive pricing for our products, in light of increasing competition, including from generic products, and pressure from government and other payers to decrease the costs associated with healthcare;
The expected volume and timing of sales of Remodulin, Tyvaso, Orenitram, and Unituxin, as well as potential future commercial products, including the anticipated effect of various research and development efforts on sales of these products;
The timing and outcome of clinical studies, other research and development efforts, and related regulatory filings and approvals;
The potential timing and success of our anticipated launch of the Remunity Pump, Trevyent, and the Implantable System for Remodulin;
| ● | | • | Expectations of revenues, expenses, profitability, and cash flows, including our expectation that revenue growth will recommence over the long term; |
| ● | The sufficiency of current and future working capital to support operations; |
| ● | Our ability to obtain financing on terms favorable to us or at all; |
| ● | The maintenance of domestic and international regulatory approvals; |
| ● | Our ability to maintain attractive pricing for our products, in light of increasing competition, including from generic entries and pressure from government and other payers to decrease the costs associated with healthcare; |
| ● | The expected volume and timing of sales of Remodulin, Tyvaso, Orenitram and Unituxin, as well as potential future commercial products, including the anticipated effect of various research and development efforts (including the FREEDOM-EV study) on sales of these products; |
| ● | The timing and outcome of clinical studies, other research and development efforts, and related regulatory filings and approvals, including (among others) those described in this Report relating to our pending FDA label supplement for Orenitram to reflect the FREEDOM-EV study results, our collaboration with DEKA to develop the RemUnity system, our efforts to obtain FDA approval of Trevyent, our DISTINCT study of dinutuximab in patients with small cell lung cancer, and our plan to develop a pain-free subcutaneous formulation of treprostinil called RemoPro; |
| ● | The timing and success of our anticipated launch of the Implantable System for Remodulin; |
| ● | The outcome of pending and potential future legal and regulatory actions by the FDA and other regulatory and government enforcement agencies, and the anticipated duration of regulatory exclusivity for our products; |
| ● | The timing and outcome of our ongoing litigation matters, includingsupplemental NDA for Tyvaso to reflect the INCREASE study results; |
The timing and outcome of our NDA resubmission for Trevyent in response to the CRL;
The outcome of pending and potential future legal and regulatory actions by the FDA and other regulatory and government enforcement agencies, and the anticipated duration of regulatory exclusivity for our products;
| | | • | The timing and outcome of the lawsuit filed against us by Sandoz and RareGen, LLC;the petitions for inter partes review filed by Liquidia, and our patent infringement lawsuit against Liquidia related to its NDA for LIQ861; |
| ● | The impact of competing therapies on sales of our commercial products and the amount of inventory of our products that will expire unsold, including the impact of generic versions of Adcirca and Remodulin; established therapies such as Uptravi; and newly-developed therapies; |
The impact of competing therapies on sales of our commercial products and the amount of inventory of our products that will expire unsold, including the impact of generic versions of Adcirca and Remodulin; established therapies such as Uptravi; and newly-developed therapies such as LIQ861;
The expectation that we will be able to manufacture sufficient quantities and maintain adequate inventories of our commercial products, through both our in-house manufacturing capabilities and third-party manufacturing sites, and our ability to obtain and maintain related approvals by the FDA and other regulatory agencies;
| ● | The expectation that we will be able to manufacture sufficient quantities and maintain adequate inventories of our commercial products, through both our in-house manufacturing capabilities and third-party manufacturing sites, and our ability to obtain and maintain related approvals by the FDA and other regulatory agencies; |
| ● | The adequacy of our intellectual property protection and the validity and expiration dates of the patents we own or license, as well as the regulatory exclusivity periods for our products; |
| ● | The expected eligibility of patents for inclusion in the Orange Book; |
| ● | Any statements that include the words “believe,” “seek,” “expect,” “anticipate,” “forecast,” “project,” “intend,” “estimate,” “should,” “could,” “may,” “will,” “plan,” or similar expressions; and |
| ● | Other statements contained or incorporated by reference in this Report that are not historical facts. |
The adequacy of our intellectual property protection and the validity and expiration dates of the patents we own or license, as well as the regulatory exclusivity periods for our products;
The expected eligibility of patents for inclusion in the Orange Book;
Any statements that include the words “believe,” “seek,” “expect,” “anticipate,” “forecast,” “project,” “intend,” “estimate,” “should,” “could,” “may,” “will,” “plan,” or similar expressions; and
Other statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts. These statements are subject to risks and uncertainties and our actual results may differ materially from anticipated results. Factors that may cause such differences include, but are not limited to, those discussed below. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.
Risks Related to Our Business
We rely heavily on sales of Remodulin, Tyvaso, and Orenitram to generate revenues and support our operations. Sales of our current treprostinil-based PAH therapies (Remodulin, Tyvaso, and Orenitram) comprise the vast majority of our revenues. DecreasedSubstantially decreased sales of any one of these products could have a material adverse impact on our operations. A wide variety of events, such as withdrawal of regulatory approvals or substantial changes in prescribing practices or dosing patterns, many of which are described in other risk factors below, could cause sales of these products to materially decline, or to grow more slowly than expected. Generic competition due to the current commercial availability of generic versions of Remodulin, which launched in the United States in March 2019 and in certain countries in Europe beginning in 2019, and which we expect will be launched in certain other countries in Europe during 2019, as well asthe remainder of 2020, has decreased and may continue to decrease our revenues. In addition, generic versions of Tyvaso and Orenitram, which could be launched in the United States by Watson and Actavis as early as January 2026 and June 2027, respectively (or earlier under certain circumstances), may decrease our revenues. A number of companies are developing new PAH therapies, such as LIQ861, a dry powder formulation of treprostinil using a disposable inhaler being developed by Liquidia, which if approved could negatively impact sales of our current products and potential sales of the PAH products we are developing. In addition, the inability of any third party that manufactures, markets, distributes, or sells any of our commercial products to perform these functions satisfactorily, or our inability to manage our internal manufacturing processes, could result in an inability to meet patient demand and decrease sales. Finally, our strategy involves the development and successful launch of next-generation delivery systems (such as the Implantable System for Remodulin, RemUnitythe Remunity Pump, Trevyent, and Trevyent)Treprostinil Technosphere) and expanded indications for our existing treprostinil-based products. RemUnity and Trevyentproducts (such as our pending sNDA to expand Tyvaso’s label as a result of the INCREASE study). We may not be approved by the FDA, and the demand for our products followingable to successfully launch of the Implantable System for Remodulin, RemUnityRemunity, Trevyent, or TrevyentTreprostinil Technosphere or expand the Tyvaso label when we anticipate, or at all, for regulatory or other reasons, and demand for these products following their launch may not meet our expectations. Without this increased demand,As a result, the revenue opportunity for our treprostinil products could be significantly lower than we expect.
If our products fail in clinical trials, we will be unable to obtain or maintain FDA and international regulatory approvals and will be unable to sell those products. To obtain regulatory approvals from the FDA and international regulatory agencies to sell new products, or to expand the product labeling for our existing products to new indications, we must conduct clinical trials demonstrating that our products are safe and effective. These regulators have substantial discretion over the approval process for our products, and may not agree that we have demonstrated the requisite level of product safety and efficacy to grant approval. The FDA and other regulatory agencies may require us to amend ongoing trials or perform additional trials beyond those we planned, which could result in significant delays and additional costs or may be unsuccessful. For example, approval of an NDA or a BLA could be delayed if the FDA determines that it cannot review or approve the application as submitted. In such a case, the FDA may require substantial additional studies, testing, or information in order to complete its review of the application. If our clinical trials are not successful, or we fail to address any identified deficiencies adequately, we will not obtain required approvals to market the new product or new indication. We cannot predict with certainty the length of time it will take to complete necessary clinical trials or obtain regulatory approvals related to our current or future products. The length of time we need to complete clinical trials and obtain regulatory approvals varies by product, indication, and country. Our clinical trials have in the past and may in the future be discontinued, delayed, canceled, or disqualified for various reasons, including: | ● | The drug is ineffective, or physicians and/or patients believe that the drug is ineffective, or that other therapies are more effective or convenient; |
| ● | We fail to reach agreement with the applicable regulatory agencies regarding the scope or design of our clinical trials; |
| ● | Patients do not enroll, patients drop out, or we do not observe worsening events, at the rate we expect; |
| ● | Ongoing or new clinical trials conducted by drug companies in addition to our own clinical trials reduce the availability of patients for our trials; |
| ● | Our clinical trial sites, contracted clinical trial administrators or clinical studies conducted entirely by third parties do not adhere to trial protocols and required quality controls under good clinical practices (GCP) regulations and similar regulations outside the United States; |
| ● | Patients experience severe side effects during treatment or die during our trials because of adverse events related to the trial drug, advanced disease, or other medical complications; and |
| ● | The results of our clinical trials conducted in a particular country are not acceptable to regulators in other countries. |
The COVID-19 pandemic, which has severely strained the capacity of hospitals and reduced their ability to conduct clinical trials, and caused us to suspend enrollment of most of our clinical studies;
The drug is ineffective, or physicians and/or patients believe that the drug is ineffective, or that other therapies are more effective or convenient;
We fail to reach agreement with the applicable regulatory agencies regarding the scope or design of our clinical trials;
Patients do not enroll in or complete clinical trials at the rate we expect;
Ongoing or new clinical trials conducted by drug companies in addition to our own clinical trials reduce the availability of patients for our trials;
Our clinical trial sites, contracted clinical trial administrators, or clinical studies conducted entirely by third parties do not adhere to trial protocols and required quality controls under good clinical practices (GCP) regulations and similar regulations outside the United States;
Patients experience severe side effects during treatment or die during our trials because of adverse events related to the trial drug, advanced disease, or other medical complications; and
The results of our clinical trials conducted in a particular country are not acceptable to regulators in other countries. We may not compete successfully with established and newly developed drugs or products, or the companies that develop and market them. We compete with well-established drug companies for market share, as well as, among other things, funding, licenses, expertise, personnel, clinical trial patients and investigators, consultants, and third-party collaborators. Most of these competitors have substantially greater financial, marketing, manufacturing, sales, distribution, and technical resources, and a larger number of approved products, than we do. These competitors also possess greater experience in areas critical to success such as research and development, clinical trials, sales and marketing, and regulatory matters. Numerous treatments currently compete with our commercial therapies, and others are under development. For example, for the treatment of PAH, we compete with Adempas®, Flolan®, Ilomedin®, Letairis®, Opsumit®, Revatio®, Tracleer®, Uptravi®, Veletri®, Volibris®, Ventavis®, generic tadalafil, generic treprostinil injection, generic epoprostenol, and generic sildenafil citrate. Our competitors may introduce new products that render all or some of our technologies and products obsolete or noncompetitive. For example, Uptravi was approved by the FDA in December 2015 for the treatmentLiquidia is developing LIQ861, a dry powder formulation of PAH and competestreprostinil using a disposable inhaler, which if successful would compete directly with Orenitram.Tyvaso and Treprostinil Technosphere, and our other treprostinil-based products. In addition, we may not compete successfully against generic competitors. Sales of a generic version of Adcirca launched in August 2018 and have already had a material adverse impact on demand for Adcirca. Generic versions of Remodulin were launched in the United States in March 2019 and in certain countries in Europe beginning in 2019 and may also be launched in certain additional countries in Europe in 2019, as described elsewhere in this Report.the remainder of 2020 (or later). These launches could materially impact our revenues. Furthermore, we have limited visibility into the level of Adcirca inventory held by wholesale distributors and pharmacies, and rapid generic penetration could cause substantial amounts of Adcirca to expire unsold, causing us to incur increased liabilities for product returns. Any change in our estimated allowance for returns could result in a material impact on our revenues during the quarter in which the change is made. Legislation such as the 21st Century Cures Act, which was enacted in December 2016 and designed to encourage innovation and bring pharmaceutical products to market more quickly, may enable our competitors to bring competing products to market on an expedited basis. In addition, alternative approaches to treating chronic diseases, such as gene therapy, cell therapy or transplantation technologies, may make our products obsolete or noncompetitive. Patients and doctors may discontinue use of our products if they perceive competing products as safer, more effective, less invasive, more convenient, and/or less expensive than ours. Alternatively, doctors may reduce the prescribed doses of our products if they prescribe them in combination with competing products. In addition, many competing therapies are less invasive or more convenient than Tyvaso and Remodulin, and the use of these products may delayoften delays or preventprevents initiation of Tyvaso or Remodulin therapy. Any of these circumstances could negatively impact our operating results.
Sales of our products are subject to reimbursement from government agencies and other third parties. Pharmaceutical pricing and reimbursement pressures may negatively impact our sales. The commercial success of our products depends, in part, on the availability of reimbursementscoverage by governmental payers such as Medicare and Medicaid, and private insurance companies. A significant portion of our product sales in the United States are reimbursed under the Medicare and Medicaid programs. A reduction in the availability or extent of reimbursement from domestic or foreign government health care programs could have a material adverse effect on our business and results of our operations. In the United States, the European Union, and other potentially significant markets for our products, government payers and/or third-party payers are increasingly attempting to limit or regulate the price of medicinal products and frequently challenge the pricing of new andor expensive drugs. Financial pressures may cause United States government payers to seek cost containment more aggressively by mandating discounts or rebates on our products, limiting future price increases, capping reimbursement rates for pharmaceuticals to rates paid internationally, requiring the automatic substitution of generic products, demanding more rigorous requirements for initial reimbursement approvalscoverage for new products or other similar measures. For example, there have been proposals to reduce reimbursement rates based on international prices, increase pricing transparency, improve the uptake of generic products, and encourage lower patient out-of-pocket costs.In many markets outside the United States, governments control the prices of prescription pharmaceuticals through the implementation of reference pricing, price cuts, rebates, revenue-related taxes and profit control. The Centers for Medicare and Medicaid Services (CMS) released an advancedadvance notice of proposed rulemaking in October 2018 that discussed the development of an international pricing index model that would cap reimbursement for many drugs paid for under the Medicare Part B program (which appliescould apply to Remodulin Tyvaso and Unituxin)Tyvaso) to those paid in 16 other industrialized countries.
CMS has not yet released its proposed rule, however, and the specifics of any such rule are unknown at this time.
In many markets outside the United States, governments control the prices of prescription pharmaceuticals through the implementation of reference pricing, price cuts, rebates, revenue-related taxes, and profit control. Our prostacyclin analogue products (Remodulin, Tyvaso, and Orenitram) and our oncology product (Unituxin) are expensive therapies. Consequently, it may be difficult for our specialty pharmacy distributors to obtain adequate reimbursement for our products from commercial and government payers to motivate such distributors to support our products. Alternatively, third-party payers may reduce the amount of reimbursement for our products based on changes in pricing of other therapies for the same disease or the development of new payment methodologies to cover and reimburse for treatment costs, such as the use of cost-effectiveness research or value-based payment contracts. In addition, third-party payers often encourage the use of less-expensive generic alternative therapies, , which has materially impacted our Adcirca revenues and which may eventuallymaterially impact our Remodulin revenues. If commercial and/or government payers do not approvecover our products for reimbursement or limit payment rates, patients and physicians could choose competing products that are approved for reimbursement or providecovered and may have lower out-of-pocket costs. For example, starting January 1, 2019, Medicare Advantage Plans are now allowed to use step therapy for Part B drugs, which could limit patient access to our products by requiring patients to try other medicines, including generic products, before using certain otherspecific therapies. Patient assistance programs for pharmaceutical products have come under increasing scrutiny by governments, legislative bodies, and enforcement agencies. These activities may result in actions that have the effect of reducing prices or demand for our products, harming our business or reputation, or subjecting us to fines or penalties. Recently, there has been enhanced scrutiny of company-sponsored
Company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and manufacturers’ donations to third-party charities that provide such assistance.assistance, are subject to heightened scrutiny. The Department of Justice (DOJ) has taken enforcement action against pharmaceutical companies, including us in 2017, alleging violations of the Federal False Claims Act and other laws in connection with patient assistance programs. In December 2017, we entered into a civil Settlement Agreement with the U.S. Government to resolve the DOJ investigation related to our support of 501(c)(3) organizations that provide financial assistance to patients and paid $210.0 million, plus interest, to the U.S. Government upon settlement. We also entered into a Corporate Integrity Agreement (the CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG), which requires us to maintain our corporate compliance program and to undertake a set of defined corporate integrity obligations for a period of five years from the date the agreement was signed. We may be required to incur significant future costs to comply with the CIA. If we fail to comply with applicable regulatory requirements or the CIA, we could be subject to penalties including fines, suspension of regulatory approvals that cause us to suspend production, distribution or marketing activities, product recalls, seizure of our products, and/or criminal prosecution. If regulatory sanctions are applied or regulatory approval is delayed or withdrawn, our operating results and the value of our company may be adversely affected. In addition, our reputation could be harmed as a result of any such regulatory restrictions or actions, and patients and physicians may avoid the use of our products even after we have resolved the issues that led to such regulatory action. In the future, if we, our vendors or donation recipients, are deemed to have failed to comply with relevant laws, regulations or government guidance in any of these areas, we could be subject to additional criminal and civil sanctions, including significant fines, civil monetary penalties and exclusion from participation in government healthcare programs, including Medicare and Medicaid, and burdensome remediation measures. Actions could also be brought against executives overseeing our business or other employees. Members of Congress have called upon the OIG to issue revised guidance about patient assistance programs. It is possible that these, or any other actions taken by the Department of Justice (DOJ)DOJ or other agencies as a result of this industry-wide inquiry, could reduce demand for our products and/or reduce coverage of our products, including by federal health care programs such as Medicare and Medicaid and state health care programs. If any or all of these events occur, our business, prospects, and stock price could be materially and adversely affected. Additionally, payers and pharmacy benefit managers (PBMs) have developed several different mechanisms to limit the benefits of co-pay assistance for commercially insured programs through co-pay accumulator programs. Under these programs, a patient using co-pay assistance is not able to count the manufacturer’s co-payment contribution toward their annual out-of-pocket payment maximum. Therefore, patients on expensive therapies utilizing co-pay assistance to help cover the costs of their expensive medications are penalized financially for the use of these programs. Some states have passed legislation to limit the use of co-pay accumulator programs, while the Trump administration and other states have indicated that the use of these programs should be allowed to limit cost of care and encourage patients to use lower cost generics. Growing use of tacticsprograms like these could affect patient access to necessary medicationsour products and limit product utilization.utilization, which may, in turn, adversely affect our business, prospects, and stock price.
Our manufacturing strategy exposes us to significant risks. We must be able to manufacture sufficient quantities of our commercial products to satisfy growing demand. We manufacture Remodulin, Orenitram, Tyvaso, and Unituxin, including the active ingredient in each of these products, at our own facilities and rely on third parties for additional manufacturing capacity for Remodulin, Tyvaso, and finished Unituxin drug product. We rely on Minnetronix, Inc. as the sole manufacturer of the Tyvaso Inhalation System, and on Lilly as the sole manufacturer of Adcirca. If and when we launch the Implantable System for Remodulin, we will rely on Medtronic as the sole manufacturer of the SynchroMed II infusion system and related components used in the Implantable System for Remodulin. We rely on MannKind to perform manufacturing activities related to Treprostinil Technosphere, andHowever, we rely on a limited numbervariety of sole-sourcethird-party sole manufacturers for certain elements of our commercial and development-stage products, as detailed under the risk factor below entitled, We rely in part on third parties to perform activities that are critical to our business. Our ability to generate commercial sales or conduct clinical trials has in the past, and could in the future, suffer if our third-party suppliers for manufacturing activities relatedand service providers fail to ralinepag and Trevyent.perform. If any of our internal or third-party manufacturing and supply arrangements are interrupted for compliance issues, issues related to the COVID-19 pandemic, or other reasons, we may not have sufficient inventory to meet future demand. In addition, any change in suppliers and/or service providers could interrupt the manufacturing of our commercial products and impede the progress of our commercial launch plans and clinical trials. In addition, our internal manufacturing process subjects us to risks as we engage in increasingly complex manufacturing processes. For example, Remodulin, Tyvaso, and Unituxin are sterile solutions that must be prepared under highly-controlled environmental conditions, which are challenging to maintain on a commercial scale. In addition, Unituxin is a monoclonal antibody. As with all biologic products, monoclonal antibodies are inherently more difficult to manufacture than our treprostinil-based products and involve increased risk of viral and other contaminants. We manufacture our entire supply of Orenitram and dinutuximab, the active ingredient in Unituxin, without an FDA-approved back-up manufacturing site. We are constructingbuilt a new facility to expand our manufacturing capacity for dinutuximab, but wewhich is currently being qualified, and which must receive FDA approval prior to commercial use. We presently have no plans to engage a third-party contract manufacturer to manufacture Orenitram or dinutuximab. Our long-term organ manufacturing programs will involve exceptionally complicated manufacturing processes, many of which have never been attempted on a clinical or commercial scale. It will take substantial time and resources to develop and implement such manufacturing processes, or we may never be able to do so successfully. Additional risks we face with our manufacturing strategy include the following: | ● | We and our third-party manufacturers are subject to the FDA’s current good manufacturing practices regulations, current good tissue practices, and similar international regulatory standards. Our ability to exercise control over regulatory compliance by our third-party manufacturers is limited; |
| ● | We may experience difficulty designing and implementing processes and procedures to ensure compliance with applicable regulations as we develop manufacturing operations for new products; |
| ● | Natural and man-made disasters (such as fires, contamination, power loss, hurricanes, earthquakes, flooding, terrorist attacks and acts of war) impacting our internal and third-party manufacturing sites could cause a supply disruption -- for example, Medtronic manufactures the Implantable System for Remodulin at its facilities in Puerto Rico, which is vulnerable to hurricanes; |
| ● | Even if we and our third-party manufacturers comply with applicable drug manufacturing regulations, the sterility and quality of our products could be substandard and such products could not be sold or used or subject to recalls; |
| ● | If we had to replace our own manufacturing operations or a third-party manufacturer, the FDA and its international counterparts would require new testing and compliance inspections. Furthermore, a new manufacturer would have to be familiarized with the processes necessary to manufacture and commercially validate our products, as producing our treprostinil-based and biologic products is complex; |
| ● | We may be unable to contract with needed manufacturers on satisfactory terms or at all; and |
| ● | The supply of materials and components necessary to manufacture and package our products may become scarce or unavailable, which could delay the manufacturing and subsequent sale of such products. Products manufactured with substituted materials or components must be approved by the FDA and applicable international regulatory agencies before they could be sold. |
We and our third-party manufacturers are subject to the FDA’s current good manufacturing practices regulations, current good tissue practices, and similar international regulatory standards. Our ability to exercise control over regulatory compliance by our third-party manufacturers is limited;
We may experience difficulty designing and implementing processes and procedures to ensure compliance with applicable regulations as we develop manufacturing operations for new products;
Natural and man-made disasters (such as fires, contamination, power loss, hurricanes, earthquakes, flooding, terrorist attacks and acts of war), disease outbreaks, and pandemics such as COVID-19 impacting our internal and third-party manufacturing sites could cause a supply disruption — for example, Medtronic manufactures the Implantable System for Remodulin at its facilities in Puerto Rico, which is vulnerable to hurricanes and earthquakes;
Even if we and our third-party manufacturers comply with applicable drug manufacturing regulations, the sterility and quality of our products could be substandard and such products could not be sold or used or subject to recalls;
If we had to replace our own manufacturing operations or a third-party manufacturer, the FDA and its international counterparts would require new testing and compliance inspections. Furthermore, a new manufacturer would have to be familiarized with the processes necessary to manufacture and commercially validate our products, as producing our treprostinil-based and biologic products is complex;
We may be unable to contract with needed manufacturers on satisfactory terms or at all; and
The supply of materials and components necessary to manufacture and package our products may become scarce or unavailable, which could delay the manufacturing and subsequent sale of such products. Products manufactured with substituted materials or components must be approved by the FDA and applicable international regulatory agencies before they could be sold. Any of these factors could disrupt sales of our commercial products, delay clinical trials or commercialization of new products, result in product liability claims and product recalls, and entail higher costs. Interruptions in our manufacturing process could be significant given the length of time and complexity involved in obtaining necessary regulatory approvals for alternative arrangements, through either third parties or internal manufacturing processes.
We face risks and uncertainties related to the COVID-19 pandemic, which could significantly disrupt our operations and/or business for an unknown period of time. Our business, operations, financial results, liquidity, and stock price could be adversely impacted by the effects of the global COVID-19 pandemic. The extent of such impact, including the duration and magnitude of such effects, will depend on numerous rapidly evolving factors that we cannot currently accurately predict or assess, including, among others: the duration and scope of the pandemic; its impact on global and regional healthcare infrastructure, and the ability of patients to obtain medical care; the negative impact on global and regional economies and economic activity; actions governments, businesses, and individuals take in response to the pandemic; and how quickly economies and medical systems recover after the pandemic subsides. Our business could be materially adversely affected as a result of the COVID-19 pandemic due to social distancing/self-isolation, the burden the pandemic has placed on healthcare infrastructure, workplace and physician office closures, mass transit disruptions, quarantines, and other factors, which could cause, among other things: | | | • | Interruption of our development pipeline. Approvals of new products we are developing, potential label expansions for existing products, and the launch of newly-approved products may be delayed, which would harm our revenue growth prospects. The launch of the Remunity Pump has already been delayed due to COVID-19 related supply issues, and we cannot control when or if those supply issues will be resolved. Enrollment in many clinical trials was suspended during the first quarter of 2020. Although enrollment in many of these studies at a limited number of sites has re-opened, we may experience further delays or difficulties, including delays or difficulties with clinical site initiation and recruiting clinical site investigators and clinical site staff. In addition, we may experience increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19 or other health conditions or because of quarantines or travel limitations (whether voluntary or required). Our clinical trials, including the integrity and completeness of subject data and clinical study endpoints, may also be impacted or delayed by: (1) diversion of healthcare resources away from the conduct of clinical trials due to changes in hospital or research institution policies, governmental regulations, prioritization of hospital and other medical resources toward efforts to cope with the pandemic, or other reasons related to the pandemic; (2) interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by governments, employers, and others, or other interruption of clinical trial participant visits and study procedures; or (3) any interruption of, or delays in receiving, supplies of our investigational drug candidates or other study materials from us or our contract manufacturing organizations, due to staffing shortages, production slowdowns, or stoppages and disruptions in distribution systems. In addition, our pipeline may be delayed by interruption or delays in the operations of the FDA or other regulatory authorities, which are extremely busy responding to the COVID-19 pandemic and are working-from-home as a result of social distancing requirements. Any prolongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our new products and label expansions. |
| | | • | A decrease in revenues from our existing products. COVID-19 has made it difficult or impossible for many patients to visit their physicians’ offices to determine whether our medicines may be appropriate. As a result, we experienced a decline in the number of new patients starting our treprostinil-based medicines, and that decline could continue or worsen, or abate and return, as the COVID-19 pandemic continues or if the pandemic causes access to medical care to become further restricted, which could cause a negative impact on our revenues. The potential inability of patients to visit their physicians’ offices or receive required diagnostic testing to ensure reimbursement for our therapies or any inability of specialty pharmacy nurses to visit patients as appropriate to provide training and assistance with the use of our therapies, may also cause existing patients to stop using our medicines or prevent new patients from starting to use our medicines. In addition, the virtual meetings by our commercial field-based teams with prescribing physicians may not be as effective as in-person meetings, which may negatively impact how often physicians prescribe our medicines. Our net revenues could also be adversely impacted by the negative effects of the COVID-19 pandemic on the global economy, which could result in: (1) an increased number of patients utilizing our patient access programs to receive free drug due to loss of employer-based health insurance, or other factors impacting their ability to afford our medicines; and (2) patients increasingly seeking Medicaid coverage for our products, which would lead to higher gross-to-net revenue reductions compared to commercial insurance providers. |
Any disruption of our supply chain caused by COVID-19, including if limitations in personnel or other stoppages or disruptions in distribution systems prevent us from delivering our products to distributors or prevent our distributors from distributing our products, or any disruption in the supply of pumps, concomitant medications, or other supplies manufactured by third parties that patients need to use our medicines, could also negatively impact our revenues. For example, Unituxin is administered as a combination treatment along with three other drugs that are manufactured and sold by third parties: granulocyte-macrophage colony-stimulating factor (GM-CSF), interleukin-2 (IL-2), and 13-cis-retinoic acid (RA). At least one of these drugs, GM-CSF, is currently being evaluated for treatment of COVID-19 patients. Should any of these three drugs become unavailable for use by high-risk neuroblastoma patients due to COVID-19 related supply
failures or significant utilization to treat COVID-19, we could see a decrease in Unituxin utilization and a resulting negative impact on our sales.
| | | • | Disruption of our operations. COVID-19 could disrupt many aspects of our operations, which could harm our business and prospects. For example, due to “shelter-in-place” orders and other public health guidance measures, we have implemented a work-from-home policy for all personnel excluding those necessary to maintain minimum basic operations. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. The increase in working remotely could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, manufacturing sites, clinical trial sites, and other third parties. In addition, as a result of shelter-in-place orders or other mandated travel restrictions, our on-site staff conducting research and development and manufacturing activities may not be able to access our laboratories or manufacturing space, and these core activities may be significantly limited or curtailed, possibly for an extended period of time. Further, we, and third parties with which we engage to conduct distribution, production, and research and development activities, may experience limitations on the ability to recruit and hire key personnel due to the inability to meet with candidates because of travel restrictions and “shelter-in-place” orders. We and third parties with which we engage also may experience operational challenges caused by sickness of our employees or their families, the desire of employees to avoid contact with large groups of people, and an increased reliance on working from home or mass transit disruptions. |
| | | • | Impact on our investments. COVID-19 and the resulting economic downturn has had a significant impact on many companies, and caused significant disruption and volatility in the financial markets. Our balance sheet includes a significant amount of publicly-traded corporate debt and equity securities and investments in privately-held companies. We may be required to recognize impairments in the value of these investments if the relevant companies are materially adversely effected as a result of the negative effects arising from the COVID-19 pandemic or for other reasons, become unable to repay debt securities when due, or experience credit rating downgrades, or if the public trading price of these securities decreases. |
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, could also precipitate or aggravate the other risk factors discussed in this Quarterly Report on Form 10-Q, which could materially adversely affect our business, financial condition, results of operations, liquidity, and stock price. Further, the COVID-19 pandemic, or any future outbreak of disease, may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks. The possible extent of the impact of the COVID-19 pandemic is inherently difficult to predict and will ultimately depend on a number of factors outside our control, including the ultimate duration and severity of the pandemic and the resulting economic downturn. For additional discussion of the impacts of COVID-19, which could be materially adverse to our operations and financial results, please see Management’s Discussion and Analysis—Impact of COVID-19 on our Business. We rely in part on third parties to perform activities that are critical to our business. Our ability to generate commercial sales or conduct clinical trials has in the past, and could in the future, suffer if our third-party suppliers and service providers fail to perform. Third parties assist us in activities critical to our operations, such as: (1) manufacturing our clinical and commercial products; (2) conducting clinical trials, preclinical studies, and other research and development activities; (3) obtaining regulatory approvals; (4) conducting pharmacovigilance-related and product complaint activities, including drug safety, reporting adverse events, and product complaints; and (5) marketing and distributing our products. For risks related toAny disruption in the involvementability of third parties into continue to perform these critical activities, including as a result of the COVID-19 pandemic, could cause a material adverse impact on our manufacturing process, see the risk factor above, entitled Our manufacturing strategy exposes us to significant risks.business and results of operations. We rely on various distributors to market, distribute, and sell Remodulin, Tyvaso, Orenitram, and Unituxin. From time-to-time, we increase the price of products sold to our U.S.-based and international distributors. Our price increases may not be fully reimbursed by third-party payers. If our distributors do not achieve acceptable profit margins on our products, they may reduce or discontinue the sale of our products. Furthermore, if our distributors devote fewer resources to sell our products or are unsuccessful in their sales efforts, our revenues may decline materially. Outside the United States, we rely substantially on our international distributors to obtain and maintain regulatory approvals for our products and to market and sell our products in compliance with applicable laws and regulations. In the United States, we derive all of our treprostinil revenues from sales to two distributors, Accredo and CVS Specialty. Because we only sell these products to two distributors in the United States, if either distributor places significantly larger or smaller orders in a given time period, our revenues can be materially impacted in a way that does not reflect patient demand.
We rely on Lilly to manufacture and supply Adcirca for us, and we use Lilly’s pharmaceutical wholesaler network to distribute Adcirca. If Lilly is unable to manufacture or supply Adcirca or its distribution network is disrupted, it could delay, disrupt, or prevent us from selling Adcirca. In addition, Lilly has the right to determine the price of Adcirca. Changes in the price of Adcirca set by Lilly could adversely impact demand or reimbursement for Adcirca. Any change in service providers could interrupt the distribution of our commercial products and our other products and services, and impede the progress of our clinical trials, commercial launch plans, and related revenues. We rely heavily on third-party contract research organizations, contract laboratories, clinical investigative sites, and other third-parties to conduct our clinical trials, preclinical studies and other research and development activities. In particular, our research and development efforts into new indications for Unituxin are substantially outsourced to a contract research organization called Precision Oncology, LLC. In addition, the success of certain products we are developing will depend on clinical trials sponsored by third parties. Failure by any third party to conduct or assist us in conducting clinical trials in accordance with study protocols, quality controls, and GCP, or other applicable U.S. or international requirements or to submit associated regulatory filings, could limit or prevent our ability to rely on results of those trials in seeking regulatory approvals. We rely entirely on third parties to supply pumps and other supplies necessary to deliver Remodulin. There are a limited number of pumps available in the market, and the discontinuation of any particular pump could have a material, adverse impact on our Remodulin revenues if a viable supply of an alternate pump is not available. We rely entirely on Minnetronix Inc. as the sole manufacturer of the Tyvaso Inhalation System. As Tyvaso is a drug-device combination, we cannot sell Tyvaso without the Tyvaso Inhalation System. We rely heavily on Medtronic for the success of our program to develop an implantable pump to deliver intravenous Remodulin (the Implantable System for Remodulin). In particular, Medtronic is entirely responsible for regulatory approvals and all manufacturing and quality systems related to its infusion pump and related components. This includes satisfying FDA-imposed PMA conditions prior to launching the Implantable System for Remodulin.Remodulin, which Medtronic has not been able to do as quickly as we expected. Medtronic entered into a consent decree related to the SynchroMed II implantable infusion pump systems. Medtronic’s failure to comply with the ongoing obligations under the consent decree could adversely impact Medtronic’s ability to manufacture and supply the Implantable System for Remodulin. In the event Medtronic is unwilling or unable to supply the system for any reason, including further delays in satisfying outstanding FDA-imposed conditions, our ability to meet patient demand and generate additional revenues will be materially adversely impacted; any delays in supply could also adversely impact our ability to meet patient demand and generate revenues.impacted. We rely heavily on MannKind for various manufacturing activities related to Treprostinil Technosphere. MannKind has announced that its currently available cash and financing sources are not sufficient to continue to meet its current and anticipated cash requirements, raising substantial doubt about its ability to continue as a going concern. If MannKind is unable to supply us with devices and other components necessary to develop and manufacture Treprostinil Technosphere, the timing and success of this program could be materially adversely impacted. Finally, we
We rely heavily on DEKA and its affiliates for the development, manufacturing, and regulatory approval of RemUnity, our pre-filled, semi-disposable systemthe Remunity Pump for subcutaneous treprostinil.Remodulin. As a result of supply disruptions caused by COVID-19, DEKA has experienced delays in its ability to secure certain components and raw materials necessary to manufacture sufficient quantities of Remunity Pumps and accessories to enable us to commence commercial sales, and we cannot control when or if those disruptions will be resolved. Finally, we also rely on various sole-source suppliers for manufacturing activities related to ralinepag, LNG01 (formerly SM04646), RemoPro, OreniPro, RemoLife, and Trevyent. For a further discussion of risks created by the use of third-party contract manufacturers, see the risk factor above entitled, Our manufacturing strategy exposes us to significant risks. Our operations must comply with extensive laws and regulations in the United States and other countries, including FDA regulations. Failure to obtain approvals on a timely basis or to achieve continued compliance with these requirements could delay, disrupt, or prevent the commercialization of our products. The products we develop must be approved for marketing and sale by regulatory agencies. Our research and development efforts must comply with extensive regulations, including those promulgated by the FDA and the U.S. Department of Agriculture. The process of obtaining and maintaining regulatory approvals for new drugs is lengthy, expensive, and uncertain. The regulatory approval process is particularly uncertain for our transplantation programs, which include the development of xenotransplantation, regenerative medicine, biomechanical lungs, and cell-based products. Once approved, the manufacture, distribution, advertising, and marketing of our products are subject to extensive regulation, including product labeling, strict pharmacovigilance and adverse event and medical device reporting, complaint processing, storage, distribution, and record-keeping requirements. Our product candidates have in the past and may in the future fail to receive regulatory approval on a
timely basis, or at all. If granted, product approvals can be conditioned on the completion of post-marketing clinical studies, accompanied by significant restrictions on the use or marketing of a given product and withdrawn for failure to comply with regulatory requirements, such as post-marketing requirements and post-marketing commitments, or upon the occurrence of adverse events subsequent to commercial introduction. If data from post-marketing studies suggest that an approved product presents an unacceptable safety risk, regulatory authorities could withdraw the product’s approval, suspend production, or place other marketing restrictions on that product. In December 2017, we entered into a Corporate Integrity Agreement (the CIA) with the Office of Inspector General of the Department of Health and Human Services (OIG), which requires us to maintain our corporate compliance program and to undertake a set of defined corporate integrity obligations for a period of five years from the date the agreement was signed. We may be required to incur significant future costs to comply with the CIA. The CIA was entered into in connection with a civil Settlement Agreement with the DOJ and the OIG. The Settlement Agreement relates to a May 2016 subpoena from the DOJ requesting documents regarding our support of 501(c)(3) organizations that provide financial assistance to patients. Other companies received similar inquiries as part of a DOJ investigation regarding whether that support may violate the Federal Anti-Kickback Statute and the Federal False Claims Act.
If we fail to comply with applicable regulatory requirements or the CIA, we could be subject to penalties including fines, suspension of regulatory approvals that cause us to suspend production, distribution or marketing activities, product recalls, seizure of our products and/or criminal prosecution. If regulatory sanctions are applied or regulatory approval is delayed or withdrawn, our operating results and the value of our company may be adversely affected. In addition, our reputation could be harmed as a result of any such regulatory restrictions or actions, and patients and physicians may avoid the use of our products even after we have resolved the issues that led to such regulatory action.
Regulatory approval for our currently marketed products is limited by the FDA and other regulators to those specific indications and conditions for which clinical safety and efficacy have been demonstrated. Any regulatory approval of our products is limited to specific diseases and indications for which our products have been deemed safe and effective by the FDA. FDA approval is also required for new formulations and new indications for an approved product. If we are not able to obtain FDA approval for any desired future indications for our products, our ability to effectively market and sell our products may be reduced. While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for uses that differ from those approved by regulatory authorities (called “off-label” uses), our ability to promote our products is limited to those indications that are specifically approved by the FDA. If our promotional activities fail to comply with regulations or guidelines related to off-label promotion, we may be subject to warnings from, or enforcement action by, these authorities. In addition, failure to follow FDA rules and guidelines related to promotion and advertising can result in the FDA’s refusal to approve a product, suspension or withdrawal of an approved product from the market, product recalls, fines, disgorgement of money, operating restrictions, civil lawsuits, injunctions, or criminal prosecution.
We must comply with various laws in jurisdictions around the world that restrict certain marketing practices in the pharmaceutical and medical device industries. Failure to comply with such laws could result in penalties and have a material adverse effect on our business, financial condition, and results of operations. Our business activities may be subject to challenge under laws in jurisdictions around the world restricting particular marketing practices such as anti-kickback and false claim statutes, the Foreign Corrupt Practices Act, and the United Kingdom Bribery Act. Any penalties imposed upon us for failure to comply could have a material adverse effect on our business and financial condition. In the United States, the Federal Anti-Kickback Statute prohibits, among other activities, knowingly and willfully offering, paying, soliciting, or receiving compensation to induce, or in return for, the purchase, lease, order or arranging the purchase, lease or order of any health care product or service reimbursable under any federally financed health-care program. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers and prescribers, purchasers, formulary managers, patients, and others. The exemptions and safe harbors under this statute may be narrow, and practices that involve compensation may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices do not always qualify for safe harbor protection. The Federal False Claims Act, as amended by the Patient Protection and Affordable Care Act of 2010 (PPACA), prohibits any person from presenting or causing to be presented a false or fraudulent claim or making or causing a false statement material to a false or fraudulent claim. SeveralFor example, several pharmaceutical and health care companies have been investigated under this law for allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the free product. Other companies have been prosecuted for causing false claims to be submitted because of these companies’ marketing of a product for unapproved and non-reimbursable uses. Potential liability under the Federal False Claims Act includes mandatory treble damages and significant per-claim penalties. The majority of states also have statutes similar to the Federal Anti-Kickback Statute and the Federal False Claims Act. Sanctions under these federal and state laws may include treble civil monetary penalties, exclusion of a manufacturer’s product from reimbursement under state government programs, debarment, criminal fines, and imprisonment. Any investigation, inquiry, or other legal proceeding under these laws and related to our operations may adversely affect our business, results of operations, or reputation. The PPACA also imposed reporting requirements for pharmaceutical, biologic, and device manufacturers regarding payments or other transfers of value made to physicians and teaching hospitals, including investment interests in such manufacturers held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties, which may increase significantly for “knowing failures.” Compliance with these and similar laws on a state-by-state basis is difficult and time consuming.
Government healthcare reform and other reforms could adversely affect our revenue, costs, and results of operations. Our industry is highly regulated and changes in law may adversely impact our business, operations, or financial results. The PPACA is a broad measure intended to expand health care coverage within the United States, primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. The Cures Act, meanwhile, contains a wide range of provisions designed to promote clinical research and streamline and expedite the FDA review and approval process. The reforms imposed by the lawthese laws will significantly impact the pharmaceutical industry; however, the full effects of the PPACA and the Cures Act will be unknown until all of these provisions are implemented and CMS, the FDA, and other federal and state agencies issue applicable regulations or guidance. Moreover, in the coming years, additional changes could be made to governmental health care programs or FDA regulations that could significantly impact the success of our products or product candidates. We may also face uncertainties as a result of federal and administrative efforts to repeal, substantially modify or invalidate some or all of the provisions of the PPACA. There is no assurance that the PPACA, as currently enacted or as amended in the future, will not adversely affect our business and financial results, and we cannot predict how future federal or state legislative or administrative changes related to healthcare reform will affect our business. The future stability of the PPACA and the resulting impact on our business is thus uncertain and could be material. In addition, many states have proposed legislation that seeks to indirectly or directly regulate pharmaceutical drug pricing by requiring biopharmaceutical manufacturers to publicly report proprietary pricing information or to place a maximum price ceiling on pharmaceutical products purchased by state agencies. As additional legislation is passed, we may experience additional pricing and reporting pressures on our products. For example, in October 2017, California’s governor signed a prescription drug price transparency state bill into law, requiring prescription drug manufacturers to provide advance notice and explanation for price increases of certain drugs that exceed a specified threshold. Since then, similar legislation has also been passed in other states. Similar bills have been previously introduced at the federal level, and the Trump administration has focused attention on proposed efforts to curb prescription drug prices. In May 2018, President Trump and the Health and Human Services (HHS) Secretary released the “American Patients First” blueprint, which included measures to increase generic drug and biosimilar competition, the ability of the Medicare program to negotiate drug prices, public transparency regarding drug prices and information available to beneficiaries regarding ways to lower out-of-pocket costs. The Trump administration has begun implementing many of these measures. The potential effect of health insurance market destabilization during ongoing repeal and replace discussions, as well as the impact of potential changes to the way thecosts of drugs are reimbursed and how the Medicaid program is financed through executive orders, legislation, and/or regulation, will likely affect patients’ sources of insurance, PBMs, specialty pharmacy providers, and resultant drug coverage. In addition to the Trump administration’s proposals, discussions continue at the federal level regarding policies that would require manufacturers to pay higher rebates in Medicare Part D, give states more flexibility on drugs that are covered under the Medicaid program, permit the re-importation of prescription medications from Canada or other countries and other policy proposals that could impact reimbursement for our products. In December 2019, the FDA issued a notice of proposed rulemaking that, if finalized, would allow for the importation of certain prescription drugs from Canada, and the FDA published draft guidance that describes how drug manufacturers can import prescription products that were originally intended for sale in a foreign country. It is difficult to predict the impact, if any, of any such legislation, executive actions, or Medicaid flexibility on the use and reimbursement of our products in the United States, including the potential for the importation of generic versions of our products. In addition, rebate policies could allow state Medicaid programs to request additional supplemental rebates on our products as a result of the increase in the federal base Medicaid rebate. Private insurers could also use the enactment of any federal policies to exert pricing pressure on our products, and to the extent that private insurers or managed care programs follow Medicaid coverage and payment developments, the adverse effects may be magnified by private insurers adopting lower payment schedules.
Reports of actual or perceived side effects and adverse events associated with our products, such as sepsis, could cause physicians and patients to avoid or discontinue use of our products in favor of alternative treatments. Reports of side effects and adverse events associated with our products could have a significant adverse impact on the sale of our products. An example of a known risk associated with intravenous Remodulin is sepsis, which is a serious and potentially life-threatening infection of the bloodstream caused by a wide variety of bacteria. Intravenous Remodulin is infused continuously through a catheter placed in a large vein in the patient’s chest, and sepsis is a known risk associated with this type of delivery. In addition, Unituxin is associated with severe side effects, and its label contains a boxed warning related to potential infusion reactions and neurotoxicity. We are required to report certain adverse events to the FDA. Development of new products, and new formulations and indications for existing products, could result in new side effects and adverse events which may be serious in nature. Concerns about side effects may affect a physician’s decision to prescribe or a patient’s willingness to use our products.
Negative attention from special interest groups may impair our business. As is common with pharmaceutical and biotechnology companies, our early-stage research and development involves animal testing required by regulatory authorities, which we conduct both directly and through contracts with third parties. Our xenotransplantation and regenerative medicine programs rely heavily on the use of animals to manufacture and test our products. Certain special interest groups categorically object to the use of animals for research purposes. Any negative attention, threats or acts of vandalism directed against our animal research activities in the future could impede the operation of our business.
If any of the license or other agreements under which intellectual property rights are licensed to, or were acquired by us, are breached or terminated, our right to continue to develop, manufacture, and sell the products covered by such agreements could be impaired or lost. Our business depends upon our continuing ability to exploit our intellectual property rights acquired from third parties under product license and purchase agreements. Under each of our purchase agreements, we have rights to certain intellectual property covering a drug or other product or technology. We may be required to license additional intellectual property owned by third parties to continue to develop and commercialize our products. This dependence on intellectual property developed by others involves the following risks: | ● | We may be unable to obtain rights to intellectual property that we determine we need for our business at a reasonable cost or at all; |
TableIf any of Contents
our product licenses or purchase agreements are terminated, we may lose our rights to develop, make, and sell the products to which such licenses or agreements relate; | ● | If any of our product licenses or purchase agreements are terminated, we may lose our rights to develop, make and sell the products to which such licenses or agreements relate; |
| ● | Our rights to develop and market products to which the intellectual property relates are frequently limited to specific territories and fields of use (such as treatment of particular diseases); and |
| ● | If a licensor of intellectual property fails to maintain the intellectual property licensed, we may lose any ability to prevent others from developing or marketing similar products covered by such intellectual property. In addition, we may be forced to incur substantial costs to maintain the intellectual property ourselves or take legal action seeking to force the licensor to do so. |
Our rights to develop and market products to which the intellectual property relates are frequently limited to specific territories and fields of use (such as treatment of particular diseases); and
If a licensor of intellectual property fails to maintain the intellectual property licensed, we may lose any ability to prevent others from developing or marketing similar products covered by such intellectual property. In addition, we may be forced to incur substantial costs to maintain the intellectual property ourselves or take legal action seeking to force the licensor to do so. Our intellectual property rights may not effectively deter competitors from developing competing products that, if successful, could have a material adverse effect on our revenues and profits. The period under which our commercial and developmental therapies are protected by our patent rights is limited. Three of our U.S. patents covering our current methods of synthesizing and producing treprostinil, the active ingredient in Remodulin, Tyvaso, and Orenitram, expired in October 2017, and three more will expire in 2028. Our patents related to our individual treprostinil-based products expire at various times between 2018 and 2031. We have entered into settlement agreements with Sandoz and four other generic drug companies permitting them to launch generic versions of Remodulin in the United States. Sandoz commencedbegan marketing of its generic product in the United States in March 2019. Teva and Par received FDA approval for their ANDAs and announced plans to launch during the third quarter of 2019, and we anticipate additionalto our knowledge, the remaining two companies may launchhave not yet received FDA approval for their generic versions of Remodulin in the United States as early as September 2019.ANDAs. We also settled patent litigation with Actavis and Watson, and entered into settlement agreements permitting them to launch generic versions of Orenitram and Tyvaso in the United States in June 2027 and January 2026, respectively, although each may be permitted to enter the market earlier under certain circumstances.A U.S. patent for Adcirca for the treatment of pulmonary hypertension expired in November 2017, and FDA-conferred regulatory exclusivity expired in May 2018, leading to the launch of a generic version of Adcirca in August 2018. We have no issued patents or pending patent applications covering Unituxin. For further details, please see Part I, Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Generic Competition.Competition and Challenges to our Intellectual Property Rights. We continue to conduct research into new methods to synthesize treprostinil and have pending U.S. and international patent applications and patents related to such methods. We also have additional issued and pending patents covering the use of our existing commercial products in new indications and with new devices. However, we cannot be sure that our existing or any new patents will effectively deter or delay competitors’ efforts to bring new products to market, or that additional patent applications will result in new patents. Upon the expiration of any of our patents, competitors may develop generic versions of our products and may market those generic versions at a lower price to compete with our products. Competitors may also seek to design around our patents or exclude patented methods of treatment, such as patent-protected indications, from the label for
generic versions of our products in an effort to develop competing products that do not infringe our patents. In addition, patent laws of foreign jurisdictions may not protect our patent rights to the same extent as the patent laws of the United States. Third parties have challenged, and may in the future challenge, the validity of our patents, through patent litigation and/or initiating proceedings, including re-examinations, IPRs,inter partes reviews, post-grant reviews, and interference proceedings, before the USPTO or other applicable patent filing office, or other means. In March 2020, Liquidia filed petitions for inter partes review of two of our treprostinil-related patents, which we may not be successful in defending. In April 2020, we received a Paragraph IV notification letter from Liquidia indicating that Liquidia’s NDA contains a certification alleging that LIQ861 will not infringe any of the patents currently listed in the Orange Book for Tyvaso because those patents are not valid, not enforceable, and/or will not be infringed by the commercial manufacture, use or sale of LIQ861. In June 2020, we filed a patent infringement lawsuit against Liquidia related to its NDA for LIQ861. Patent litigation can be time consuming, distracting to our operations, and costly and may conclude unfavorably for us. In addition, the outcome of patent infringement litigation often is difficult to predict. If we are unsuccessful with respect to any future legal action in the defense of our patents and our patents are invalidated or determined to be unenforceable, our business could be negatively impacted. Even if our patents are determined to be valid or enforceable, it is possible that a competitor could circumvent our patents by effectively designing around the claims of our patents. Accordingly, our patents may not provide us with any competitive advantage.
In addition to patent protection, we also rely on trade secrets to protect our proprietary know-how and other technological advances that we do not disclose to the public. We enter into confidentiality agreements with our employees and others to whom we disclose trade secrets and other confidential information. These agreements may not necessarily prevent our trade secrets from being used or disclosed without our authorization and confidentiality agreements may be difficult, time-consuming, and expensive to enforce or may not provide an adequate remedy in the event of unauthorized disclosure. In addition, if any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such third party, or those to whom they communicate such technology or information, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our business and competitive position could be harmed. Third parties may allege that our products or services infringe their patents and other intellectual property rights, which could result in the payment of royalties. Payment of royalties would negatively affect our profits; furthermore, if we chose to contest these allegations, we could be subject to costly and time-consuming litigation or could lose the ability to continue to sell the related products. To the extent third-party patents to which we currently do not hold licenses are necessary for us to manufacture, use, or sell our products, we would need to obtain necessary licenses to prevent infringement. In the case of products or services that utilize intellectual property of strategic collaborators or other suppliers, such suppliers may have an obligation to secure the needed license to these patents at their cost. Otherwise, we would be responsible for the cost of these licenses. Royalty payments and other fees under these licenses would erode our profits from the sale of related products and services. Moreover, we may be unable to obtain these licenses on acceptable terms or at all. If we fail to obtain a required license or are unable to alter the design of the product to avoid infringing a third-party patent, we would be unable to continue to manufacture or sell related products. If a third party commences legal action against us for infringement, we could be compelled to incur significant costs to defend the action and our management’s attention could be diverted from our day-to-day business operations, whether or not the action were to have any merit. We cannot be certain that we could prevail in the action, and an adverse judgment or settlement resulting from the action could require us to pay substantial amounts in damages for infringement or substantial amounts to obtain a license to continue to use the intellectual property that is the subject of the infringement claim.
We may not maintain adequate insurance coverage to protect us against significant product liability claims. The testing, manufacturing, marketing, and sale of drugs and diagnostics involve product liability risks. We may not be able to maintain our current product liability insurance at an acceptable cost, if at all. In addition, our insurance coverage may not be adequate for all potential claims. If claims or losses significantly exceed our liability insurance coverage, we may experience financial hardship or potentially be forced out of business. While we historically have had a limited number of product liability claims, the clinical testing and eventual marketing and sale of new products, reformulated versions of existing products, or existing products in new indications, could expose us to new product liability risks. The launch of new products will raise new product liability risks, and in many cases the quality of these products will depend on the performance of third parties that we do not control (such as Medtronic, in the case of the Implantable System for Remodulin).
If we fail to attract and retain key management and qualified scientific and technical personnel, we may not be able to achieve our business objectives. Members of our management team, including our founder, Chairman and Chief Executive Officer, Dr. Martine Rothblatt, play a critical role in defining our business strategy and maintaining our corporate culture. The loss of the services and leadership of Dr. Rothblatt or any other members of our senior management team could have an adverse effect on our business. We do not maintain key person life insurance on our senior management team members. In addition, effective succession planning is important to our long-term success. Failure to identify, hire, and retain suitable successors for members of our senior management team and to transfer knowledge effectively could impede the achievement of our business objectives. Our future success also depends on our ability to attract and retain qualified scientific and technical personnel. Competition for skilled scientific and technical personnel in the biotechnology and pharmaceutical industries is intense. Furthermore, our compensation arrangements may not be sufficient to attract new qualified scientific and technical employees or retain such core employees. If we fail to attract and retain such employees, we may not be successful in developing and commercializing new therapies for PAH and other diseases.
Improper handling of hazardous materials used in our activities could expose us to significant remediation liabilities. Our research and development and manufacturing activities involve the controlled use of chemicals and hazardous substances and we are expanding these activities in both scale and location. In addition, patients may dispose of our products using means we do not control. Such activities subject us to numerous federal, state, and local environmental and safety laws and regulations that govern the management, storage, and disposal of hazardous materials. Compliance with current and future environmental laws and regulations can require significant costs; furthermore, we can be subject to substantial fines and penalties in the event of noncompliance. The risk of accidental contamination or injury from these materials cannot be completely eliminated. Furthermore, once chemical and hazardous materials leave our facilities, we cannot control the manner in which such hazardous waste is disposed of by our contractors. In the event of an accident, we could be liable for substantial civil damages or costs associated with the cleanup of the release of hazardous materials. Any related liability could have a material adverse effect on our business. We may encounter substantial difficulties managing our growth relative to product demand.
If we experience substantial sales growth, we may have difficulty managing inventory levels as marketing new therapies is complicated and gauging future demand can be difficult and uncertain until we possess sufficient post-launch sales experience. In addition, we have spent considerable resources building and expanding our offices, laboratories and manufacturing facilities. However, our facilities could be insufficient to meet future demand for our products. Conversely, we may have excess capacity at our facilities if future demand falls short of our projections, or if we do not receive regulatory approvals for the products we intend to manufacture at our facilities. Our ability to satisfactorily recover our investments in our facilities will depend on sales of the products manufactured at these facilities in sufficient volume.
If we need additional financing and cannot obtain it, our product development and sales efforts may be limited. We may be required to seek additional sources of financing to meet unplanned or planned expenditures. Unplanned expenditures could be significant and may result from necessary modifications to product development plans or product offerings in response to difficulties encountered with clinical trials. We may also face unexpected costs in preparing products for commercial sale, or in maintaining sales levels of our currently marketed therapeutic products. In addition, our Credit Agreement contains affirmative and negative covenants that, among other things, limit our ability to incur additional indebtedness. If we are unable to obtain additional funding on commercially reasonable terms or at all, we may be compelled to delay clinical studies, curtail operations, or obtain funds through collaborative arrangements that may require us to relinquish rights to certain products or potential markets. We may require additional financing to meet significant future obligations. For example, our Share Tracking Awards Plan (STAP) awards entitle participants to receive in cash an amount equal to the appreciation in the price of our common stock, which is calculated as the positive difference between the closing price of our common stock on the date of exercise and the date of grant. Consequently, our STAP may require significant future cash payments to participants to the extent the price of our common stock appreciates and the number of vested STAP awards increases over time. If we do not have sufficient funds to meet such obligations or the ability to secure alternative sources of financing, we could be in default, face litigation and/or lose key employees, which could have a material adverse effect on our business.
We may not be able to generate sufficient cash to service our indebtedness, which may have a material adverse effect on our financial position, results of operations, and cash flows. In addition, we may be forced to take other actions to satisfy our obligations in connection with our indebtedness, which actions may not be successful. We may borrow up to $1.5 billion under our Credit Agreement, which matures in June 2024. Currently, our outstanding principal balance is $1.05 billion.$800.0 million. Our ability to make payments on or refinance our debt obligations, including any outstanding balance under our Credit Agreement, and any future debt that we may incur, will depend on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory, and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability
to generate sufficient cash flows to satisfy our debt obligations would materially and adversely affect our financial position and results of operations. If we cannot repay or refinance our debt as it becomes due, we could be forced to take disadvantageous actions, including reducing or delaying investments and capital expenditures, disposing of material assets or operations, seeking additional debt or equity capital, or restructuring or refinancing our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such actions may not be sufficient for us to meet any such debt service obligations. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired.
Our portfolio of investments is subject to market, interest, operational, and credit risk that may reduce its value. We maintain a portfolio of investments that includes: (1) corporate debt securities; (2) strategic investments in publicly-traded equity securities; and (3) strategic debt and equity investments in privately-held companies. These investments are subject to general economic conditions, volatility in the financial marketplace, market- and industry-wide dynamics, changes in interest rates, industry- and company-specific developments impacting the business, prospects, and credit ratings of the issuer of the securities, and other factors, each of which has affected, and may in the future affect, the income that we receive from our investments, the net realizable value of our investments, and our ability to sell them. These factors have caused, and could in the future cause, us to: (a) experience a decline in our investment income; (b) record impairment charges to reduce the carrying value of our investment portfolio; or (c) sell investments for less than our acquisition cost; each of which in turn could negatively impact our liquidity and our earnings. Our efforts to mitigate these risks through diversification of our investments and monitoring of our portfolio’s overall risk profile may not be successful and the value of our investments may decline. The privately-held companies we have invested in may be particularly susceptible to the factors described above as these companies are typically in the early stages of developing technologies or products that may never materialize, which could result in a loss of all or a substantial part of our investment in these companies. Privately-held companies are not subject to the same disclosure regulations as U.S. publicly traded companies, and the evaluation of investments in privately-held companies is based on information that we receive from these companies. As such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies. Information technology security breaches and other disruptions could compromise our information and expose us to legal responsibility which would cause our business and reputation to suffer. We are increasingly dependent on information technology systems and infrastructure, much of which is outsourced to third parties including in “cloud” based platforms. In the ordinary course of our business, we collect, store, and use sensitive or confidential data, including intellectual property, our proprietary business information and that of our suppliers, customers, and business partners, and personally identifiable information. The secure maintenance of this information is critical to our operations and business strategy. We are subject to laws and regulations in the United States and abroad, such as the Health Insurance Portability and Accountability Act of 1996 and European Union regulations related to data privacy, which require us to protect the privacy and security of certain types of information. Our information technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance, or other disruptions, or subject to system failures. We must continuously monitor and enhance our information security controls to prevent, detect, and/or contain unauthorized activity and malicious software. Because the techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. Any breaches or failures could compromise sensitive and confidential information stored on our networks or those of third parties and expose such information to public disclosure, loss, or theft. Any actual or alleged unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption of our operations, and damage to our reputation which could adversely affect our business, financial condition, or results of operations. In addition, remediation, repair and other costs we may incur as a result of any of the foregoing, including increased costs to protect our information technology systems and infrastructure, and increased insurance premiums, could adversely affect our business, financial condition, or results of operations. Given the increasing use of conferencing technologies to conduct business virtually in light of the COVID-19 pandemic, these cybersecurity risks are becoming more prevalent. The increasing use of social media platforms presents new risks and challenges. Social media is increasingly being used to communicate information about our products and the diseases that our therapies are designed to treat. Social media practices in our industry continue to evolve and regulations related to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients and others may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, we may fail to monitor and comply with applicable adverse event
reporting obligations or we may not be able to defend against political and market pressures generated by social media due to restrictions on what we may say about our products. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions, or incur other harm to our business.
Tax legislation may materially adversely affect us. Tax laws are dynamic and continually changing as new laws are passed and new interpretations of existing laws are issued or applied. Governmental tax authorities are increasingly scrutinizing the tax positions of companies. If federal, state, or foreign tax authorities change applicable tax laws or issue new guidance, our overall taxes could increase, and our business, financial condition, or results of operations may be adversely impacted.
If we are not able to successfully identify, finance, consummate, and/or integrate acquisitions, our business operations and financial position could be adversely affected. In August 2018 we acquired SteadyMed. We also entered into several in-licenses related to ongoing development programs in 2018, including our license with Arena related to ralinepag and our license with MannKind related to Treprostinil Technosphere. We may continue to seek to expand in part through acquisitions of complementary businesses, products, and technologies, through business combinations or in-licenses. The success of this strategy will depend on our ability to identify, and the availability of, suitable acquisition candidates. We may incur costs in the preliminary stages of an acquisition, but may ultimately be unable or unwilling to consummate the proposed transaction for various reasons. In addition, acquisitions involve numerous risks, including the ability to realize or capitalize on anticipated synergies; managing the integration of personnel, products, and acquired infrastructure and controls; potential increases in operating costs; managing geographically remote operations; the diversion of management’s attention from other business concerns and potential disruptions in ongoing operations during integration; the inherent risks in entering markets and sectors in which we have either limited or no direct experience; and the potential loss of key employees, clients or vendors and other business partners of the acquired companies. External factors, such as compliance with laws and regulations, may also impact the successful integration of an acquired business. Acquisitions could result in dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill and substantial amortization expenses of other intangible assets. We may be unable to obtain financing on favorable terms, or at all, if necessary to finance future acquisitions, which may make acquisitions impossible or more costly. If we are able to obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be time consuming and costly to obtain or may be denied, and if obtained, the terms of such regulatory approvals may impose limitations on our ongoing operations or require us to divest assets.
Risks Related to Our Common Stock
The price of our common stock can be highly volatile and may decline. The price of common stock can be highly volatile within the pharmaceutical and biotechnology sector. Consequently, there can be significant price and volume fluctuations in the market that may not relate to operating performance. The following table sets forth the high and low closing prices of our common stock for the periods indicated:
| | | | | | | | | High | | Low | January 1, 2019—June 30, 2019 | | $ | 126.84 | | $ | 76.06 | January 1, 2018—December 31, 2018 | | $ | 151.94 | | $ | 101.14 | January 1, 2017—December 31, 2017 | | $ | 168.42 | | $ | 114.60 |
| | | | | | | | | | | High | | Low | | January 1, 2020—June 30, 2020 | $ | 125.82 |
| | $ | 79.39 |
| | January 1, 2019—December 31, 2019 | $ | 126.84 |
| | $ | 74.85 |
| | January 1, 2018—December 31, 2018 | $ | 151.94 |
| | $ | 101.14 |
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The price of our common stock could decline sharply due to the following factors, among others: | ● | Failure to meet our estimates or expectations, or those of securities analysts; |
| ● | Quarterly and annual financial results; |
Failure to meet our estimates or expectations, or those of securities analysts;
Quarterly and annual financial results;
Timing of enrollment and results of our clinical trials;
Announcements regarding generic or other challenges to the intellectual property relating to our products, the launch of generic versions of our products or other competitive products, and the impact of competition from generic and other products on our revenues;
| ● | | • | Timing of enrollment and results of our clinical trials, including the anticipated announcement of our DISTINCT phase III clinical study; |
| ● | Announcements regarding generic or other challenges to the intellectual property relating to our products, the launch of generic versions of our products, and the impact of generic competition on our revenues; |
| ● | Announcements regarding litigation matters, including the lawsuit filed against us by Sandoz and RareGen, LLC;LLC, the petitions for |
| ● | Announcements regardinginter partes review filed by Liquidia, and our effortspatent infringement lawsuit against Liquidia related to obtain FDA approval of new products, such as RemUnity and Trevyent, and the timing or success of our launch of new products, such as the Implantable Systemits NDA for Remodulin;LIQ861; |
| ● | Physician, patient, investor or public concerns regarding the efficacy and/or safety of products marketed or being developed by us or by others; |
| ● | Changes in, or new legislation and regulations affecting reimbursement of, our therapeutic products by Medicare, Medicaid or other government payers, and changes in reimbursement policies of private health insurance companies, and negative publicity surrounding the cost of high-priced therapies; |
| ● | Announcements of technological innovations or new products or announcements regarding our existing products, including in particular the development of new, competing PAH therapies; |
| ● | Substantial sales of our common stock by us or our existing shareholders, or concerns that such sales may occur; |
| ● | Future issuances of common stock by us or any other activity which could be viewed as being dilutive to our shareholders; |
| ● | Rumors among, or incorrect statements by, investors and/or analysts concerning our company, our products, or our operations; |
| ● | Failures or delays in our efforts to obtain or maintain regulatory approvals from the FDA or international regulatory agencies; |
| ● | Discovery of previously unknown problems with our marketed products, or problems with our manufacturing, regulatory, compliance, promotional, marketing or sales activities that result in regulatory penalties or restrictions on our products, up to the withdrawal of our products from the market; |
| ● | Accumulation of significant short positions in our common stock by hedge funds or other investors or the significant accumulation of our common stock by hedge funds or other institutional investors with investment strategies that may lead to short-term holdings; and |
| ● | General market conditions. |
Announcements regarding our efforts to obtain FDA approval of, and to launch, new products, such as the Remunity Pump, Trevyent, and the Implantable System for Remodulin;
Physician, patient, investor, or public concerns regarding the efficacy and/or safety of products marketed or being developed by us or by others;
Changes in, or new legislation and regulations affecting reimbursement of, our therapeutic products by Medicare, Medicaid or other government payers, and changes in reimbursement policies of private health insurance companies, and negative publicity surrounding the cost of high-priced therapies;
Announcements of technological innovations or new products or announcements regarding our existing products, including in particular the development of new, competing PAH therapies;
Substantial sales of our common stock by us or our existing shareholders, or concerns that such sales may occur;
Future issuances of common stock by us or any other activity which could be viewed as being dilutive to our shareholders;
Rumors among, or incorrect statements by, investors and/or analysts concerning our company, our products, or our operations;
Failures or delays in our efforts to obtain or maintain regulatory approvals from the FDA or international regulatory agencies;
Discovery of previously unknown problems with our marketed products, or problems with our manufacturing, regulatory, compliance, promotional, marketing or sales activities that result in regulatory penalties or restrictions on our products, up to the withdrawal of our products from the market;
Accumulation of significant short positions in our common stock by hedge funds or other investors or the significant accumulation of our common stock by hedge funds or other institutional investors with investment strategies that may lead to short-term holdings; and
General market conditions. Provisions of Delaware law and our amended and restated certificate of incorporation, seventheighth amended and restated By-laws and employment and license agreements, among other things, could prevent or delay a change of control or change in management that may be beneficial to our public shareholders. Certain provisions of Delaware law, and our amended and restated certificate of incorporation, and seventhour eighth amended and restated By-laws may prevent, delay, or discourage: | ● | A merger, tender offer or proxy contest; |
| ● | The assumption of control by a holder of a large block of our securities; and/or |
| ● | The replacement or removal of current management by our shareholders. |
The replacement or removal of current management by our shareholders. For example, our amended and restated certificate of incorporation dividesdivided our Board of Directors into three classes. MembersAlthough our certificate of each class areincorporation was recently amended to declassify our Board of Directors, the declassification will be phased in and all directors will not be elected for staggered three-year terms.annually until our 2023 annual meeting of shareholders. This provision may make it more difficult for shareholders to replace the majority of directors.directors until such time. It may also deter the accumulation of large blocks of our common stock by limiting the voting power of such blocks.
Non-competition and all other restrictive covenants in most of our employment agreements will terminate upon a change of control that is not approved by our Board. Similarly, a change of control, under certain circumstances, could also result in an acceleration of the vesting of outstanding STAP awards under our Share Tracking Awards Plans, stock options, and restricted stock units. This, together with any increase in our stock price resulting from the announcement of a change of control, could make an acquisition of our company significantly more expensive to the purchaser. We also have a broad-based change of control severance program, under which employees may be entitled to severance benefits in the event they are terminated without cause (or they terminate their employment for good reason) following a change of control. This program could also increase the cost of acquiring our company. We enter into certain license agreements that generally prohibit our counterparties or their affiliates from taking necessary steps to acquire or merge with us, directly or indirectly throughout the term of these agreements, plus a specified period thereafter. We are also party to certain license agreements that restrict our ability to assign or transfer the rights licensed to us to third parties, including parties with whom we wish to merge, or those attempting to acquire us. These agreements often require that we obtain prior consent of the counterparties to these agreements if we contemplate a change of control. If these counterparties withhold consent, related agreements could be terminated and we would lose related license rights. For example, Lilly, Samumed, and MannKind have the right to terminate our license agreements relating to Adcirca, SM04646LNG01 (formerly SM04646), and Treprostinil Technosphere, respectively, in the event of certain change of control transactions. These restrictive change of control provisions could impede or prevent mergers or other transactions that could benefit our shareholders.
Because we do not intend to pay cash dividends, our shareholders must rely on stock appreciation for any return on their investment in us. We have never declared or paid cash dividends on our common stock. Furthermore, we do not intend to pay cash dividends in the future and our Credit Agreement contains covenants that may restrict us from doing so. As a result, the return on an investment in our common stock will depend entirely upon the future appreciation in the price of our common stock. There can be no assurances that our common stock will provide a return to investors. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the six months ended June 30, 2019,2020, we did not (a) repurchase any of our outstanding equity securities or (b) sell any of our equity securities that were not registered under the Securities Act of 1933, as amended.
Item 6. EXHIBITS
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Description | 3.1
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| Amended and Restated Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-76409).
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| 3.4
4.1 |
| Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit A to Exhibit 4 to the Registrant’s Current Report on Form 8-K filed December 18, 2000.
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| 4.1
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| Reference is made to Exhibits 3.1, and 3.2, 3.3. and 3.4. |
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| 10.1
10.1*† |
| | | | | | | 10.2* |
| | | | | | | 10.3 |
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| 31.1 |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| | 101
101* |
| | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019,2020, filed with the SEC on July 31, 2019,29, 2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (1) theour Consolidated Balance Sheets as of June 30, 20192020 and December 31, 2018,2019; (2) theour Consolidated Statements of Operations for the three- and six-month periods ended June 30, 20192020 and 2018,2019; (3) theour Consolidated Statements of Comprehensive Income for the three- and six-month periods ended June 30, 20192020 and 2018,2019; (4) theour Consolidated Statements of Stockholders’ Equity for the three- and six-month periods ended June 30, 20192020 and 2018,2019; (5) theour Consolidated Statements of Cash Flows for the six-month periods ended June 30, 20192020 and 2018,2019; and (6) the Notes to our Consolidated Financial Statements. | | | | | 104* |
| | Cover Page Interactive Data File (embedded within the iXBRL document) |
________________________ | | | † | Certain identified information has been omitted from this exhibit because it is not material and would be competitively harmful if publicly disclosed. |
Note: Except as otherwise noted above, all exhibits incorporated by reference to the Registrant’s previously filed reports with the Securities and Exchange Commission are filed under File No. 000-26301.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | UNITED THERAPEUTICS CORPORATION |
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| July 31, 2019 29, 2020 | /s/ MARTINE A. ROTHBLATT |
| By: | Martine A. Rothblatt, Ph.D. |
| Title: | Chairman and Chief Executive Officer |
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| (Principal Executive Officer) |
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| /s/ JAMES C. EDGEMOND |
| By: | James C. Edgemond |
| Title: | Chief Financial Officer and Treasurer |
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| (Principal Financial and Accounting Officer) |
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