| ● | we exclude losses on extinguishments of debt as these expenses are episodic in nature and do not directly correlate to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing shareholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Any of these events could significantly harm our business, financial condition and prospects.Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. The amount and timing of future funding requirements, both near- and long-term, will depend on many factors, including:
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| | the cost of establishing sales, marketingoperating our business on an ongoing basis. |
Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022 was as follows: | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | | 2023 | | 2022 | | 2023 | | 2022 | GAAP net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) | Adjustments: | | | | | | | | | | | | Interest expense | | 21,863 | | | 17,761 | | | 43,290 | | | 23,592 | Interest income | | (4,027) | | | (5) | | | (6,774) | | | (9) | Loss on extinguishment of debt | | — | | | — | | | 23,504 | | | — | Provision for (benefit from) income taxes | | 4,790 | | | (1,455) | | | 4,659 | | | (4,228) | Depreciation | | 895 | | | 656 | | | 1,712 | | | 1,371 | Amortization | | 37,463 | | | 37,501 | | | 74,929 | | | 56,424 | Stock-based compensation expense | | 7,072 | | | 5,692 | | | 13,107 | | | 11,827 | Litigation settlements | | — | | | — | | | 8,500 | | | — | Acquisition related expenses | | — | | | 3,579 | | | — | | | 30,746 | Recognition of step-up basis in inventory | | 4,748 | | | 12,638 | | | 14,918 | | | 13,241 | Total adjustments | $ | 72,804 | | $ | 76,367 | | $ | 177,845 | | $ | 132,964 | Adjusted EBITDA | $ | 85,811 | | $ | 71,176 | | $ | 173,426 | | $ | 114,704 |
Adjusted EBITDA was $85.8 million for the 2023 Quarter compared to $71.2 million for the 2022 Quarter. The $14.6 million increase was primarily due to higher revenues and lower adjusted operating expenses. Adjusted EBITDA was $173.4 million for the 2023 Period compared to $114.7 million for the 2022 Period. The $58.7 million increase was primarily due to higher revenues due to six months of revenue in the 2023 Period compared to approximately four months of revenue in the 2022 Period from products acquired from BDSI, as well as lower adjusted operating expenses. Adjusted Operating Expenses Adjusted operating expenses is a non-GAAP financial measure that represents GAAP operating expenses adjusted to exclude stock-based compensation expense, and other adjustments to reflect changes that occur in our business but do not represent ongoing operations. Adjusted operating expenses for the three and six months ended June 30, 2023 and 2022 were as follows: | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | | 2023 | | 2022 | | 2023 | | 2022 | GAAP operating expenses | $ | 38,193 | | $ | 41,254 | | $ | 90,968 | | $ | 99,765 | Adjustments: | | | | | | | | | | | | Stock-based compensation | | 7,072 | | | 5,692 | | | 13,107 | | | 11,827 | Litigation settlements | | — | | | — | | | 8,500 | | | — | Acquisition related expenses | | — | | | 3,579 | | | — | | | 30,746 | Total adjustments | $ | 7,072 | | $ | 9,271 | | $ | 21,607 | | $ | 42,573 | Adjusted operating expenses | $ | 31,121 | | $ | 31,983 | | $ | 69,361 | | $ | 57,192 |
Adjusted operating expenses were $31.1 million in the 2023 Quarter compared to $32.0 million in the 2022 Quarter. The $0.9 million decrease was primarily driven by a decrease in audit and legal expenses, primarily due to lower litigation related expenses. Adjusted operating expenses were $69.4 million in the 2023 Period compared to $57.2 million in the 2022 Period. The $12.2 million increase was primarily driven by: | ● | an increase in salaries, wages, and distribution capabilitiesbenefits (excluding stock-based compensation) of $4.7 million primarily due to increases in personnel costs for Xtampzaemployees retained following the BDSI Acquisition; and any other products for which we may receive regulatory approval; |
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| | the generation of reasonable levels of revenue from the sale of Xtampza;
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● | an increase in sales and marketing expenses of $6.9 million, primarily due to expenses incurred to support the ongoing commercialization of Belbuca and Symproic, as well the timing of marketing efforts. |
Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income is a non-GAAP financial measure that represents GAAP net income (loss) adjusted to exclude significant income and expense items that are non-cash or not indicative of ongoing operations, including consideration of the tax effect of the adjustments. Adjusted earnings per share is a non-GAAP financial measure that represents adjusted net income per share. Adjusted weighted-average shares - diluted is calculated in accordance with the treasury stock, if-converted, or contingently issuable accounting methods, depending on the nature of the security. Adjusted net income and adjusted earnings per share for the three and six months ended June 30, 2023 and 2022 were as follows: | | | | | | | | | | | | | Three Months Ended | | Six Months Ended | | June 30, | | June 30, | | 2023 | | 2022 | | 2023 | | 2022 | GAAP net income (loss) | $ | 13,007 | | $ | (5,191) | | $ | (4,419) | | $ | (18,260) | Adjustments: | | | | | | | | | | | | Non-cash interest expense | | 2,261 | | | 2,522 | | | 4,548 | | | 3,435 | Loss on extinguishment of debt | | — | | | — | | | 23,504 | | | — | Amortization | | 37,463 | | | 37,501 | | | 74,929 | | | 56,424 | Stock-based compensation expense | | 7,072 | | | 5,692 | | | 13,107 | | | 11,827 | Litigation settlements | | — | | | — | | | 8,500 | | | — | Acquisition related expenses | | — | | | 3,579 | | | — | | | 30,746 | Recognition of step-up basis in inventory | | 4,748 | | | 12,638 | | | 14,918 | | | 13,241 | Income tax effect of above adjustments (1) | | (12,100) | | | (15,737) | | | (30,974) | | | (29,408) | Total adjustments | $ | 39,444 | | $ | 46,195 | | $ | 108,532 | | $ | 86,265 | Non-GAAP adjusted net income | $ | 52,451 | | $ | 41,004 | | $ | 104,113 | | $ | 68,005 | | | | | | | | | | | | | Adjusted weighted-average shares — diluted (2) | | 42,849,952 | | | 39,256,685 | | | 41,485,868 | | | 39,290,207 | Adjusted earnings per share (2) | $ | 1.26 | | $ | 1.07 | | $ | 2.57 | | $ | 1.78 |
| (1) | The income tax effect of the design, initiation, progress, size, timing, costsadjustments was calculated by applying our blended federal and results of preclinical studiesstate statutory rate to the items that have a tax effect. The blended federal and clinical trialsstate statutory rate for the three months ended June 30, 2023 and 2022 were 24% and 26%, respectively; and the blended federal and state statutory rate for the six months ended June 30, 2023 and 2022 were 25.6% and 26%, respectively. As such, the non-GAAP effective tax rates for the three months ended June 30, 2023 and 2022 were 23.5% and 25.4%, respectively; and the non-GAAP effective tax rates for the six months ended June 30, 2023 and 2022 were 22.2% and 25.4%, respectively. |
| (2) | Adjusted weighted-average shares - diluted were calculated using the “if-converted” method for our product candidates; |
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| | convertible notes in accordance with ASC 260, Earnings per Share. As such, adjusted weighted-average shares – diluted includes shares related to the outcome, timingassumed conversion of our convertible notes and cost of regulatory approvals by the FDAassociated cash interest expense added-back to non-GAAP adjusted net income. For the three months ended June 30, 2023 and comparable foreign regulatory authorities, including2022, adjusted weighted-average shares – diluted includes 7,509,104 and 4,925,134, respectively, attributable to our convertible notes. For the potentialsix months ended June 30, 2023 and 2022, adjusted weighted-average shares – diluted includes 6,041,036 and 4,925,134, respectively, attributable to our convertible notes. In addition, for the FDA or comparable foreign regulatory authoritiesthree and six months ended June 30, 2023 and 2022, adjusted earnings per share also includes other potentially dilutive securities to requirethe extent that we perform more studies than, or evaluate clinical endpoints other than thosethey are not antidilutive given that we currently expect; non-GAAP adjusted net income was in an income position. |
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| | the timing and costs associated with manufacturing Xtampza and our product candidates for preclinical studies, clinical trials and, if approved, for commercial sale;
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| | the number and characteristics of product candidates that we pursue;
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| | the cost of patent infringement litigation, including our litigation with Purdue Pharma, L.P., or Purdue, relating to Xtampza or our product candidates, which may be expensive to defend and delay the commercialization of our product candidates;
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| | our need to expand our research and development activities, including our need and ability to hire additional employees;
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| | our need to implement additional infrastructure and internal systems and hire additional employees to operate as a public company;
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| | our need to expand our regulatory and compliance functions; and
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| | the effect of competing technological and market developments.
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If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected.
CONTRACTUAL OBLIGATIONS Therehave been no material changes to the contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations infrom our most recently filed Annual Report. We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to market risk related to changes in interest rates. As of September 30, 2017, we had cash and cash equivalents consisting of cash and money market funds of $107.6 million. Our primary exposure to market risk is interest rate sensitivity in connection with our investment portfolio and the 2022 Term Loan. None of these market risk sensitive instruments are held for trading purposes.
Investment Portfolio Our investment portfolio includes financial instruments that are sensitive to interest rate risks. Our investment portfolio is used to preserve capital, maintain liquidity sufficient to meet cash flow requirements, and maximize returns commensurate with our risk appetite. We invest in instruments that meet the credit quality, diversification, liquidity, and maturity standards outlined in our investment policy. As of June 30, 2023, our investment portfolio includes $129.1 million of cash equivalents and $41.7 million of marketable securities, which is affected by changes in the general levelare primarily comprised of money market funds, U.S. interest rates, particularly because ourTreasury securities, corporate debt, and government-sponsored securities. Our money market funds are short-term highly liquid investments, and our marketable securities have active secondary or resale markets to help ensure liquidity. We account for marketable securities as available-for-sale, thus, no gains or losses are realized due to changes in the fair value of our marketable securities unless we sell our investments prior to maturity or incur a credit loss. Furthermore, our investment policy includes guidelines limiting the term-to-maturity of our investments. Due to the short-term duration and the low risk profilenature of our investments, we do not believe that the fair value of our investments has a material exposure to interest rate risk. 2022 Term Loan Prior to the cessation of LIBOR on June 30, 2023, the 2022 Term Loan had an immediate 10% changeunderlying rate indexed to the 3-month LIBOR rate (subject to a floor of 1.20%), plus a margin of 7.5% per annum. On June 23, 2023, we entered into an amendment to the 2022 Loan Agreement to adjust the interest terms of the 2022 Term Loan to transition from LIBOR to SOFR in anticipation of the cessation of LIBOR. Effective July 1, 2023, the 2022 Term Loan bears interest at a rate based upon SOFR plus a spread adjustment of 0.26% (subject to a floor of 1.20%), plus a margin of 7.5% per annum. Based on the outstanding principal amount of the 2022 Term Loan as of June 30, 2023 of $504.2 million and the applicable interest rate, a hypothetical 1% increase or decrease in interest rates would not have a material effect on the fair market value of our portfolio.increase or decrease future interest expense by approximately $5.0 million. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of SeptemberJune 30, 2017,2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control Over Financial Reporting NoThere has been no change in our internal control over financial reporting occurred(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2017covered by this Quarterly Report that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION Item 1. Legal Proceedings. ThereExcept as set forth in Note 16, Commitments and Contingencies, to our financial statements, which is incorporated herein by reference to the extent applicable, there are no other material changes from the legal proceedings previously disclosed in our Annual Reportmost recently filed annual report on Form 10-K for the periodfiscal year ended December 31, 2016 filed with the SEC on March 10, 2017.2022 (the “Annual Report”).
Item 1A. Risk Factors.Factors Risk Factors Summary Investing in our common stock involvesOur business is subject to a high degreenumber of risk. You should carefully consider the risks described below, as well as all other information included in this Quarterly Report on Form 10-Q, including our financial statements, the notes thereto and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” If any of the following risks actually occurs, our business, financial condition, operating results, prospects and ability to accomplish our strategic objectives could be materially harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties, not presently knownincluding those risks discussed at length below. These risks include, among others, the following principal risk factors that make an investment in our company speculative or risky. You are encouraged to us or that we currently deem immaterial may also impaircarefully review our full discussion of the material risk factors relevant to an investment in our business, operations andwhich follows the market pricebrief bulleted list of our common stock.principal risk factors set forth below:
| ● | Our ability to maintain profitability is dependent upon our ability to continue successfully commercializing our products and any products and future product candidates, if approved, that we may develop or acquire in the future; |
| ● | We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations; |
| ● | Adverse developments affecting the financial services industry could adversely affect our business, financial condition, or results of operations; |
| ● | If we cannot continue successfully commercializing our products, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline; |
| ● | Despite receiving approval by the U.S. Food and Drug Administration (“FDA”), additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to market our products successfully may be adversely affected; |
| ● | Xtampza ER, Nucynta ER and Nucynta IR (collectively the “Nucynta Products”), and Belbuca are subject to mandatory Risk Evaluation and Mitigation Strategy (“REMS”) programs, which could increase the cost, burden and liability associated with the commercialization of these products; |
| ● | Failure to comply with ongoing governmental regulations for marketing our products, and in particular any failure to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions; |
| ● | Unfavorable outcomes in intellectual property litigation could be costly and potentially limit our ability to commercialize our products; |
| ● | If we are unable to obtain or maintain intellectual property rights for our technologies, products or any future product candidates which we may develop, we may lose valuable assets or be unable to compete effectively in our market; |
| ● | We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets; |
| ● | Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements; |
| ● | If we are unable to utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing our products and may be unable to generate sufficient product revenue; |
| ● | If the medical community, patients, and healthcare payors do not accept and use our products, we will not achieve sufficient product revenues and our business will suffer; |
| ● | Our products contain, and our future product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies; |
| ● | Current and future legislation may increase the difficulty and cost for us to continue to commercialize our products and may reduce the prices we are able to obtain for our products; |
| ● | Our products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain; |
| ● | Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for our products and may adversely impact external investor perceptions of our business; |
| ● | If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that compete with our products, our sales could decline; |
| ● | If the third-party manufacturers of our products fail to devote sufficient time and resources to these products, or their performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business; |
| ● | Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of our products, any production problems with any of these suppliers could have a material adverse effect on us; |
| ● | We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations may be adversely affected; |
| ● | Our products could be subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control; |
| ● | We may not realize all of the anticipated benefits from future acquisitions, and we may be unable to successfully integrate future acquisitions; |
| ● | Our business has been, and may continue to be, adversely affected by certain events or circumstances outside our control, including the effects of the COVID-19 pandemic and geopolitical turmoil; |
| ● | Litigation or regulatory action regarding opioid medications could negatively affect our business; |
| ● | We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products more successfully than we do; |
| ● | Commercial sales of our products, and clinical trials of any future product candidates we may develop or acquire, may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all; |
| ● | Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings; and |
| ● | The price of our common stock may be volatile and you may lose all or part of your investment. |
Risks Related to Our Financial Position and Capital Needs We have incurred significant losses since our inception and anticipate that we will continueOur ability to incur losses in the future.
We are an early commercial-stage pharmaceutical company. To date, we have focused on developing our first product, Xtampza. Investment in pharmaceutical product developmentmaintain profitability is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Since 2010, we have only generated limited revenue from product sales, and we continue to incur significant research, development, commercialization and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since January 1, 2011. For the year ended December 31, 2016, we reported a net loss of $94.2 million, and we had an accumulated deficit of $223.2 million at December 31, 2016. For the nine months ended September 30, 2017, we reported a net loss of $57.5 million, and we had an accumulated deficit of $280.6 million at September 30, 2017.
We expect to continue to incur losses for the foreseeable future as we continue to commercialize Xtampza and continue our development of, and seek regulatory approvals for, our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, ondependent upon our ability to generate revenuescontinue successfully commercializing our products and on the rate ofany products and future growth of our expenses. If any of our product candidates, fail in clinical trials or does not gain final regulatory approval, or if approved, fails to achieve market acceptance,that we may never become profitable. Even if we achieve profitabilitydevelop or acquire in the future, we may not be ablefuture. Our failure to sustain profitability in subsequent periods. Our prior lossesdo so successfully could impair our growth strategy and expected future lossesplans and could have had and will continue to have ana material adverse effect on our shareholders’ equitybusiness, financial position, and working capital.operating results.
We currently generate limited revenue from the sale of products and may never become profitable.
We began the commercial sale of our first product, Xtampza, in June 2016 and have only generated limited revenue from product sales. Our ability to generate additional revenue and become profitablemaintain profitability depends upon our ability to realize the full commercial potential of our products and to commercialize successfully commercialize Xtampza, our existingany other products and future product candidates, and any other product candidatesif approved, that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we do not know when any of these product candidates will generate revenue for us, if at all. Our ability to generate revenue from our current or future product candidatesproducts depends on a number of factors, including ourability to:
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● | | successfully commercialize Xtampza;
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| | successfully satisfy FDA post-marketing requirements for Xtampza, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza;
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| | setrealize a commercially viable price for our products;
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● | | manufacture commercial quantities of our products at acceptable cost levels; |
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● | | developsustain a commercial organization capable of sales, marketing and distribution for the products we intend to sell ourselves in the markets in which we have retained commercialization rights;
sell; |
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● | | find suitable distribution collaborators to help us market, sell and distribute our products, if approved, in markets outside the United States;
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| | obtain coverage and adequate reimbursement from third parties, including government payors; and |
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● | | successfully complete development activities,comply with existing and changing laws and regulations that apply to the pharmaceutical industry, including the necessary clinical trials, with respectopioid manufacturers, and to our product candidates;
products specifically, including FDA post-marketing requirements. |
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| | complete and submit regulatory submissions to the FDA and obtain regulatory approval; and
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| | complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities, if we choose to commercialize our product candidates outside the United States.
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In addition, because of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the safety and efficacy (including the efficacy of our abuse-deterrent technology) endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Furthermore, we anticipate incurring significant costs associated with commercializing these products.
Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustainmaintain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.
If we require additional capital to fund our operations and we fail to obtain necessary financing, we may be unable to complete the development and commercialization of our product candidates.
Our operations have consumed substantial amounts of cash. We expect to continue to spend substantial amounts to advance the development of our product candidates and to commercialize Xtampza and any product candidates for which we may receive regulatory approval. We believe that our existing cash and cash equivalents and expected revenue contributions from Xtampza, as well as proceeds from our ATM offering through October 2017, will be sufficient to fund our operations into mid-2019, including the commercialization of Xtampza, and the continuation of our development of our product candidates. However, we may require additional capital for the further commercialization of Xtampza and our product candidates and may also need to raise additional funds sooner in order to continue development of our product candidates.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:
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| | significantly delay, scale back or discontinue the development or the commercialization of Xtampza, our product candidates or one or more of our other research and development initiatives;
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| | seek collaborators for Xtampza and/or one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;
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| | relinquish or license on unfavorable terms our rights to technologies, products or product candidates that we otherwise would seek to develop or commercialize ourselves; or
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| | significantly curtail operations.
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Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
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| | our ability to obtain and maintain abuse-deterrent claims in the product labels for our products and product candidates;
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| | our ability to successfully satisfy the FDA post-marketing requirements of Xtampza, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza;
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| | clinical development plans for our product candidates;
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| | the outcome, timing and cost of the regulatory approval process by the FDA and foreign regulatory authorities, including the potential for regulatory authorities to require that we perform more studies than those that we currently expect;
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| | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, including defending Purdue’s remaining patent infringement claims against us;
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| | the cost and timing of completion of existing or expanded commercial-scale outsourced manufacturing activities;
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| | the cost of maintaining, and if appropriate, expanding, sales, marketing and distribution capabilities for Xtampza and any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products; and
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| | the initiation, progress, timing, costs and results of clinical trials for our product candidates and any future product candidates we may in-license.
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Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to Xtampza, our technologies or product candidates.
We may seek additional capital through a combination of private and public equity offerings, debt financings, receivables or royalty financings, strategic collaborations and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing shareholders’ ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of existing shareholders. Debt, receivables and royalty financings may be coupled with an equity component, such as warrants to purchase stock, which could also result in dilution of our existing shareholders’ ownership. The incurrence of additional indebtedness could result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur further debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could have a material adverse effect on our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on any of our indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic collaborations and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to Xtampza or our product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds
through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market our technologies that we would otherwise prefer to develop and market ourselves.
We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our predecessor was originally incorporated in Delaware in April 2002 under the name Collegium Pharmaceuticals, Inc. In October 2003, our predecessor changed its name to Collegium Pharmaceutical, Inc. In July 2014, we reincorporated in the Commonwealth of Virginia pursuant to a merger whereby Collegium Pharmaceutical, Inc., a Delaware corporation, merged with and into Collegium Pharmaceutical, Inc., a Virginia corporation, with the Virginia corporation surviving the merger. From 2002 until 2010, our operations focused primarily on marketing proprietary therapies to the wound care and dermatology industry through our former subsidiary, Onset Therapeutics, LLC, which was spun off and became a part of PreCision Dermatology, Inc. in 2010. Since 2010, our operations have focused primarily on developing the DETERx technology platform and identifying and developing product candidates that utilize the DETERx technology, including our first product, Xtampza. We are currently in the early stages of the commercial launch of Xtampza and, therefore, we have not yet demonstrated an ability to commercialize a product successfully. Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. As of December 31, 2016,2022, we had a U.S. federal net operating loss or NOL,(“NOL”) carryforward of approximately $190.9$229.8 million and state net operating lossNOL carryovers of approximately $145.9 million, which are available to offset future taxable income.$252.6 million. The U.S. federal and state NOL carryforwards expire at various dates through 2037. Federal NOLs and certain state NOLs incurred in 2018 and onward have an indefinite expiration under the Tax Cuts and Jobs Act of 2017 and applicable state statutes. We also had U.S. federal tax credits of approximately $3.4$4.2 million, and state tax credits of approximately $522,000, these$0.8 million. These tax attributes are priorgenerally subject to consideration ofa limited carryover/carryback period and are also subject to the annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended or Section 382. These carryforwards begin(“IRC 382”). In 2021, we completed a study to expire in 2022. Under Section 382, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period,assess the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income may be limited. We may experienceimpact of ownership changes, in the future as a result of shifts in our stock ownership some of which are outside our control. We have not performedif any, current analyses under Section 382 and cannot forecast or otherwise rely on deriving benefit from our various federal or state tax attribute carryforwards. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income mayand tax credit carryovers as defined under IRC 382 (the “IRC 382 Study”). As a result of the study, we concluded that there were ownership changes that occurred during the years 2006, 2012 and 2015 that would be subject to IRC 382 limitations. These IRC 382 annual limitations may limit our ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which may potentially limit our ability to reduce our future federal income tax liability by using these losses. As part of the acquisition of BioDelivery Sciences International, Inc. (the “BDSI Acquisition”), we acquired an estimated $234.7 million of federal NOL carryovers which are generally subject to a limited carryover/carryback period and are also subject to the annual limitations that may be imposed under IRC 382. We performed an IRC 382 study following the BDSI Acquisition in 2022 and concluded that there were ownership changes that occurred during the years 2006 and 2022 that would be subject to IRC 382 limitations. These IRC 382 annual limitations may limit our ability to use pre-ownership change federal NOL carryovers and pre-ownership change federal tax credit carryovers, which may potentially limit our ability to reduce our future federal income tax liability by using these losses. Refer to Note 17, Income Taxes, for more information. We have substantial outstanding indebtedness, which may adversely affect our business, financial condition and results of operations. In March 2022, we entered into a $650.0 million secured term loan (the “2022 Term Loan”) pursuant to our Amended and Restated Loan Agreement with BioPharma Credit PLC, as collateral agent and lender, and BioPharma Credit Investments V (Master) LP, as lender (as amended from time to time, the “2022 Loan Agreement”), of which $504.2 million in principal was outstanding as of June 30, 2023. In addition, we have $26.4 million in 2.625% Convertible Senior Notes due in 2026 (the “2026 Convertible Notes”) and $241.5 million in 2.875% Convertible Senior Notes due 2029 (the “2029 Convertible Notes” and, together with the 2026 Convertible Notes, the “Convertible Notes”). We may also incur additional indebtedness to meet future financing needs. Our existing and future levels of indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, and among other things: | ● | requiring the dedication of a substantial portion of our cash flows from operations to service our indebtedness, which will reduce the amount of cash available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes; |
| ● | limiting our ability to obtain additional financing; |
| ● | limiting our flexibility to plan for, or react to, changes in our business; |
| ● | exposing us to the risk of increased interest rates as certain of our borrowings, including the 2022 Term Loan, are at variable rates of interest; |
| ● | diluting the interests of our existing shareholders as a result of issuing shares of our common stock upon conversion of the Convertible Notes; |
| ● | placing us at a possible competitive disadvantage with competitors that are less leveraged than we are or have better access to capital; and |
| ● | increasing our vulnerability to downturns in our business, our industry or the economy in general, including any such downturn related to the impact of the COVID-19 pandemic. |
Holders of our Convertible Notes, subject to a limited exception described in the notes, may require us to repurchase their notes following a fundamental change at a cash repurchase price generally equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the notes or pay the cash amounts due upon conversion. Applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the notes or pay the cash amounts due upon conversion, and any failure by us to repurchase notes or to pay the cash amounts due upon the conversion when required would constitute a default under the indenture. Additionally, the indentures governing the Convertible Notes and our 2022 Loan Agreement contain certain covenants and obligations applicable to us, including, without limitation, covenants that limit our ability to incur additional indebtedness or liens, make acquisitions or other investments or dispose of assets outside the ordinary course of business, which could potentiallylimit our ability to capitalize on business opportunities that may arise or otherwise place us at a competitive disadvantage relative to our competitors. Failure to comply with covenants in the indentures governing the Convertible Notes or in the 2022 Loan Agreement would constitute an event of default under those instruments, notwithstanding our ability to meet our debt service obligations. A default under the indentures or a fundamental change could also result in increased future tax liabilitya default under one or more of the agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. In such event, we may not have sufficient funds to us.satisfy all amounts that would become due. The 2022 Loan Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the 2022 Loan Agreement and execution upon the collateral securing obligations under the 2022 Loan Agreement. In addition, because our assets are pledged as a security under the 2022 Loan Agreement, if we are not able to cure any default or repay outstanding borrowings, our assets would be subject to the risk of foreclosure by our lenders. Further, amounts outstanding under our 2022 Loan Agreement historically bore interest at a rate based on LIBOR, and, effective July 1, 2023, bears interest at a rate based on SOFR subject to a SOFR floor of 1.2%. We have not hedged our interest rate exposure with respect to our floating rate debt. Accordingly, our interest expense for any period will fluctuate based on SOFR and other variable interest rates, as applicable. To the state level, thereextent the interest rates applicable to our floating rate debt increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be periods duringadversely affected. Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition, or results of operations. Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Recently, in March 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the use of NOLs is suspendedFederal Deposit Insurance Corporation (“FDIC”) as receiver. Shortly after, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although we assess our banking and customer relationships as we believe necessary or otherwise limited,appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general. Further, investor concerns regarding domestic or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to cash and liquidity resources could, among other risks, adversely impact our ability to meet our financial obligations, which could acceleratehave material adverse impacts on our liquidity and our business, financial condition, or permanently increase state taxes owed.results of operations. Risks Related to our Products If we cannot continue successfully commercializing our products, our business, financial condition and Product Candidates Our success depends in large part onresults of operations may be materially adversely affected and the commercial successprice of our lead product, Xtampza.common stock may decline.
To date, we have invested substantial resources in the development of our lead product, Xtampza, which has been approved by the FDA.
Our business and future success are substantially dependent on our ability to continue successfully commercializing our products, including Xtampza ER, the Nucynta Products, Belbuca and timely commercialize this product, which may never occur. We currently generate limited revenues from product sales and we may never be able to commercialize Xtampza, or any product candidates that are approved by the FDA, successfully.Symproic. Our ability to continue successfully commercialize Xtampzacommercializing our products will depend on many factors, including but not limited to: | ·
● | | our ability to successfully satisfy FDA post-marketing requirements, including studies and clinical trials that have been required for other extended release/long acting opioid analgesics and individual studies and clinical trials of Xtampza and its components;
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● | | our ability to continue to build and retain aexecute sales and marketing organization to market Xtampza; strategies successfully and continually; |
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● | | our success in educating physicians, patients and caregivers about the benefits, administration, use and coverage of Xtampza; our products; |
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● | | with respect to Xtampza ER, the perceived availability and advantages, relative cost, relative safety and relative efficacy of other abuse-deterrent products and treatments for chronic pain and chronic pain with dysphagia; similar indications; |
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● | | our ability to defend successfully defend any challenges to our intellectual property or suits asserting patent infringement relating to Xtampza; our products; |
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● | | the availability and quality of coverage and adequate reimbursement for Xtampza; and our products; |
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● | | a continued acceptable safety profile of Xtampza following approval. our products; and |
| ● | our ability to comply with applicable legal and regulatory requirements, including any additional manufacturing or packaging requirements that may become applicable to certain opioid products. |
Many of these matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure you that we will be able to continue successfully commercializecommercializing or to generate sufficient revenue from Xtampza.our products. If we cannot do so, or are significantly delayed in doing so, our business will be materially harmed. Despite receiving approval by the FDA, additional data may emerge that could change the FDA’s position on the product labeling of any of our products, including our abuse-deterrent claims with respect to Xtampza ER, and our ability to successfully market Xtampzaour products successfully may be adversely affected. It is estimated that the U.S. market includes approximately 11 million patients
Xtampza ER was approved with chronic pain with dysphagia. Our Xtampza microspheres are designed to be removed from the capsule and sprinkled on food or into a cup, and then directly into the mouth, or in feeding tubes, without compromising their extended-release properties. On April 26, 2016, the FDA granted approval for the Xtampza NDA, including an approved product label. The FDA could change the product labeling. If the product label for Xtampza is modified in the future so as to exclude the flexible dose administration options, or the FDA requires us to have a boxed warning similar to competitor product labeling stating that “crushing, dissolving or chewing can cause rapid release and absorption of a potentially fatal doselanguage describing abuse-deterrent properties of the active drug,” it will limit our ability to differentiate Xtampza from other abuse-deterrent opioid formulations on the basis of flexible dosing options, and we may not be able to market Xtampza to patients with chronic pain with dysphagia. As a result, this may have an adverse effect on our business and our prospects for future growth. If the FDA does not conclude that our product candidates in development are sufficiently bioequivalent, or demonstrate comparable bioavailability to their respective listed drugs, or if the FDA otherwise does not conclude that our product candidates satisfy the requirements for the Section 505(b)(2) approval pathway, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and the FDA may not approve those product candidates.
A key element of our strategy is to seek FDA approval for our product candidates through the Section 505(b)(2) regulatory pathway. Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FD&C Act, permits the filing of an NDA that contains full safety and efficacy reports but where at least some of the information required for approval comes from studies not conducted by or for the applicant, such as the FDA’s findings of safety and efficacy in the approval of a similar drug, and for which the applicant has not obtained a right of reference and/or published literature. Such reliance is typically predicated on a showing of bioequivalence or comparable bioavailability to an approved drug.
If the FDA does not allow us to pursue the Section 505(b)(2) approval pathway for our product candidates, or if we cannot demonstrate bioequivalence or comparable bioavailability of our product candidates to approved products, we may need to conduct additional clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for these
product candidates would increase. Moreover, our inability to pursue the Section 505(b)(2) approval pathway could result in new competitive products reaching the market sooner than our product candidates, which could have a material adverse effect on our competitive position and our business prospects. Even if we are allowed to pursue the Section 505(b)(2) approval pathway, we cannot assure you that our product candidates will receive the requisite approvals for commercialization on a timely basis, if at all.
In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its policies and practicesformulation with respect to Section 505(b)(2) regulatory approvals, which could delay or even preventthe nasal and IV routes of abuse, consistent with Guidance for Industry, “Abuse-Deterrent Opioids- Evaluation and Labeling.” In November 2017, the FDA from approving any NDA that we submit under Section 505(b)(2).
Even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the products, including additional preclinical studies and clinical trials.
Our decision to seek approval of our product candidates, including Xtampza, under Section 505(b)(2) increases the risk that a patent infringement suit may be filed against us, which would delay the FDA’s final regulatory approval of such product candidates.
In connection with any NDA that we file under Section 505(b)(2), we are required to notify the patent holders of the reference listed drug that we have certified to the FDA that any patents listed for the reference listed drug in the FDA’s Orange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of our drug. If the patent holder files a patent infringement lawsuit against us within 45 days of its receipt of notice of our certification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until the earliest of 30 months, expiration of the patents, settlement of the lawsuit or a court decision in the infringement case that is favorable to us. Accordingly, we may invest significant time and expense in the development of our product candidates only to be subject to significant delay and expensive and time-consuming patent litigation before our product candidates may be commercialized.
Even if we are found not to infringe any potential plaintiff’s patent claims or the claims are found invalid or unenforceable, defending any such infringement claim could be expensive and time-consuming, and could delay the launch of our product candidates and distract management from their normal responsibilities. The Court could decline to hear our summary judgment motion, could decline to act expeditiously to issue a decision or hold a trial, or could decline to find that all of the listed patents are invalid or non-infringed. If we are unsuccessful in our defense of non-infringement and unable to prove invalidity of the listed patents, the court could issue an injunction prohibiting the launch of our product candidates. If we were to receive final regulatory approval by the FDA and launch any of our product candidates, prior to a full and final determination that the patents are invalid or non-infringed, we could be subject to substantial liability for damages if we do not ultimately prevail on our defenses to a claim of patent infringement.
The regulatory approval processes of the FDA and foreign regulatory authorities are lengthy, time-consuming and unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
The time required to obtain approval by the FDA and foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations or the type and amount of clinical data necessary to gain approval varies among jurisdictions and may change during the course of a product candidate’s clinical development. Although the FDA has approved Xtampza, it is possible that none of our product candidates or any future product candidates that we may in-license, acquire or develop will ever obtain final regulatory approval from the FDA or any foreign regulatory authority. Moreover, even after any product candidate receives final regulatory approval, the FDA may require, as it hassupplemental New Drug Application (“sNDA”) for Xtampza costly post-marketing requirements.
Successfulphysical manipulation by crushing Xtampza ER compared with OxyContin and timely satisfactiona control (oxycodone hydrochloride immediate-release), results from an oral human abuse potential study and the addition of these post-marketing requirements will be necessary for us to maintain regulatory approval.an oral abuse deterrent claim.
Our product candidates could fail to receive regulatory approval from the FDA or a foreign regulatory authority, or we may be required to conduct more extensive studies and clinical trials in order to receive such approval, for many reasons, including, but not limited to:
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| | the FDA and/or foreign regulatory authorities may disagree with or disapprove of the design or implementation of our clinical trials;
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| | failure to demonstrate that a product candidate is safe and effective for its proposed indication;
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| | failure to demonstrate that a product candidate is bioequivalent to its listed drug;
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| | failure of clinical trials to meet criteria required for approval;
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| | failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
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| | the FDA or foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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| | deficiencies in the manufacturing processes or failure of third-party manufacturing facilities with whom we contract for clinical and commercial supplies to pass inspection;
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| | the FDA or foreign regulatory authorities may not approve the manufacturing processes or facilities of third party manufacturers with which we contract for clinical and commercial supplies; or
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| | insufficient data collected from clinical trials of our product candidates or changes in the approval policies or regulations that render our preclinical and clinical data insufficient to support the submission and filing of an NDA or to obtain regulatory approval.
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The lengthy approval process, as well as the unpredictability of future clinical trial results, may result in our failing to obtain regulatory approval to market our product candidates, which would harm our business, results of operations and prospects significantly.
In addition, even if we obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve, with respect to certain foreign regulatory authorities, the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing requirements, or may approve a product label that does not include the labeling claims necessary or desirable for the successful commercialization of that product. Any of the foregoing scenarios could have a material adverse effect on our business.
The FDA or a foreign regulatory authority maycan require more information, including additional preclinical or clinical datachanges to support approval, which may delay or prevent approval and our commercialization plans, or cause us to abandon the development program. Even if we obtain regulatory approval, our product candidates may be approved for fewer or more limited indications than we request, such approval may be contingent on the performance of costly post-marketing requirements, or we may not be allowed to include the labeling claims necessary or desirable for the successful commercialization of such product candidate. In order to market and sell our products outside the United States, we will likely need to obtain separate marketing approvals and comply with numerous and varied regulatory requirements and regimes, which can involve additional testing, may take substantially longer than the FDA approval process, and still generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the
product be approved for reimbursement before the product can be approved for sale in that country. FDA approval does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by the FDA or regulatory authorities in other countries or jurisdictions. We may not obtain any regulatory approvals on a timely basis, if at all. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of any of our product candidates by regulatory authorities in countries outside the United States, the commercial prospects of that product candidate may be significantly diminished and our business prospects could decline.
Development of our product candidates is not complete, and we cannot be certain that our product candidates will be commercialized.
We began the commercial launch of Xtampza, our first approved product, in June 2016. Accordingly, we have only generated limited revenues from product sales. To be profitable, in addition to commercializing Xtampza, we must successfully research, develop, obtain regulatory approval for, manufacture, launch, market and distribute product candidates under development. For each product candidate that we intend to commercialize, we must successfully meet a number of critical developmental milestones, including:
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| | selecting and developing a drug delivery technology to deliver the proper dose of drug over the desired period of time;
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| | determining the appropriate drug dosage that will be tolerated, safe and effective;
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| | demonstrating the drug formulation will be stable for commercially reasonable time periods;
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| | demonstrating that the drug is safe and effective in patients for the intended indication; and
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| | completing the manufacturing development and scale-up to permit manufacture of our product candidates in commercial quantities and at acceptable prices.
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The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain, and we may not successfully complete these milestoneslabeling for any of our product candidates in development. We may not be able to finalize the design or formulation ofproducts at any product candidate. In addition, we may select components, solvents, excipients or other ingredients to include in our product candidates that have not been previously approved for use in pharmaceutical products,time which may require us to perform additional studies and may delay clinical testing and regulatory approval of our product candidates. Even after we complete the design of a product candidate, the product candidate must still be shown to be bioequivalent to an approved drug or safe and effective in required clinical trials before approval for commercialization.
We are continuing to test and develop our product candidates and may explore possible design or formulation changes to address bioavailability, safety, efficacy, manufacturing efficiency and performance issues. We may not be able to complete development of any product candidates that will be safe and effective and that will have a commercially reasonable treatment and storage period. If we are unable to complete development of our product candidates, we will not be able to earn revenue from them.
Xtampza is, and we anticipate that our product candidates, if approved, will be, subject to mandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of such product and product candidates.
The FDA has approved a REMS for extended release, or ER, and long acting, or LA, opioid drugs formulated with the active ingredients fentanyl, hydromorphone, methadone, morphine, oxycodone, oxymorphone, and others as part of a federal initiative to address prescription drug abuse and misuse, or the ER/LA opioid REMS. In September 2017, the FDA announced that immediate-release, or IR, opioid drugs will be subject to the same REMS as ER/LA opioids. One of the primary goals of the REMS is to ensure that the benefits of these drugs continue to outweigh the risks.
The REMS introduces new safety measures designed to reduce risks and improve the safe use of opioids, while continuing to provide access to these medications for patients in pain. The REMS applies to more than 20 companies that manufacture opioid analgesics. Under the REMS, companies are required to make education programs available to prescribers based on the FDA Blueprint for Prescriber Education for Extended Release and Long Acting Opioid Analgesics. It is expected that companies will meet this obligation by providing educational grants to continuing education providers, who will develop and deliver the training. The REMS also requires companies to distribute FDA-approved educational materials to prescribers and patients on the safe use of these drugs. The companies must perform periodic assessments of the implementation of the REMS and the success of the program in meeting its goals. The FDA will review these assessments and may require additional elements to achieve the goals of the program.
If the FDA determines that a REMS is necessary during review of an application, the drug sponsor must agree to the REMS plan at the time of approval. Xtampza has been subject to the REMS requirement since its approval. REMS includes a Medication Guide that is dispensed with each prescription, physician training based on FDA-identified learning objectives, audits to ensure that the FDA’s learning objectives are addressed in the physician trainings, letters to prescribing physicians, professional organizations and state licensing entities alerting each to the REMS, and the establishment of a call center to provide more information about the REMS. We anticipate that our future product candidates will also be subject to these REMS requirements. There may be increased cost, administrative burden and potential liability associated with the marketing and sale of these types of product candidates subject to the REMS requirements, which could reduce the commercial benefits to us from the sale of these product candidates.
If we fail to obtain the necessary final regulatory approvals, or if such approvals are limited, we will not be able to commercialize our product candidates, and we will not generate product revenues.
Even if we comply with all FDA pre-approval regulatory requirements, the FDA may determine that our product candidates are not safe or effective, and we may never obtain final regulatory approval for such product candidates. If we fail to obtain final regulatory approval for some or all of our product candidates, we will have fewer commercial products and correspondingly lower product revenues. Even if our product candidates receive final regulatory approval, such final regulatory approval may involve limitations on the indications and conditions of use or marketing claims for our products, or may not include certain abuse-deterrence claims or clinical trial data that we have sought, and will seek, to include in the product label. If we do not receive regulatory approval to include certain abuse-deterrence claims, or certain clinical data, in our product labels,can impact our ability to successfully commercialize our products may be limited and our financial results may be adversely impacted. Further, later discovery of previously unknown problems or adverse events could result in additional regulatory restrictions, including withdrawal of products and addition of warnings or other statements on thegenerate product label. The FDA may require us to perform lengthy Phase 4 post-approval clinical efficacy or safety trials. Post approval, the FDA may require us to study, as it has with respect to Xtampza, the serious risks of misuse, abuse, addiction, overdose, and death associated with long-term use of our medications for the management of chronic pain, as well as other risks. The FDA may also impose additional post-marketing requirements, which will be very expensive to satisfy.
sales. In jurisdictions outside the United States, we must receive marketing authorizations from the appropriate regulatory authorities before commercializing our product candidates. Regulatory approval processes outside the United States generally include requirements and risks similar to, and in many cases in excess of, those associated with FDA approval. The FDA may not approve product labeling for our product candidates that would permit us to market and promote our products in the United States by describing their abuse-deterrent features.
We invest substantial time and money conducting Category 1, Category 2 and Category 3 abuse deterrent studies to ensure that our product candidates developed with our DETERx technology comply with the FDA’s April 2015 guidance regarding opioid abuse deterrence. Our failure to achieve FDA approval of product labeling containing such information will prevent or substantiality limit our promotion of the abuse deterrent features of our product candidates in order to differentiate them from other opioid products containing the same active ingredients. This would make our products less competitive in the market. There can be no assurance that any of our product candidates will receive final FDA-approved product labeling that describes the abuse deterrent features of such products. Furthermore, the FDA’s April 2015 final guidance on abuse deterrent opioids makes clear that the FDA expects sponsors to compare their formulations against approved abuse deterrent versions of the same opioid based on the relevant categories of testing. If a proposed product is
less resistant to manipulation than an approved product, the FDA has stated that the proposed product may not be eligible for product labeling regarding abuse deterrent properties. If the FDA does not approve product labeling containing abuse deterrence claims, we will not be able to promote such products based on their abuse deterrent features, may not be able to differentiate such products from other opioid products containing the same active ingredients, and may need to lower the price of our products to the extent that there are competing products with abuse deterrent claims on their product labels.
Because the FDA closely regulates promotional materials and other promotional activities, even if the FDA initially approves product labeling that includes a description of the abuse deterrent characteristics of our product, the FDA may object to our marketing claims and product advertising campaigns. This could lead to the issuance of warning letters or untitled letters, suspension or withdrawal of our products from the market, recalls, fines, disgorgement of money, operating restrictions, injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of our products.
Even if any of our product candidates are approved for marketing with certain abuse-deterrence claims, the April 2015 final FDA guidance on abuse-deterrent opioids is not binding law and may be superseded or modified at any time. Also,particular, if the FDA determines that our post-marketing data dofor Xtampza ER does not demonstrate that the abuse-deterrent properties result in reduction of abuse, or demonstratedemonstrates a shift to routes of abuse that present a greater risk, the FDA may find that product labeling revisions are needed, and potentially require the removal of our abuse-deterrence claims.claims, which would have a material adverse effect on our ability to continue successfully commercializing Xtampza ER.
Even if our product candidates receive regulatory approval, they will be subject to ongoing regulatory requirements, and we may face regulatory enforcement action if we do not comply with the requirements.
Even after a product is approved, we will remain subject to ongoing FDA and other regulatory requirements governing the product labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, import, export, record-keeping and reporting of safety and other post-market information. If we experience delays in obtaining FDA approval of our advertising and promotional materials for Xtampza or any product candidate that receives marketing approval, or if FDA approval of such materials is contingent upon substantial modifications, our promotional efforts relating to Xtampza and any approved product candidate may be impaired, and sales of suchOur opioid products may suffer.
The holder of an approved NDA is obligated to monitor and report adverse events, or AEs, and any failure of a product to meet the specifications in the NDA. In addition, manufacturers of drug products and their facilities are subject to paymentmandatory REMS programs, which could increase the cost, burden and liability associated with the commercialization of user feesthese products.
The FDA has imposed a class-wide REMS on all IR, ER and continual reviewlong-acting opioid drug products (known as the Opioid Analgesic REMS). The FDA continually evaluates whether the REMS program is meeting its goal of ensuring that the benefit of these drugs continue to outweigh their risks, and periodic inspectionswhether the goals or elements of the program should be modified. As opioids, Xtampza ER, the Nucynta Products and Belbuca are subject to the Opioid Analgesic REMS. Any modification of the Opioid Analgesic REMS by the FDA and other regulatory authorities for complianceto impose additional or more burdensome requirements could increase the costs associated with current good manufacturing practices, marketing these products and/or cGMP, and other regulations. If we orreduce the willingness of healthcare providers to prescribe these products, which would have a regulatory agency discover problems with a product which were previously unknown, such asmaterial adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictionseffect on that product, the manufacturing facility or us, including requiring product recall, notice to physicians, withdrawal of the product from the market or suspension of manufacturing, among other things. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may: | ·
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| | require us to enter into a consent decree, which can include the imposition of various fines, reimbursements for inspection costs and penalties for noncompliance, and require due dates for specific actions;
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| | seek an injunction or impose civil, criminal and/or administrative penalties, damages, monetary fines, require disgorgement, consider exclusion from participation in Medicare, Medicaid and other federal healthcare programs and require curtailment or restructuring of our operations;
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| | suspend any ongoing clinical trials;
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| | refuse to approve pending applications or supplements to applications filed by us;
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| | seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or
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Similar post-market requirements may apply in foreign jurisdictions in which we may seek approval of our products. Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to continue to successfully commercialize our products and generate sufficient revenue and may cause a material adverse impact on our financial condition and cash flows.from these products.
In addition, the FDA’s regulations, policies or guidance may change and new or additional statutes or government regulations in the United States and other jurisdictions may be enacted that could further restrict or regulate post-approval activities. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from pending or future legislation or administrative action, either in the United States or abroad. If we are not able to achieve and maintain regulatory compliance, we may not be permitted to market our products and/or product candidates, which would adversely affect our ability to generate revenue and achieve or maintain profitability.
Failure to comply with ongoing governmental regulations for marketing our products, and in particular any product, includingfailure to promote Xtampza ER’s abuse deterrent labeling in compliance with FDA regulations, could delay or inhibit our ability to generate revenues from their sale and could also expose us to claims or other sanctions. Advertising
In addition to scrutiny by the FDA, advertising and promotion of any pharmaceutical product that obtains approvalmarketed in the United States including Xtampza, will beis heavily scrutinized by, among others, the FDA, the Department of Justice, or the DOJ, the Office of Inspector General offor the U.S. Department of Health and Human Services, or HHS, state attorneys general, members of Congress and the public. Violations, including promotion of Xtampza, and any product for which we receive final regulatory approval,our products for unapproved or off-label uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by government agencies. In particular, Xtampza ER has FDA-approved product labeling that describes its abuse deterrent features, which allows us to promote those features and differentiate Xtampza ER from other opioid products containing the same active pharmaceutical ingredients. Because the FDA orclosely regulates promotional materials and other government agencies. Additionally,promotional activities, even though the FDA-approved product labeling includes a description of the abuse deterrent characteristics of Xtampza ER, the FDA may object to our marketing claims and product advertising and promotion of any product that obtains approval outside the United States will be heavily scrutinized by foreign regulatory authorities.campaigns. In the United States, engaging
Engaging in off-label promotion of our products, including Xtampza or any products, can alsoER, could subject us to false claims litigationliability under federal and state statutes, and other litigation and/or investigation, which caninvestigations, and could lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which we promoteissuance of warning letters or distribute our drug products. These false claims statutes include the federal False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of falseuntitled letters, suspension or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth in recent years, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This increased focus and scrutiny has increased the risk that a pharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid and other federal and state healthcare programs. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotionwithdrawal of our products we could become subject to significant liability, which could materially adversely affectfrom the market, recalls, fines, disgorgement money, operating restrictions, injunctions, and civil or criminal prosecution. Any of these consequences would harm the commercial success of our business and financial condition.products, including Xtampza ER.
In addition, laterFurther, after product approval, subsequent discovery of previously unknownserious and unanticipated adverse events associated with the product; the emergence of other problems with athe product, manufacturer or facility,facility; or our failure to updatemake required regulatory files,submissions may result in restrictions,adverse regulatory actions, including withdrawal of the product from the market. Anymarket or the requirement to add or strengthen label warnings about the product. The failure to obtain or maintain requisite governmental approvals or the imposition of the followingadditional or other similar events, if they were to occur,stronger warnings could delay or preclude us from further developing, marketing or realizing the full commercial potential of Xtampza and our product candidates:
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| | failure to obtain approvals of product labeling with abuse-deterrent claims; or
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| | FDA required product withdrawals or warnings arising from identification of serious and unanticipated adverse side effects in our product candidates.
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Xtampza and our product candidates contain controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state, federal and foreign law enforcement and other regulatory agencies.
Xtampza and our product candidates contain, and our future product candidates will likely contain, controlled substances which are subject to state, federal and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza’s active ingredient, oxycodone, is classified as a controlled substance under the Controlled Substances Act of 1970, or CSA, and regulations of the U.S. Drug Enforcement Administration, or DEA. A number of states also independently regulate these drugs, including oxycodone, as controlled substances. Controlled substances are classified by the DEA as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse and Schedule V substances the lowest risk. The active ingredient in Xtampza, oxycodone, is listed by the DEA as a Schedule II controlled substance under the CSA. For our product candidates containing controlled substances, we and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. For example, all Schedule II drug prescriptions must be signed by a physician, physically presented to a pharmacist and may not be refilled without a new prescription.
Furthermore, the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the CSA and DEA regulations. We may not be able to obtain sufficient quantities of these controlled substances in order to complete our clinical trials or meet commercial demand. If commercial demand for Xtampza increases and we cannot meet such demand in a timely fashion because of our limited supply of its active ingredient, oxycodone, then physicians may perceive Xtampza as unavailable and may be less likely to prescribe it in the future.
In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas, recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of Xtampza and product candidates that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances.
Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from developing and commercializing Xtampza and product candidates that contain controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of products containing controlled substances.
Clinical development is a lengthy and expensive process with an uncertain outcome, and failure can occur at any stage of clinical development. If we are unable to design, conduct and complete clinical trials successfully, our product candidates will not be able to receive regulatory approval.
In order to obtain FDA approval for any of our product candidates, we must submit to the FDA an NDA with substantial evidence that demonstrates that the product candidate is both safe and effective in humans for its intended use. This demonstration requires significant research, preclinical studies and clinical trials.
Other than Onsolis, all of our product candidates are in preclinical and clinical development. Clinical trials are time-consuming, expensive and difficult to design and implement, in part because they are subject to rigorous requirements and their outcomes are inherently uncertain. Clinical testing may take many years to complete, and failure can occur at any time during the clinical trial process, even with active ingredients that have previously been approved by the FDA as being safe and effective. We could encounter problems that halt our clinical trials or require us to repeat such clinical trials. If patients participating in clinical trials suffer drug-related adverse reactions during the clinical trials, or if we or the FDA believe that patients are being exposed to unacceptable health risks, such clinical trials may be suspended or terminated. Suspensions, termination or the need to repeat a clinical trial can occur at any stage.
The clinical trial success of each of our product candidates depends on reaching statistically significant changes in patients’ symptoms based on clinician-rated scales. There is a lack of consensus regarding standardized processes for assessing clinical outcomes based on clinician-rated scales. Accordingly, the scores from our clinical trials may not be reliable, useful or acceptable to the FDA or other regulatory agencies.
Changes in standards related to clinical trial design could have a material adverse effect on our ability to design and conduct clinical trials as planned. For example, we have conducted or will conduct clinical trials comparing our product candidates to both placebo and other approved drugs, but regulatory authorities may not allow us to compare our product candidates to a placebo in a particular clinical indication where approved products are available. In that case, both the cost and the amount of time required to conduct a clinical trial could increase. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a product candidate for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials. In addition, the FDA may not approve the product labeling claims or removal of certain warnings that we believe are necessary or desirable for the successful commercialization of our product candidates.
Approval may be contingent on a REMS, which could have a material adverse effect on the product labeling, distribution or promotion of a drug product.
Any of these delays or additional requirements could cause our product candidates to not be approved, or if approved, significantly impact the timing of commercialization and significantly increase our overall costs of drug development.
Because the results of preclinical studies and early-stage clinical trials are not necessarily predictive of future results, any product candidate we advance into additional clinical trials may not continue to have favorable results or receive regulatory approval.
Other than Onsolis, all of our product candidates are in preclinical or early-stage clinical development. Success in preclinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. Many companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after positive results in earlier clinical trials. Despite preliminary preclinical studies for our other extended-release, abuse deterrent product candidates, including hydrocodone and oxymorphone for pain, and methylphenidate for the treatment of ADHD, we do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety or otherwise provide adequate information to result in regulatory approval to market any of our product candidates in any particular jurisdiction. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for any of our product candidates may be compromised.
Conducting clinical trials of Xtampza and our product candidates and any commercial sales of Xtampza and/or product candidates may expose us to expensive product liability claims, and we may not be able to maintain product liability insurance on reasonable terms or at all.
We currently carry product liability insurance with coverage up to approximately $10.0 million. Product liability claims may be brought against us by patients enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling our products. If we cannot successfully defend ourselves against claims that our products or product candidates caused injuries, we could incur substantial liabilities. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, liability claims may result in:
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| | the inability to commercialize any products that we may develop; and
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| | an increase in product liability insurance premiums or an inability to maintain product liability insurance coverage.
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Our inability to maintain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of Xtampza and our product candidates. Any agreements we may enter into in the future with collaborators in connection with the development or commercialization of Xtampza and our product candidates may entitle us to indemnification against product liability losses, but such indemnification may not be available or adequate should any claim arise. In addition, many of our agreements require us to indemnify third parties and these indemnifications obligations may exceed the coverage under our product liability insurance policy.
Xtampza and our product candidates may be associated with undesirable adverse reactions or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of their approved product label, or result in significant negative consequences following any marketing approval.
Undesirable adverse reactions associated with Xtampza and our product candidates could cause us, our IRBs, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive product label or the delay, denial or withdrawal of regulatory approval by the FDA or foreign regulatory authorities. For example, even though Xtampza has generally been well tolerated by patients in our clinical trials, in some cases there were adverse reactions, one of which was a serious adverse event, moderate in severity, of gastroesophageal reflux.
If we or others identify undesirable adverse events associated with Xtampza or any product candidate for which we receive final regulatory approval, a number of potentially significant negative consequences could result, including:
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| | regulatory authorities may require additional warnings or contradictions in the product label that could diminish the usage or otherwise limit the commercial success of the product;
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Any of these events could prevent us from achieving or maintaining market acceptance of Xtampza or any of our product candidates, if approved.
Risks Related to Intellectual Property Unfavorable outcomes in intellectual property litigation could result inbe costly litigation and potentially limit our ability to commercialize our products. Our commercial success depends upon our ability to develop product candidates and commercialize products without infringing the intellectual property rights of others. Our current or future product candidates or products, or any uses of them, may now or in the future infringe third-party patents or other intellectual property rights. This is due in part to the considerable uncertainty within the pharmaceutical industry about the validity, scope and enforceability of many issued patents in the United States and elsewhere in the world and, to date, there is no consistency regarding the breadth of claims allowed in pharmaceutical patents. We cannot currently determine the ultimate scope and validity of patents which may be granted to third parties in the future or which patents might be asserted to be infringed by the manufacture, use and sale of our products. In part as a result of this uncertainty, there has been, and we expect that there will continue to be, significant litigation in the pharmaceutical industry regarding patents and other intellectual property rights. Third parties may assert infringement claims against us, or other parties we have agreed to indemnify, based on existing patents or patents that may be granted in the future. We are aware of third-party patents and patent applications related to oxycodone, oxymorphone, hydrocodone, morphine, and methylphenidate drugs and formulations, including those listed in the FDA’s Orange Book for oxycodone products. Because of the delay between filing and publication of patent applications, and because applications can take several years to issue, there may be currently pending third-party patent applications that are unknown to us, which may later result in issued patents. Because of the uncertainty inherent in intellectual property litigation, we could lose, even if the case against us was weak or flawed.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing or commercializing Xtampza or our product candidates, products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing Xtampza or our product candidatesproducts or force us to cease some of our business operations. In connection with any NDA that we file under Section 505(b)(2), including the NDA for Xtampza, we are required to notify the patent holder of the reference listed drug that we identify in our NDA, that we have certified to the FDA that
any patents listed for the listed drug in the FDA’s Orange Book publication are invalid, unenforceable or will not be infringed by the manufacture, use or sale of our drug. If the patent holder files a patent infringement lawsuit against us within 45 days of its receipt of notice of our certification, the FDA is automatically prevented from approving our Section 505(b)(2) NDA until the earliest of 30 months after the lawsuit is filed, expiration of the patents, settlement of the lawsuit and a court decision in the infringement case that is favorable to us. Accordingly, we may invest significant time and expense in the development of our product candidates only to be subject to significant delay and patent litigation before our product candidates may be commercialized.
If we are found by the court to have infringed a valid patent claim, we could be prevented from using the patented technology or be required to pay the patent holder for the right to license the patented technology. If we decide to pursue a license to use one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all, or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, if the relevant patent is owned by a competitor, such as Purdue, that competitor may choose not to license patent rights to us. If we decide to develop alternative technology, we may not be able to do so in a timely or cost-effective manner, if at all.
Even if we are found not to infringe or patent claims are found invalid or unenforceable, defending any such infringement claim would be expensive and time consuming, and could delay the approval or commercialization of our product candidates and distract management from their normal responsibilities.
Competitors may sue us as a way of delaying the introduction of our products. Any litigation, including any interference or derivation proceedings to determine priority of inventions, oppositions or other post-grant review proceedings to patents in the United States or in countries outside the United States, or litigation against our collaborators may be costly and time consuming and could have a material adverse effect on our operating results, our ability to raise capital needed
to commercialize products and our overall financial condition. We expect that litigation may be necessary in some instances to determine the validity and scope of our proprietary rights. Litigation may be necessary in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Ultimately, the outcome of such litigation, including our pending litigation with Purdue, could compromise the validity and scope of our patents or other proprietary rights or hinder our ability to manufacture and market our products. If we are unable to obtain or maintain intellectual property rights for our technology,technologies, products andor any future product candidates which we may develop, we may lose valuable assets or experience reduced market share.be unable to compete effectively in our market. We depend on our ability to protect our proprietary technology. We rely on patent and trademark laws, unpatented trade secrets and know-how, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and product candidates.products. The steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights both inside and outsidein the United States. The rights already granted under any of our currently issued patents and those that may be granted under future issued patents may not provide us with the proprietary protection or competitive advantages we are seeking. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.
Given the amount of time required for the development, testing and regulatory review of product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products identical, similar or superior to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
With respect to patent rights, our patent applications may not issue into patents, and any issued patents may not provide protection against competitive technologies, may be held invalid or unenforceable if challenged or may be interpreted in a manner that does not adequately protect our technology, product candidates or future product candidates. Even if our patent applications issue into patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us, or otherwise provide us with any competitive advantage. The examination process may require us to narrow the claims in our patents, which may limit the scope of patent protection that may be obtained. Our competitors may design around or otherwise circumvent patents issued to us or licensed by us.
The scope of patent protection in the United States and in foreign jurisdictions is highly uncertain, and changes in U.S. and foreign patent lawWe have increased that uncertainty and could diminish the value of patents in general, thereby impairing our ability to protect our product candidates and any future products.
The patent position of pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been, the subject of much litigation. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change.
Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions typically are not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights, both in the United States and abroad, are highly uncertain.
Recent patent reform legislation could increase the uncertainties and costs associated with the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act, or the Leahy-Smith Act, which was signed into law on September 16, 2011, made significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted and litigated. Many of the substantive changes to patent law associated with the Leahy-Smith Act and, in particular, the “first to file” provisions described below, only became effective on March 16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.
Pursuant to the Leahy-Smith Act, the United States transitioned to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. In addition, third parties are allowed to submit prior art before the issuance of a patent by the U.S. Patent and Trademark Office, or USPTO, and may become involved in opposition, derivation, reexamination, or inter partes review challenging our patent rights or the patent rights of others. Grounds for a validity challenge could be an alleged failurecontinue to meet any of several statutory requirements, including novelty, nonobviousness and enablement. It is possible that prior art of which both we and the patent examiner were unaware during prosecution exists, which could render our patents invalid. Moreover, there may exist prior art of which we were or are aware, and which we did not or do not consider relevant to our patents, but which could nevertheless be determined to render our patents invalid. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could have a material adverse effect on our competitive position with respect to third parties.
Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or license from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our patented technology, trademarks and other intellectual property rights is expensive, difficult and, may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
We may be, forced to litigate to enforce or defend our intellectual property, which could be expensive, time consuming and unsuccessful, and result in the loss of valuable assets.
We have been, and may continue to be, forced to litigate to enforce or defend our intellectual property rights against infringement and unauthorized use by competitors, and to protect our trade secrets. To counter infringement or unauthorized use,secrets, including in connection with our pending litigation may be necessary in the futureagainst generic competitors that have filed Paragraph IV Certifications relating to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scopecertain of our own intellectual property rights.products. In so doing, we may place our intellectual property at risk of being invalidated, rendered unenforceable or limited or narrowed in scope. Further, this can be This litigation is expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can.
Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In addition, an adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. We may be subject to claims by third parties of ownership of what we regard as our own intellectual property or obligations to make compensatory payments to employees or others.
While it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing or obtaining such an agreement with each party who, in fact, develops intellectual property that we regard as our own. In addition, they may breach the assignment agreements or such agreements may not be self-executing, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property. If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed. In addition to seeking patents for some of our technology products and product candidates,products, we rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both within and outsidein the United States may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor, or those towith whom they communicate, with, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed or independently developed, our competitive position would be harmed. We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop and sell their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents or our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or the marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies, including potential competitors. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs, damage our reputation and be a distraction to management.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The USPTOUnited States Patent and various foreign governmental patent agencies requireTrademark Office (“USPTO”) requires compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents are required to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patents. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we fail to maintain the patents and patent applications covering our product candidates,products, our competitive position would be adversely affected. Risks Related to the Commercialization of Our Product CandidatesProducts We currently have limited sales and marketing capabilities and, if
If we are unable to successfully utilize our own sales and marketing capabilities successfully or enter into strategic alliances with marketing collaborators, we may not continue to be successful in commercializing Xtampza and our product candidatesproducts and may be unable to generate sufficient product revenue. Although our executive officers have experience marketing pharmaceutical products,
Our commercial organization continues to evolve and we currently have limited sales, marketing or distribution capabilities. Our sales and marketing team has worked together for only a limited period of time. We cannot guarantee that we will continue to be successful in marketing Xtampza or any of our product candidates which may be approved for marketing.products. In addition, we will have to compete with other pharmaceutical and biotechnology companies with extensive and well-funded sales and marketing operations to recruit, hire, train and retain sales and marketing personnel. If we are unable to establishcontinue to grow and maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, including with respect to our recent acquisition of Belbuca and Symproic, we may not be able to generate sufficient product revenue and may not becomeremain profitable. Factors that may inhibit our efforts to commercializecontinue successfully commercializing our product candidatesproducts in the United States include:
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● | | our inability to recruit and retain adequate numbers of effective sales and marketing personnel; |
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● | | the inability of sales personnel to obtain access to or persuadereach adequate numbers of physicians towho may prescribe Xtampzaour products; and our product candidates; |
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● | | the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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| | unforeseen costs and expenses associated with creating and maintaining an independent sales and marketing organization. |
If we are not successful in recruiting and retaining sales and marketing personnel or in building amaintaining our sales and marketing infrastructure or if we do not successfully enter into appropriatepreserve strategic alliances with marketing collaborators, agreements with contract sales organizations or collaboration arrangements, we will have difficulty commercializing Xtampza orin continuing to commercialize our products. Under the Food and Drug Omnibus Reform Act of 2022 (“FDORA”), sponsors of approved drugs must provide six months notice to the FDA of any changes in marketing status, such as the withdrawal of the drug, and failure to do so could result in the FDA placing the product candidates. Toon a list of discontinued products, which would revoke the extent we commercialize Xtampza orproduct’s ability to be marketed. Additionally, our product candidates by entering into agreements with third-party collaborators, we may have limited or no control over the sales, marketing and distribution activities of these third parties, in which case our future revenues would depend heavily on the successcapabilities may continue to be hindered as a result of the COVID-19 outbreak. As the COVID-19 pandemic unfolded, and governmental and societal reactions to it evolved, our business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products, and labor disruptions that impacted pain offices, which in turn impacted our access to, and quality of interactions with, such offices. Notwithstanding the fact that the federal public health emergency for COVID-19 expired in May 2023 in the United States, we expect the trends that emerged as a result of the pandemic to persist in the near to medium term. We will continue to equip our personnel with the tools and resources needed to effectively continue their sales and marketing efforts in a manner that complies with all relevant regulations, whether in person or from a remote setting. We face the risk, however, that limitations on activities within the healthcare sector and on economic activity generally will impede our ability to continue successfully commercializing our products. If physicians, patients, healthcare payors and the medical community, patients, and healthcare payors do not accept and use Xtampza or our product candidates,products, we will not achieve sufficient product revenues and our business will suffer. Physicians patients, healthcare payors and others in the medical community, patients, and healthcare payors may not continue to accept and use Xtampzaour products, or accept and use any of our product candidates, for whichnew products that we receive final regulatory approval.may develop or acquire. Acceptance and use of Xtampza and any product candidates for which we receive final regulatory approvalour products will depend on a number of factors including: | ·
● | | the timing of market introduction of Xtampza and the product candidates as well as competitive products;
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| | approved indications, warnings and precautions language that may be less desirable than anticipated; competitive products; |
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● | perceptions of physicians and other healthcare community members of the safety and efficacy of our products; |
| ● | perceptions by members of the healthcare community, including physicians, about the safety and efficacy of Xtampza and our product candidates, and, in particular, the relevance and efficacy of our abuse deterrent technology in reducing potential riskstechnology; |
| ● | the availability of unintended use;competitive products; |
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● | | perceptions by physicians regarding the cost benefit of Xtampzapricing and our product candidates in reducing potential risks of unintended use;
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| | published studies demonstrating the cost-effectiveness of Xtampza and our product candidatesproducts relative to competing products;
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● | | the potential and perceived advantages of Xtampza and our product candidatesproducts over alternative treatments; |
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● | | the convenience and ease of administration to patients of Xtampza and our product candidates; products; |
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● | | actual and perceived availability and quality of coverage and reimbursement for Xtampza and our product candidatesproducts from government or other third-party payors; |
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● | | any negative publicity related to our products or negative or positive publicity related to our competitors’ products that include the same active ingredient as Xtampza and our product candidates;
products; |
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● | | the prevalence and severity of adverse side effects, including limitationseffects; |
| ● | policy initiatives by FDA, Department of Health and Human Services, U.S. Drug Enforcement Agency (“DEA”), or warnings contained in a product’s FDA approved product labeling;other federal or state agencies regarding opioids; |
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● | | our ability to implement acomply with the Opioid Analgesic REMS; and |
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● | | the effectiveness of marketing and distribution efforts by us and any licensees and distributors. |
If Xtampza or our product candidates for which we receive final regulatory approval,products fail to achievehave an adequate level of acceptance by physicians, healthcare payors, patients or the medical community, patients, or healthcare payors, we will not be able to generate significantsufficient revenue and we may not become orto remain profitable. Since we expect to rely on sales generated by Xtampza ER, the Nucynta Products, Belbuca, and Symproic for substantially all of our revenues for the foreseeable future, the failure of Xtampzathese products to findmaintain market acceptance would harm our business prospects. Recently enacted
Some of our products contain, and our future product candidates may contain, controlled substances, the manufacture, use, sale, importation, exportation and distribution of which are subject to regulation by state and federal law enforcement and other regulatory agencies. Some of our products contain, and our future product candidates may contain, controlled substances that are subject to state and federal laws and regulations regarding their manufacture, use, sale, importation, exportation and distribution. Xtampza ER’s active ingredient, oxycodone, and the Nucynta Products’ active ingredient, tapentadol, are both classified as Schedule II controlled substances under the Controlled Substances Act (“CSA”) and regulations of the DEA and the active ingredient in Belbuca, buprenorphine, is classified as a Schedule III controlled substance. A number of states also independently regulate these drugs, including oxycodone, tapentadol and buprenorphine, as controlled substances. We and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state and federal law enforcement and regulatory agencies and comply with state and federal laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. Furthermore, the amount of Schedule II substances that can be obtained for clinical trials and commercial distribution is limited by the CSA and DEA regulations. For more information, see the section in our Annual Report entitled “Business — Government Regulation — DEA and Opioid Regulation.” We may not be able to obtain sufficient quantities of these controlled substances in order to meet commercial demand. If commercial demand for Xtampza ER, or any of our other approved products, increases and we cannot meet such demand in a timely fashion because of our limited supply of its active pharmaceutical ingredient (in the case of Xtampza ER, oxycodone) then physicians may perceive such product as unavailable and may be less likely to prescribe it in the future. In addition, controlled substances are also subject to regulations governing manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas (for Schedule I and II substances), recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of our products that include controlled substances. The DEA and some states conduct periodic inspections of registered establishments that handle controlled substances. Failure to obtain and maintain required registrations or to comply with any applicable regulations could delay or preclude us from developing and commercializing our products that contain controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of our products containing controlled substances. Current and future legislation may increase the difficulty and cost for us to continue to commercialize Xtampza and our product candidatesproducts and may reduce the prices we are able to obtain for our products. In the United States, and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system generally, and the manufacturing, distribution, and marketing of opioids in particular, that could prevent or delay marketing approval of ourfuture product candidates, restrict or regulate post-approval activities or affect our ability to profitably sell Xtampza or any product candidatesour products for which we obtain marketing approval. Cost reduction legislation For example, several states, including New York, have imposed taxes or fees on the sale of opioids. Other states, and even the federal government, could decrease the coverageimpose similar taxes or fees, and price that we receive for any approved products, including for reimbursement through Medicaresuch laws and private payors.
The pricing of pharmaceutical products, in general, and specialty drugs, in particular, has also been a topic of concernproposals can vary in the U.S. government. There can be no assurance astax and fee amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations.
California and several other states have enacted legislation related to howprescription drug pricing transparency and it is unclear the effect this scrutinylegislation will have on pricing of pharmaceutical products will impact future pricing of our products or pharmaceutical products generally. The current administration has indicated that reducing the price of prescription drugs will be a priority of the administration. The implementation of any price controls on prescription drugs, whether at the federal or state level, may adversely affect our business, operating results and financial condition. business. Laws intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms may continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. We expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional downward pressure on the price that we receive for any approved product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may compromise our ability to generate revenue, attain profitability or commercialize our products. There have been repeated calls to repeal the Affordable Care Act. Any new laws or regulations that have the effect of imposing additional costs or regulatory burden on pharmaceutical manufacturers, or otherwise negatively affect the industry, would adversely affect our ability to successfully commercialize Xtampza and our product candidates, if approved.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any,products may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements. In addition, state pharmacy laws may permit pharmacists to substitute generic products for branded products if the products are therapeutic equivalents, or may permit pharmacists and pharmacy benefit managers to seek prescriber authorization to substitute generics in place of Xtampza or our product candidates, which could significantly diminish demand for them and significantly impact our ability to successfully commercialize our products and generate revenues.
Even if we are able to commercialize Xtampza and any of our product candidates, ourOur products may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. Such pricing regulations may address the rebates that manufacturers offer to pharmaceutical benefit managers, or the discounts that manufacturers provide others within the pharmaceutical distribution chain.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products can vary widely from country to country.widely. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of the product in that particular country. Pricing limitations may hinder our ability to recoup our investment in Xtampza and our product candidates even if our product candidates obtain marketing approval.products. Our ability to commercialize any product successfully will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels.levels and tiers of preference based on the perceived value and innovation of a given product. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications.medications and establishing administrative hurdles that incentivize use of generic and/or lower cost products first. Increasingly, third-party payors are requiring that drug companies provide them with discounts and rebates from list prices and are challenging the prices charged for medical products. We have agreed to provide such discounts and rebates to certain third-party payors. We expect increasing pressure to offer larger discounts and rebates. Additionally, a greater number of third-party payors may seek discounts and rebates in order to offer or maintain access for Xtampza and our product candidates, if approved.products. We cannot be sure that high-quality coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be and whether it will be satisfactory. Coverage and reimbursement may impact the demand for, or the price There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from policy and payment limitations in setting their own reimbursement policies.
In August 2022, the Inflation Reduction Act (“IRA”) of 2022 was signed into law. This legislation contains substantial drug pricing reforms, including the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services that would subject manufacturers of some brand-name medications without generic or biosimilar competition to a price negotiation program that results in a negotiated “maximum fair price” (or pay an excise tax for noncompliance), the establishment of rebate payment requirements on manufacturers of drugs payable under Medicare Parts B and D to penalize price increases that outpace inflation, and revises the way manufacturers provide discounts on Part D drugs. The IRA also caps Medicare beneficiaries’ annual out-of-pocket drug expenses at $2,000 per year, thereby eliminating the Medicare Part D coverage gap or “donut hole.” Substantial penalties can be assessed for noncompliance with the drug pricing provisions in the IRA. There is pending litigation in the federal courts challenging the constitutionality of the drug price negotiation provisions of the IRA. The IRA could have the effect of reducing the prices we can charge and reimbursement we receive for our products, thereby reducing our profitability, and could have a material adverse effect on our financial condition, results of operations and growth prospects. The effect of the IRA on our business and the pharmaceutical industry in general is not yet known. Our inability to promptly obtainexpand and maintain coverage and profitable reimbursement rates from both government-funded and private payors for any approvedour products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to continue to commercialize our products and our overall financial condition. The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to continue to commercialize our products and affect the prices we may obtain. government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. The Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. There have been significant ongoing judicial, administrative, executive and legislative efforts to modify or eliminate the Affordable Care Act, and the Affordable Care Act has also been subject to challenges in the courts. See the section in our Annual Report entitled “Business — Government Regulation — Healthcare Reform.” Further changes to and under the Affordable Care Act remain possible. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future. We expect that changes to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry. Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue and maintain profitability. Social issues around the abuse of opioids, including law enforcement concerns over diversion of opioids and regulatory and enforcement efforts to combat abuse, could decrease the potential market for Xtampzaour products and may adversely impact external investor perceptions of our product candidates.business. Media stories regarding prescription drug abuse and the diversion of opioids and other controlled substances are commonplace.
Law enforcement and regulatory agencies may apply policies and guidelines that seek to limit the availability or use of opioids. Such efforts may inhibit our ability to continue to commercialize Xtampza and our product candidates.products. Aggressive enforcement and unfavorable publicity regarding, for example, the use or misuse of oxycodone or other opioid drugs; the limitations of abuse-resistant formulations; the ability of drug abuserspeople who abuse drugs to discover previously unknown ways to abuse opioid drugs, including Xtampza;Xtampza ER, the Nucynta Products and Belbuca; public inquiries and investigations into prescription drug abuse; litigation; or regulatory activity regarding sales, marketing, distribution or storage of opioid drugs could have a material adverse effect on our reputation. Such negative publicity could reduce the potential size of the market for Xtampza and our product candidates andproducts, decrease the revenues we are able to generate from their sale.sale and adversely impact external investor perceptions of our business. Similarly, to the extent opioid abuse becomes less prevalent or less urgent of a public health issue, regulators and third party payers may not be willing to pay a premium for abuse-deterrent formulations of opioids. Efforts by the FDA and other regulatory bodies to combat abuse of opioids may negatively impact the market for our product candidates. In February 2016, the FDA released an action plan
Federal laws have been enacted to address the national epidemics of prescription opioid abuse epidemic and reassess the FDA’s approach to opioid medications. The plan identifies the FDA’s focus on implementing policies to reverse the opioid abuse epidemic, while maintaining access to effective treatments. The actions set forth in the FDA’s plan include strengthening post marketing study requirements to evaluate the benefit of long-termillicit opioid use, changingincluding the REMS requirements to provide additional fundingComprehensive Addiction and Recovery Act and the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for physician education courses, releasing a draft guidance setting forth approval standards for generic-abuse deterrent opioid formulations,Patients and seeking input fromCommunities Act. These laws are described in more detail in our Annual Report under the FDA’s Science Board to broaden the understanding of the public risks of opioid abuse. The FDA’s Science Board met to address these issues on March 1, 2016. The FDA’s plan is part of a broader initiative led by the HHS to address opioid-related overdose, deathcaption “Business — Government Regulation — DEA and dependence. The HHS initiative’s focus is on improving physician’s use of opioids through education and resources to address opioid over-prescribing, increasing use and development of improved delivery systems for naloxone, which can reverse overdose from both prescription opioids and heroin, to reduce overdose-related deaths, and expanding the use of Medication-Assisted Treatment, which couples counseling and behavioral therapies with medication to address substance abuse. Also as part of this initiative, the CDC has launched a state grant program to offer state health departments resources to assist with abuse prevention efforts, including efforts to track opioid prescribing through state-run electronic databases. In March 2016, as part of the HHS initiative, the CDC released a Guideline for Prescribing Opioids for Chronic Pain. The guideline is intended to assist primary care providers treating adults for chronic pain in outpatient settings. The guideline provides recommendations to improve communications between doctors and patients about the risks and benefits of opioid therapy for chronic pain, improve the safety and effectiveness of pain treatment, and reduce the risks associated with long-term opioid therapy. The guideline states that no treatment recommendations about the use of abuse-deterrent opioids can be made at this time. Many of these changes and others could cause us to expend additional resources in developing and commercializing Xtampza and our product candidates to meet additional requirements. Advancements in development and approval of generic abuse-deterrent opioids could also compete with and potentially impact physician use of our product candidates and cause our product candidates to be less commercially successful.Opioid Regulation.” The FDA continues to evaluate extended release and abuse-deterrent opioids in the postmarket setting. In March 2017, the FDA’s Advisory Committee met to discuss OPANA ER (oxymorphone hydrochloride) extended release tablets. A majority of the Advisory Committee voted that the benefits do not outweigh the risks of OPANA ER. Upon the FDA’s subsequent request in June 2017, OPANA ER was removed from the market. Also, in July 2017, the FDA held a public workshop to discuss available data and methods to assess the impact of opioid formulations with abuse-deterrent properties on misuse, abuse, addiction, overdose, and death in the postmarket context. The FDA will continue to scrutinize the impact of abuse-deterrent opioids and in the future could impose further restrictions to products currently on the market, which may include changing labeling, imposing additional prescribing restrictions, or seeking a product’s removal from the market.
If the FDA or other applicable regulatory authorities approve generic products with abuse deterrent claims that compete with Xtampza or any of our product candidates, itproducts, our sales could reduce our sales.decline. Once an NDA,a New Drug Application (“NDA”), including a Section 505(b)(2) application, is approved, the product covered thereby becomes a “listed drug” which can, in turn, be cited by potential competitors in support of approval of an abbreviated NDA, or ANDA.New Drug Application (“ANDA”). The FD&CFederal Food, Drug, and Cosmetic Act, FDA regulations and other applicable regulations and policies provide incentives to manufacturers to create modified, non-infringing versions of a drug to facilitate the approval of an ANDA or other application for generic substitutes. These manufacturers might only be required to conduct a relatively inexpensive study to show that their product has the same active ingredients, dosage form, strength, route of administration, and conditions of use, or product labeling, as our product and that the generic product is absorbed in the body at the same rate and to the same extent as, or is bioequivalent to, our product. These generic equivalents would be significantly less costly than ours to bring to market and companies that produce generic equivalents are generally able to offer their products at lower prices. Additionally, under FDORA, FDA will assign therapeutic equivalence ratings for certain prescription drugs approved via the Section 505(b)(2) NDA pathway with respect to other approved drug products and it is unclear how assignment of these ratings will impact the market opportunity for our products. Thus, after the introduction of a generic competitor, a significant percentage of the sales of any branded product are typically lost to the generic product. Accordingly, competition from generic equivalents to our products would substantially limit our ability to generate revenues and therefore, to obtain a return on the investments we have made in our product and product candidates. Guidelines and recommendations published by various organizations can reduceproducts. In the usepast, we have initiated litigation with generic competitors that have filed Paragraph IV Certifications challenging certain of our products, if approved.
Government agencies promulgate regulationspatents. While we have entered into settlement agreements with certain competitors, we are currently pursuing litigation to defend against Paragraph IV Certifications related to Belbuca. Refer to Note 16, Commitments and guidelines directly applicable to us and to Xtampza and our product candidates. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products as the standard of careContingencies, for more information. We believe that we will continue to be followed by patientssubject to ANDA-related litigation, which can be costly and healthcare providers could result in decreased usedistracting and has the potential to impact the long-term value of our products.
In November 2017, the FDA issued a final guidance to assist industry in the development of generic versions of approved opioids with abuse-deterrent formulations, including recommendations about the types of studies that companies should conduct to demonstrate that the generic drug is no less abuse-deterrent than its brand-name counterpart. In the second half of 2018, the FDA posted three revised product-specific guidances related to generic abuse-deterrent opioid formulations, including one guidance specifically relating to Xtampza ER, which recommend specific in vivo studies and in vitro study considerations for abuse deterrence evaluations. These guidances are part of the FDA’s wider focus on assisting developers of generic abuse-deterrent formulations in navigating the regulatory path to market more quickly. Earlier market entry of generic abuse-deterrent formulations could have a material adverse effect on our business. Risks Related to Our Dependence on Third Parties If the third-party manufacturermanufacturers of Xtampza failsour products fail to devote sufficient time and resources to Xtampza,these products, or itstheir performance is substandard, and/or we encounter challenges with our dedicated manufacturing suite at our third-party manufacturer’s site for the manufacturing of Xtampza ER, our costs may be higher than expected and could have a material adverse effect on our business. We do not own any manufacturing facilities and have limited experience in drug development and commercial manufacturing. We currently have no plans to build our own clinical or commercial scale manufacturing facility. We lackfacility and do not have the resources and expertise to manufacture and test, on a commercial scale, the technical performance of Xtampza and our product candidates.products. We currently rely, and expect to continue to rely, on a limited number of experienced personnel and one contract manufacturermanufacturers for Xtampza and each product candidate,our products, as well as other vendors to formulate, test, supply, store and distribute Xtampza and our product candidates for our clinical trials and FDA registration,products, and we control only certain aspects of their activities. In 2020, we completed the build-out of a dedicated manufacturing suite for Xtampza ER at a site operated by our contract manufacturing organization, Patheon, part of Thermo Fisher Scientific. This facility requires the maintenance of regulatory approvals and other costs, all of which we absorb. We cannot guarantee that we will be able to continue to leverage the dedicated manufacturing suite in a profitable manner. If the demand for Xtampza ER and any future related products never meets our expectations and forecasts, or if we do not produce the output we plan, we may not be able to realize the return on investment we anticipated, which would have a negative impact on our financial condition and results of operations. We have completed the activities required to transition commercial manufacturing for Nucynta ER from Janssen to Patheon. While we were successful in our regulatory approval and validation activities, we could encounter issues in obtaining commercial supply from Patheon's facility due to technical problems or challenges obtaining adequate and/or timely DEA procurement quota. Although we have identified alternate sources for these services, it would be time-consuming, and require us to incur additional cost,costs, to qualify these sources. Our reliance on a limited number of vendors and, in particular, Patheon as our single manufacturer for Xtampza ER and Nucynta ER, exposes us to the following risks, any of which could delay FDA approval of our product candidates andimpact commercialization of our products, result in higher costs, or deprive us of potential product revenues: | ·
● | | Our contract manufacturer, or other third parties we rely on, may encounter difficulties in achieving the volume of production needed to satisfy commercial demand, may experience technical issues that impact quality or compliance with applicable and strictly enforced regulations governing the manufacture of pharmaceutical products, may be affected by natural disasters that interrupt or prevent manufacturing of our products including the COVID-19 pandemic, may experience shortages of qualified personnel to adequately staff production operations, may experience shortages of raw materials and may have difficulties finding replacement parts or equipment. equipment; |
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● | | Our contract manufacturer could default on itstheir agreement with us to meet our requirements for commercial |
supplies of Xtampza. our products and/or we could experience technical problems in the operation of our dedicated manufacturing suite; |
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● | | The use of alternate manufacturers may be difficult because the number of potential manufacturers that have the necessary governmental licenses to produce narcotic products is limited. Additionally, the FDA and the DEA must approve any alternative manufacturer of Xtampza or any product candidate for which we receive regulatory approval,our products, before we may use the alternative manufacturer to produce commercial supplies. supplies; |
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● | | It may be difficult or impossible for us to find a replacement manufacturer on acceptable terms quickly, or at all. Our contract manufacturer and vendors may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store and distribute our products. products successfully; and |
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● | | If our contract manufacturer were to terminate our arrangement or fail to meet our commercial manufacturing demands, we may be forced to delay our development and commercial programs. |
Failure to obtain the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture our products could adversely affect our ability to continue to commercialize our products, which could in turn adversely affect our results of operations and financial condition. Likewise, the inability of any of our sole or limited suppliers to provide components that meet our specifications and requirements could adversely impact our ability to manufacture our products. In addition, DEA regulations, through the quota procurement process, limit the amount of DEA-controlled active pharmaceutical ingredient we have available for manufacture. Consequently, we are limited in our ability to maintain an appreciable safety stock of finished drug product. Our reliance on third parties reduces our control over our development and commercialization activities but does not relieve us of our responsibility to ensure compliance with all required legal, regulatory and scientific standards. The FDA and other regulatory authorities require that Xtampza and our product candidates that we may eventually commercializeproducts to be manufactured according to cGMP and similar foreign standards.current good manufacturing practices (“cGMP”). Any failure by our third-party manufacturer to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidatesproducts in a timely manner, could lead to inspection deficiencies, a delay in,shortage of commercial product, or failure to obtain, regulatory approval ofpotential products liability exposure for any of our product candidates. In addition, suchnoncompliant distributed products. Such failure could also be the basis for the FDA to issue a warning or untitled letter, withdraw approvals for products previously granted to us, or take other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention orof product, refusal to permit the import or export of products, injunction, imposing civil penalties or pursuing criminal prosecution. Any stock out, or failure to obtain sufficient supplies of any of our products, or the necessary active pharmaceutical ingredients, excipients or components necessary to manufacture each of our products, could adversely affect our ability to commercialize such products, which could in turn adversely affect our results of operations and financial condition. Because we currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredient of Xtampza,our products, any production problems with our supplierany of these suppliers could have a material adverse effect on us. We currently rely on a sole supplier or limited number of suppliers to manufacture the active pharmaceutical ingredients of our products. For example, we presently depend upon a single supplier for the active pharmaceutical ingredient for the Nucynta Products (tapentadol) and Symproic, and two active pharmaceutical ingredient suppliers for Xtampza — oxycodone base —ER and we intend toBelbuca. We contract with this supplier, as necessary,these suppliers for commercial supply ofto manufacture our products. Although we have identified anFurther, our suppliers for Xtampza ER and the Nucynta Products active pharmaceutical ingredients also supply our primary competitor in the extended-release oxycodone space, Purdue. Identifying alternate sourcesources of active pharmaceutical ingredients for oxycodone base, it would beour products is generally time-consuming and costlycostly. Any changes that our suppliers make to qualify this source. Since we currently obtainthe respective drug substance raw materials, intermediates, or manufacturing processes would introduce technical and regulatory risks to our active ingredient from this manufacturer on a purchase-order basis, either we or our supplier may terminate our arrangement, without cause, at any time without notice.downstream drug product supply. If our suppliersuppliers were to terminate ouran arrangement for an active pharmaceutical ingredient, or fail to meet our supply needs (including as a result of any disruptions in personnel or the global supply chain), we might incur substantial costs and be forced to delay our development or commercialization programs. Any such delay could have a material adverse effect on our business. We rely on third parties to conduct
Global supply chain disruptions and shortages may limit manufacturing and commercial supply of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to obtain regulatory approval for or commercialize our product candidatesproducts and our business could sufferhave a material adverse effect.impact on our business. We have relied upon
There are currently global supply chain disruptions and plan to continue to rely upon contract research organizations, or CROs, to monitorshortages caused by a variety of factors, including the COVID-19 pandemic and manage data for our ongoing preclinical and clinical programs. We rely on these parties for execution of our clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trials are conducted in accordance withgeopolitical turmoil, such as the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with federal regulations and current Good Clinical Practices, or GCP, which are international standards meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, advisors and monitors, enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and foreign regulatory authorities in the form of International Conference on Harmonization, or ICH, guidelines for all of our product candidates in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. In addition,Ukrainian War. While we and our CROssuppliers are requiredstill able to comply with special regulations regarding the enrollment of recreational drug abusers in clinical trials. If we or any of our CROs fail to comply with applicable GCP and other regulations, including as a result of any recent changes in such regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. While we have agreements governing activities of our CROs, we have limited influence over their actual performance. Failure to comply with applicable regulations in the conductreceive sufficient inventory of the clinical trials forkey materials and components needed, we could experience pressure on our product candidates may require us to repeat preclinical studiessupply chain, including shipping delays, higher prices from suppliers, and clinical trials, which would delay the regulatory approval process.
Our CROs arereduced availability of materials, including excipients and packaging components. To date, supply chain pressure has not had a material impact on our employees,results of operations. However, if these disruptions and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoing clinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated andshortages continue, we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, the commercial prospects for our product candidates would be harmed, our costs could increase substantially and our ability to generate revenue could be delayed.
Switching or adding additional CROs involves additional cost and requires management time and focus, and there is a limited number of CROs that are equipped and willing to manage clinical trials that involve recreational drug abusers. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the patients participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. Identifying, qualifying and managing performance of third-party service providers can be difficult, time-consuming and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work and the new CRO may not provide the same type or level of services as the original provider. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will notexperience a material interruption to our supply chain. Such an interruption could have a material adverse impact on our business, financial condition and prospects. If any of our relationships with our CROs terminate, we mayincluding but not be ablelimited to, enter into arrangements with alternative CROs or to do so on commercially reasonable terms. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines.
Our internal capacity to perform these functions is limited. Outsourcing these functions involves risks that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to identifymanufacture and monitor our third-party providers. To the extent, we are unable to identify and successfully manage the performance of third-party service providers in the future, our ability to advance our product candidates through clinical trials will be compromised. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.
In the future, we may depend on collaborations with third parties for the development and commercialization of Xtampza and our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.
We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prohibit, our ability to develop or commercialize Xtampza and our product candidates. These collaborations, including our license agreement for the development and marketing of Onsolis, pose the following risks to us:
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| | Collaborators may have significant discretion in determining the efforts and resources that they will apply to these collaborations.
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| | Collaborators may not pursue development and commercialization of our product or product candidates or may
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elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborator’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities.
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| | Collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon our product or product candidate, repeat or conduct new clinical trials or require a new formulation of our product or product candidate for clinical testing.
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| | Collaborators may conduct clinical trials inappropriately, or may obtain unfavorable results in their clinical trials, which may have an adverse effect on the development or commercialization of our product or product candidates.
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| | Collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours.
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| | A collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such products.
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| | Collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our proprietary information or expose us to potential litigation.
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| | Disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our product and product candidates or that result in costly litigation or arbitration that diverts management attention and resources.
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| | We may lose certain valuable rights under circumstances specified in our collaborations.
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| | Collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product or product candidates.
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| | Collaboration agreements may not lead to development or commercialization of products or product candidates in the most efficient manner or at all. If a future collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program under such collaboration could be delayed, diminished or terminated.
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We may rely on collaborators to market and commercialize Xtampza and, if approved, our product candidates, who may fail to effectively commercializedistribute our products.
We may utilize strategic collaborators or contract sales forces, where appropriate, to assist in the commercialization of Xtampza and our product candidates, if approved by the FDA. We currently possess limited resources and may not be successful in establishing collaborations or co-promotion arrangements on acceptable terms, if at all. We also face competition in our search for collaborators and co-promoters. If we enter into strategic collaborations or similar arrangements, we will rely on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Our collaborators, if any, may fail to develop or effectively commercialize our products and product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or other resources or they decide to focus on other initiatives. Any failure of our third-party collaborators to successfully market and commercialize our product and product candidates would diminish our revenues.
Manufacturing issues may arise that could increase product and regulatory approval costs, delay commercialization or limit commercial supply. As
In our current commercial manufacturing operations, and as we scale up manufacturing of our products and product candidates and conduct required stability testing, we may encounter product, packaging, equipment and process-related issues that may require refinement or resolution in order to proceed with our planned clinical trials, obtain regulatory approval for commercial marketing and build commercial supplies. In the future, we may identify impurities, which could result in increased scrutiny by regulatory authorities, delays in our clinical programs and regulatory approval, increases in our operating expenses, failure to obtain or maintain approval or limitations in our commercial supply. Our customer concentration may materially adversely affect
We depend on wholesale pharmaceutical distributors for retail distribution of our products; if we lose any of our significant wholesale pharmaceutical distributors or their distribution network is disrupted, our financial condition and results of operations.operations may be adversely affected. A significant percentage of our product shipments are to a limited number of independent wholesale drugpharmaceutical distributors. Three of our wholesale pharmaceutical distributors represented 35%, 28% and 27%greater than 90% of our product shipments for the year ended December 31, 2016. If we were to lose the businessJune 30, 2023. Our loss of one or more of these distributors, or if any of these distributors failedwholesale pharmaceutical distributors’ accounts, or a material reduction in their purchases or a significant disruption to fulfill their obligationstransportation infrastructure or refused or experienced difficulty in paying us onother means of distribution of our products, including as a timely basis, or negotiated larger discounts, it wouldresult of the COVID-19 pandemic, could have a material adverse effect on our business, results of operations, financial condition and prospects. The significance of each wholesale pharmaceutical distributor account to our business adversely impacts our ability to negotiate favorable commercial terms with each such distributor, and as a result, we may be forced to accept terms that adversely impact our results of operations. In addition, these wholesaler customers comprise a significant part of the distribution network for pharmaceutical products in the United States. This distribution network has undergone, and may continue to undergo, significant consolidation marked by mergers and acquisitions. As a result, a small number of large wholesale distributors control a significant share of the market. Consolidation of drug wholesalers has increased, and may continue to increase, competitive and pricing pressures on pharmaceutical products. We cannot guarantee that we can manage these pricing pressures or that wholesaler purchases will not fluctuate unexpectedly from period to period. In addition, due to unprecedented and significant disruptions in the processing of product returns by wholesale pharmaceutical distributors, as further disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we formally denied a significant portion of unprocessed product claims under our return policy. We subsequently received payment for only a portion of the denied claims and vigorously pursued collections of the full amount of these short-pay receivables. Although we were able to formally settle a portion of the unprocessed product claims and receive payment therefor, payment for a significant portion of the unprocessed product claims has not been and is not expected to be received. There can be no assurance that similar disruptions in the wholesaler distribution network will not occur in the future or if they do, that we will be able to successfully manage such disruptions. Our opioid products are subject to post-marketing requirements, which requirements may, in some cases, not be capable of timely or satisfactory completion without participation in consortia over which we have limited control. Our opioid products are subject to a comprehensive regulatory scheme, including post-marketing requirements (“PMRs”) to conduct epidemiological studies and clinical trials. We intend to fulfill our PMRs by virtue of our participation in the Opioid PMR Consortium (“OPC”). Although we retain discretion in how to discharge such PMRs, the scale and scope of the studies required by the FDA make it cost prohibitive to discharge these requirements other than by joining the OPC that was formed to conduct them. We are a member of the OPC and engage in decision-making as a member of that organization, but do not have a majority. If the OPC fails to conduct sufficiently rigorous studies or is unable to achieve the patient enrollment or other requirements established by the FDA, we may be unable to satisfy our PMRs and the FDA may choose to withdraw or otherwise restrict its approval of our opioid products. Such withdrawal or restriction would have an adverse impact on our business and financial condition. We have historically relied on third parties to conduct our non-clinical and clinical trials, and may continue to rely upon third parties for any product candidates we develop or acquire in the future. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, or if they terminate their agreement with us, we may not be able to maintain regulatory approval for our products and our business could suffer a material adverse effect. We have relied upon and plan to continue to rely upon contract research organizations (“CROs”) to monitor and manage data for any non-clinical and clinical programs that we may conduct in the future, including the OPC PMR studies discussed above. We rely on these parties for execution of our non-clinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies and clinical trials are conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or any of our CROs fail to comply with applicable good clinical practices (“GCP”) and other regulations, including as a result of any recent changes in such regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP requirements. While we have agreements governing the activities of our CROs, we have limited influence over their actual performance. Failure to comply with applicable regulations in the conduct of the clinical trials for our products would have an adverse impact on our commercial efforts. Risks Related to Our Business and Strategy We may not realize all the anticipated benefits from our future acquisitions, and we may be unable to successfully integrate future acquisitions. Our growth strategy will, in part, rely on acquisitions. We must plan and manage acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market. We may not realize all the anticipated benefits from our future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs or other difficulties, inexperience with operating in new geographic regions, unknown liabilities, inaccurate reserve estimates and fluctuations in market prices. In addition, integrating acquired businesses and properties involves a number of special risks and unforeseen difficulties can arise in integrating operations and systems and in retaining and assimilating employees. These difficulties include, among other things: | ● | operating a larger organization; |
| ● | coordinating geographically disparate organizations, systems, and facilities; |
| ● | integrating corporate, technological, and administrative functions; |
| ● | diverting management’s attention from regular business concerns; |
| ● | diverting financial resources away from existing operations; |
| ● | increasing our indebtedness; and |
| ● | incurring potential environmental or regulatory liabilities and title problems. |
Any of these or other similar risks could lead to potential adverse short-term or long-term effects on our operating results. The process of integrating our operations could cause an interruption of, or loss of momentum in, the activities of our business. Members of our management may be required to devote considerable amounts of time to this integration process, which decreases the time they have to manage our business. If our management is not able to effectively manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer. Our business has been, and we may in the future continue to be, adversely affected by certain events or circumstances outside our control, including the COVID-19 pandemic and geopolitical turmoil. Our business has been, and we may in the future continue to be, adversely affected by certain events or circumstances outside our control. For example, the COVID-19 pandemic has, and may continue to have, a substantial impact on the delivery of healthcare services in the United States. As the COVID-19 pandemic unfolded, our business was impacted by several trends, including depressed pain patient office visits compared to pre-COVID periods, which in turn may account for fewer patients beginning therapy with our products, and labor disruptions that impacted pain offices, which in turn impacted our access to, and quality of interactions with, such offices. We believe that the disruptions caused by COVID-19 may continue and, despite the Department of Health and Human Services planning for the federal public health emergency for COVID-19 to expire in May 2023, we expect the trends that emerged as a result of the pandemic to persist in the near to medium term. These circumstances may result in reduced demand for our products and negatively impact our sales and results of operations. In addition, other events or circumstances outside of our control, including macroeconomic conditions such as recession or depression, inflation, and declines in consumer-spending could result in reduced demand for our products. An economic downturn could result in business closures, higher levels of unemployment, or declines in consumer disposable income which could have an impact on the number of patients seeking and receiving treatment for conditions that might otherwise result in the prescription of our products, as patients may make efforts to avoid or postpone seeking non-essential medical care to allocate their resources to other priorities or essential items. These circumstances, in addition to the impact of geopolitical turmoil, social unrest, political instability, terrorism, cyberwarfare or other acts of war, may result in reduced demand for our products and negatively impact our sales, results of operations, and liquidity. Litigation or regulatory action regarding opioid medications could negatively affect our business. Beginning in 2018, lawsuits alleging damages related to opioids have been filed naming us as a defendant along with other manufacturers of prescription opioid medications. These lawsuits, filed in multiple jurisdictions, are brought by various local governments as well as private claimants, against various manufacturers, distributors and retail pharmacies. These lawsuits generally allege that we had engaged in improper marketing practices related to Xtampza ER and the Nucynta Products. In March 2022, we entered into a Master Settlement Agreement resolving 27 pending opioid-related lawsuits brought against us by cities, counties, and other subdivisions in the United States. As part of the Master Settlement Agreement, we paid $2.75 million to the plaintiffs and the cases were dismissed, with prejudice. In late March 2023, three new cases were filed in three federal courts, naming us as one of numerous defendants. The plaintiffs are a variety of municipalities in Florida, Georgia, and Ohio. These new complaints echo the allegations in the prior complaints that were dismissed or settled, as explained above. We have not yet been served with these complaints, and no schedule has been set. Certain governmental and regulatory agencies are focused on the abuse of opioid medications, a concern we share, and we have received Civil Investigative Demands or subpoenas from four state attorneys general investigating our sales and marketing of opioids and seeking documents relating to the manufacture, marketing and sale of opioid medications. In December 2021, we entered into an Assurance of Discontinuance with the Massachusetts Attorney General pursuant to which we provided certain assurances and agreed to pay certain of the Massachusetts Attorney General’s costs of investigation, in exchange for closure of the investigation and a release of claims pertaining to the subject matter of the investigation. We are cooperating fully in the open investigations. Managing litigation and responding to governmental investigations is costly and may involve a significant diversion of management attention. Such proceedings are unpredictable and may develop over lengthy periods of time. An adverse resolution of any of these lawsuits or investigations may involve injunctive relief or substantial monetary penalties, either or both of which could have a material adverse effect on our reputation, business, results of operations and cash flows. Risks Related to Our Business and Strategy
We face substantial competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing products before or more successfully than we do. The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. In addition, the competition
Competition in the pain and opioid market is intense. We haveOur competitors both in the United States and internationally, includinginclude major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. We face and will continue to face competition from other companies in the pharmaceutical and medical device industries. Xtampza and our product candidates, if approved, will Our products compete with currently marketed oral opioids, transdermal opioids, local anesthetic patches, stimulants and implantable and external infusion pumps that can be used for infusion of opioids and local anesthetics. Products of these types are marketed by Actavis, Depomed, Egalet, Endo, Mallinckrodt, Pernix, Pfizer, Purdue, Teva, and others. Some of these current and potential future competitors may be addressing the same therapeutic areas or indications as we are. Many of our current and potential future competitors have significantly greater research and development capabilities than we do, have substantially more marketing, manufacturing, financial, technical, human and managerial resources than we do, and have more institutional experience than we do. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors.
As a result of these factors, our competitors may obtain regulatory approval of their products more rapidly than we are able to or may obtain patent protection or other intellectual property rights that allow them to develop and commercialize their products before us and limit our ability to develop or commercialize our product and product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less costly than ours, and they may also be more successful than us in manufacturing and marketing their products.
Furthermore, if the FDA approves a competitor’s 505(b)(2) application for a drug candidate before our application for a similar drug candidate and grants the competitor a period of exclusivity, the FDA may take the position that it cannot approve our NDA for a similar drug candidate. For example, several competitors have developed extended-release hydrocodone products, and if the FDA grants exclusivity, we could be subject to a delay that would dramatically reduce the expected market penetration for our hydrocodone product candidate. Additionally, even if our 505(b)(2) application is approved for marketing, we may still be subject to competition from other hydrocodone products, including approved products or other approved 505(b)(2) NDAs for different conditions of use that would not be restricted by any grant of exclusivity to us.
In addition, competitors have developed or are in the process of developingmay develop technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic effects than our product candidates. Our competitors may develop products that are safer, more effective or less costly than our product candidates and, therefore, present a serious competitive threat to our product offerings.
The widespread acceptance of currently available therapies with which our product and product candidates, if approved, compete may limit market acceptance of our product and product candidates even if commercialized. Oralproducts. Moreover, oral medications, transdermal drug delivery systems, such as drug patches, injectable products and implantable drug delivery devices are currently available treatments for chronic pain, are widely accepted in the medical community and have a long history of use. These treatments will compete with our product and product candidates, if approved,products and the established use of these competitive products may limit the potential for our product and product candidatesproducts to receive widespread acceptance if commercialized.acceptance.
The use of legal and regulatory strategies by competitors with innovator products, including the filing of citizen petitions, may delay or prevent the introduction or approval of our product candidates, increase our costs associated with the introduction or marketing
Commercial sales of our products, or significantly reduce the profit potentialand clinical trials of ourany future product candidates. Companies with innovator drugs often pursue strategies that we develop or acquire, may serveexpose us to prevent or delay competition from alternatives to their innovator products. These strategies include, but are not limited to:
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| | filing “citizen petitions” with the FDA that may delay competition by causing delays of our product approvals;
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| | seeking to establish regulatoryexpensive product liability claims, and legal obstacles that would make it more difficult to demonstrate a product’s bioequivalence or “sameness” to the related innovator product;
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| | filing suits for patent infringement that automatically delay FDA approval of products seeking approval based on the Section 505(b)(2) pathway;
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| | obtaining extensions of market exclusivity by conducting clinical trials of innovator drugs in pediatric populations or by other methods;
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| | persuading the FDA to withdraw the approval of innovator drugs for which the patents are about to expire, thus allowing the innovator company to develop and launch new patented products serving as substitutes for the withdrawn products;
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| | seeking to obtain new patents on drugs for which patent protection is about to expire; and
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| | initiating legislative and administrative efforts in various states to limit the substitution of innovator products by pharmacies.
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These strategies could delay, reduce or eliminate our entry into the market and our ability to generate revenues from our product and product candidates.
Our future success depends on our ability to retain our key personnel.
We are highly dependent upon the services of our key personnel, including our President and Chief Executive Officer, Michael T. Heffernan, our Chief Financial Officer, Paul Brannelly, our Chief Operating Officer, Joseph Ciaffoni and our Chief Technology Officer, Alison Fleming, PhD. Each employee is employed by us at will and is permitted to terminate his or her employment with us at any time pursuant to the terms of his employment agreement. We do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of Mr. Heffernan, Mr.
Brannelly, Mr. Ciaffoni or Dr. Fleming could impede the achievement of our development and commercialization objectives.
If we are unable to attract and retain highly qualified scientific and technical employees, we may not be able to grow effectively.maintain product liability insurance on reasonable terms or at all.
Our future growth and success depend on our ability to recruit, retain, manage and motivate our scientific, clinical, manufacturing and commercial employees. The loss of any member of our senior management team or the inability to hire or retain experienced management personnel could compromise our ability to execute our business plan and harm our operating results. Because of the specialized scientific nature of our business, we rely heavily on our ability to attract and retain qualified personnel. The competition for qualified personnel in the pharmaceutical field is intense, and as a result, we
We currently carry product liability insurance. Product liability claims may be unable to continue to attract and retain qualified personnel necessary for the development ofbrought against us by patients; clinical trial participants; healthcare providers; or others using, administering or selling our business or to recruit suitable replacement personnel. We will need to grow the size ofproducts. If we cannot successfully defend ourselves against claims that our organization, andproducts caused injuries, we may experience difficulties in managing this growth.
We have experienced a period of rapid growth. Our management, personnel and systems may not be adequate to support this and future growth.could incur substantial liabilities. We may not be able to effectively manage the expansionmaintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Regardless of our operations, whichmerit or eventual outcome, liability claims may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our existing or future product candidates. Future growth would impose significant added responsibilities on members of management, including:
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| | managing the commercialization of any FDA-approved products;
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| | overseeing clinical trials effectively;
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| | identifying, recruiting, maintaining, motivating and integrating additional employees, including any sales and marketing personnel engaged in connection with the commercialization of any approved product;
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| | managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
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| | improving our managerial, development, operational and financial systems and procedures; and
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| | developing our compliance infrastructure and processes to ensure compliance with regulations applicable to public companies.
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As our operations expand, we will need to manage additional relationships with various strategic collaborators, suppliers and other third parties. Our future financial performance and our ability to commercialize our product and product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that could have a material adverse effect on our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense.costs to defend the litigation.
As part of our business strategy, we may pursue acquisitions of assets, including preclinical, clinical or commercial stage products or product candidates, or businesses, in-licensing or out-licensing of products, product candidates or technologies, or other strategic alliances and collaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize
the anticipated benefits of any such transaction, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. We have limited experience with acquiring other companies, products or product candidates, and limited experience with licensing and forming strategic alliances and collaborations. We may not find suitable acquisition candidates, and if we make an acquisition, we may not integrate the acquisition successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business. We may not be able to find suitable strategic alliance or collaborators or identify other investment opportunities, and we may experience losses related to any such investments.
To finance any acquisitions, licenses or collaborations, we may incur significant transaction expenses and we may choose to issue debt or shares of our common or preferred stock as consideration. Any such issuance of shares would dilute the ownership of our shareholders. If the price of our common stock is low or volatile, we may not be able to acquire, license, or otherwise obtain rights to other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.
Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates:
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| | FDA, DEA or similar regulations of foreign regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities;
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| | manufacturing standards;
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| | federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by foreign regulatory authorities; or
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| | laws that require the reporting of financial information or data accurately.
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In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Ethics, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material adverse effect on our business and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could have a material adverse effect on our ability to operate our business and our results of operations.
Our relationships with customers and payors are subject to applicable anti-kickback, fraud and abuse, transparency, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm, administrative burdens, and diminished profits and future earnings. Healthcare providers, physicians and payors play a primary role in the recommendation and prescription of Xtampza and any product candidates for which we may obtain marketing approval.our products. Our future arrangements with payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute Xtampzaour products and any product candidates for which we may obtain marketing approval. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors federaldirectly, we may provide reimbursement guidance and support regarding our products to our customers and patients. Federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal, state and foreign healthcare laws and regulations may affect our ability to operate and expose us to areas of risk, including: | ·
| | the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
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| | the federal False Claims Act, which imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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| | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute to defraud any healthcare benefit program or specific intent to violate it in order to have committed a violation;
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| | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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| | federal laws requiring drug manufacturers to report annually information related to certain payments and other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership or investment interests held by physicians and their immediate family members, including under the federal Open Payments program, commonly known as the Sunshine Act, as well as other state and foreign laws regulating marketing activities and requiring manufacturers to report marketing expenditures, payments and other transfers of value to physicians and other healthcare providers;
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| | federal government price reporting laws, which require us to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on our marketed drugs. Participation in these programs and compliance with the applicable requirements may subject us to potentially significant discounts on our products, increased infrastructure costs, potential liability for the failure to report such prices in an accurate and timely manner, and potentially limit our
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| | state and foreign equivalents of each of the above laws, including state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental payors, including private insurers; state laws which require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restricting payments that may be made to healthcare providers; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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While we do not submit claims and our customers will make the ultimate decision on how to submit claims, we may provide reimbursement guidance and support regarding our products to our customers and patients. If a government authority were to conclude that we provided improper advice to our customers and/or encouraged the submission of false claims for reimbursement, we could face action by government authorities. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
If
We or the third parties upon whom we fail to comply with environmental,depend may be adversely affected by natural disasters and/or health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs. In connection with our research and development activitiesepidemics, and our manufacturebusiness continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of materialsoperations, financial condition and productsprospects. If a natural disaster, power outage, health epidemic (such as the COVID-19 pandemic) or other event occurred that prevented us from using all or a significant portion of our facilities, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it might become difficult or, in certain cases, impossible for us to continue our business, and product candidates,any disruption could last for a substantial period of time. The disaster recovery and business continuity plans we are subject to federal, statehave in place, and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. Although we believetechnology that we have complied with the applicable laws, regulations and policies in all material respects and have not been requiredmay rely upon to correct any material noncompliance, weimplement such plans, may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. Our research and development involves the use, generation and disposal of hazardous materials, including chemicals, solvents, agents and biohazardous materials. Although we believe that our safety procedures for storing, handling and disposing of such materials comply with the standards prescribed by state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. We currently contract with third parties to dispose of these substances that we generate, and we rely on these third parties to properly dispose of these substances in compliance with applicable laws and regulations. We cannot eliminate the risk of contamination or injury from these materials. If these third parties do not properly dispose of these substances in compliance with applicable laws and regulations, we may be subject to legal action by governmental agencies or private parties for improper disposal of these substances. The costs of defending such actions and the potential liability resulting from such actions are often very large. In the event we are subject to such legal action or we otherwise fail to comply with applicable laws and regulations governing the use, generation and disposal of hazardous materials and chemicals, we could be held liable for any damages that result, and any such liability could exceed our resources.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, this insurance may not provide adequate coverage against potential liabilities. We maintain insurance for environmental liability or toxic tort claims, but we may not continue to maintain such insurance in the future, and such insurance, to the extent maintained, may not be adequate to cover liabilities that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.
Our business and operations would sufferprove inadequate in the event of computer system failures, accidentsa serious disaster or security breaches.
Despitesimilar event. We may incur substantial expenses as a result of the implementation of security measures, our internal computer systems, and thoselimited nature of our CROs, contract manufacturing organization, or CMO,disaster recovery and other third parties onbusiness continuity plans, which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result inhave a material disruptionadverse effect on our business, financial condition and results of our commercial and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our commercialization and drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.operation.
Risks Related to Our Common Stock The price of our common stock may be volatile and you may lose all or part of your investment. The market price of our common stock is highly volatile and may be subject to wide fluctuations in response to numerous factors described in these “Risk Factors,” some of which are beyond our control. In addition to the factors discussed in these Risk Factors, these factors include: | ·
| | the success of competitive products or technologies;
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| | regulatory actions with respect to our product and product candidates or our competitors’ products or product candidates;
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| | actual or anticipated changes in our growth rate relative to our competitors;
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| | the outcome of any patent infringement or other litigation that may be brought against us, including the ongoing Purdue litigation;
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| | announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital commitments;
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| | results of clinical trials of our product and product candidates or those of our competitors;
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| | regulatory or legal developments in the United States and other countries;
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| | developments or disputes concerning patent applications, issued patents or other proprietary rights;
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| | the recruitment or departure of key personnel;
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| | the level of expenses related to our product and product candidates or clinical development programs;
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| | actual or anticipated variations in our quarterly operating results;
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| | the number and characteristics of our efforts to in-license or acquire additional product candidates or products;
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| | introduction of new products or services by us or our competitors;
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| | failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
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| | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
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| | variations in our financial results or those of companies that are perceived to be similar to us;
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| | fluctuations in the valuation of companies perceived by investors to be comparable to us;
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| | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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| | announcement or expectation of additional financing efforts;
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| | sales of our common stock by us, our insiders or our other shareholders;
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| | changes in accounting practices;
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| | significant lawsuits, including patent or shareholder litigation;
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| | changes in the structure of healthcare payment systems;
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| | market conditions in the pharmaceutical and biotechnology sectors;
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| | general economic, industry and market conditions;
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| | publication of research reports about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities or industry analysts; and
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| | other events or factors, many of which are beyond our control.
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In addition, theThe stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.fluctuations. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our business model, prospects or actual operating performance. The realization of any of the abovethese risks, or any of a broad range of other risks stated abovediscussed in this report, could have a material adverse effect on the market price of our common stock.
As we operate in the pharmaceutical and biotechnology industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December 31, 2016, holders of an aggregate of approximately 6.3 million shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. Once we register these shares, they can be freely sold in the public market, subject to volume limitations applicable to affiliates.
Actual or potential sales of our common stock by our directors or employees, including our executive officers, pursuant to pre-arranged stock trading plans could cause our stock price to fall or prevent it from increasing for numerous reasons, and actual or potential sales by such persons could be viewed negatively by investors.
In accordance with the guidelines specified under Rule 10b5-1 of the Exchange Act and our policies regarding stock transactions, our directors and employees, including our executive officers, could adopt stock trading plans pursuant to which they may sell shares of our common stock from time to time in the future. Generally, sales under such plans by our executive officers and directors require public filings. Actual or potential sales of our common stock by such persons could cause our common stock to fall or prevent it from increasing for numerous reasons. For example, a substantial number of shares of our common stock becoming available (or being perceived to become available) for sale in the public market could cause the market price of our common stock to fall or prevent it from increasing. Also, actual or potential sales by such persons could be viewed negatively by investors.
Future issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our shareholders and could cause our stock price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related securities, together with the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in material dilution to our investors. Such sales may also result in material dilution to our existing shareholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock.
Our principal shareholders and management own a majority of our stock and have the ability to exert significant control over matters subject to shareholder approval.
As of December 31, 2016, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned a majority of our voting stock, including shares subject to outstanding options and warrants. As a result, if these shareholders were to choose to act together, they would be able to significantly influence the outcome of all matters requiring shareholder approval, including the election of directors, amendments of our organizational documents, or approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest. The interests of this group of shareholders may not always coincide with your interests or the interests of other shareholders and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock. Such concentration of ownership control may:
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| | delay, defer or prevent a change in control;
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| | entrench our management and/or the board of directors; or
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| | impede a merger, consolidation, takeover or other business combination involving us that other shareholders may desire.
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In addition, persons associated with Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. currently serve on our board of directors. The interests of Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. may not always coincide with the interests of the other shareholders, and the concentration of control in Longitude Capital Partners, LLC and Skyline Venture Partners V, L.P. limits other shareholders’ ability to influence corporate matters. We may also take actions that our other shareholders do not view as beneficial, which may adversely affect our results of operations and financial condition and cause a decline in our stock price.
We are subject to anti-takeover provisions in our second amended and restated articles of incorporation and amended and restated bylaws and under Virginia law that could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our shareholders. Certain provisions of Virginia law, the state in which we are incorporated, and our second amended and restated articles of incorporation and amended and restated bylaws could hamper a third party’s acquisition of us, or discourage a third party from attempting to acquire control of us. These provisions include: | ·
| | a provision allowing our board of directors to set the terms of and issue preferred stock with rights senior to those of the common stock without any vote or action by the holders of our common stock. The issuance of preferred stock could adversely affect the rights and powers, including voting rights, of the holders of common stock;
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| | advance written notice procedures and notice requirements with respect to shareholder proposals and shareholder nomination of candidates for election as directors;
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| | a provision that only the board of directors, the chairman of the board of directors or the president may call a special meeting of the shareholders;
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| | the application of Virginia law prohibiting us from entering into certain transactions with the beneficial owner of more than 10 percent of our outstanding voting stock for a period of three years after such person first reached that level of stock ownership, unless certain conditions are met;
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| | a provision dividing our board of directors into three classes, each serving three-year terms;
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| | the requirement that the authorized number of our directors be changed only by resolution of our board of directors;
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| | a provision that our board of directors shall fill any vacancies on our board of directors, including vacancies resulting from a board of directors’ resolution to increase the number of directors;
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| | limitations on the manner in which shareholders can remove directors from the board of directors;
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| | the lack of cumulative voting in the election of directors; and
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| | the prohibition on shareholders acting by less-than-unanimous written consent.
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These provisions also could limit the price that certain investors might be willing to pay in the future for shares of our common stock. In addition, these provisions make it more difficult for our shareholders to remove our boardBoard of directorsDirectors or management or elect new directors to our boardBoard of directors.Directors.
We may fail to qualify for continued listing on The NASDAQ Global Select Market which could make it more difficult for investors to sell their shares.
Our common stock is listed on The NASDAQ Global Select Market (“NASDAQ”). As a NASDAQ listed company, we are required to satisfy the continued listing requirements of NASDAQ for inclusion in the Global Select Market to maintain such listing, including, among other things, the maintenance of a minimum closing bid price of $1.00 per share and shareholders’ equity of at least $10.0 million. There can be no assurance that we will be able to maintain compliance with the continued listing requirements or that our common stock will not be delisted from NASDAQ in the future. If our common stock is delisted by NASDAQ, we could face significant material adverse consequences, including:
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| | a limited availability of market quotations for our securities;
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| | reduced liquidity with respect to our securities;
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| | a determination that our shares are a “penny stock,” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;
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| | a limited amount of news and analyst coverage for our company; and
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| | a decreased ability to issue additional securities or obtain additional financing in the future.
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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which could result in our common stock being less attractive to investors and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our shares of common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. We will remain an emerging growth company until the earliest of (i) December 31, 2020, (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.
We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.
If investors find our common stock less attractive as a result of our reduced reporting requirements, there may be a less active trading market for our common stock and our stock price may be more volatile. We may also be unable to raise additional capital as and when we need it.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial condition, results of operations or cash flows accurately, which may adversely affect investor confidence in us and, as a result, the value of our common stock. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting. Commencing with our annual report on Form 10-K for the year ended December 31, 2016, weWe are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge, and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion, which could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. During the evaluation and testing process, ifIf we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its reviews,Further, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Our disclosure controls and procedures may not prevent or detect all errors or acts
Sales of fraud. We are subject toour common stock in the periodic reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosedpublic market, either by us in reports we file or submit underby our current shareholders, or the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specifiedperception that these sales could occur, could cause a decline in the rules and formsmarket price of the SEC. We believe that any disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Thesecurities. Moreover, the exercise of options and warrants and other issuances of shares of common stock or securities convertible into or exercisable for shares of common stock will dilute your ownership interests and may adversely affect the future market price of our common stock.
Sales of our common stock in the public market, either by us or by our current shareholders, or the perception that these sales could occur, could cause a decline in the market price of our securities. All of the shares of our common stock held by those of our current shareholders may be immediately eligible for resale in the open market either in compliance with an exemption under Rule 144 promulgated under the Securities Act, or pursuant to an effective resale registration statement that we have previously filed with the SEC. Such sales, along with any other market transactions, could adversely affect the market price of our common stock. In addition, as As of SeptemberJune 30, 2017,2023, there were (a) outstanding options to purchase an aggregate of 3,056,9541,368,968 shares of our common stock at a weighted average exercise price of $13.00$19.35 per share, of which options to purchase 940,1011,308,248 shares of our common stock were then exercisable, and (b) 2,445 shares of common stock issuable upon the exercise of warrants to purchase common stock at a weighted-average exercise price of $12.27 per share.exercisable. The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our common stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts.
Any issuance
There can be no assurance that we will repurchase additional shares of our common stock that is not made solelyat all or at favorable prices. In August 2021, our Board of Directors authorized a repurchase program for the repurchase of up to then-existing shareholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each shareholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised you may experience further dilution. Holders$100 million of shares of our common stock have no preemptive rights that entitle themat any time or times through December 31, 2022 (the “Prior Repurchase Program”). We repurchased $61.9 million of shares pursuant to purchase their pro ratathe Prior Repurchase Program prior to its expiration on December 31, 2022. On January 1, 2023, our Board of Directors authorized a new share repurchase program for the repurchase of any offeringup to $100 million of shares of our common stock at any classtime or series. We have broad discretiontimes through December 31, 2023 (the “2023 Repurchase Program”). Under the 2023 Repurchase Program, we will be permitted to effect repurchases through a variety of methods, including open-market purchases (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the useExchange Act), privately negotiated transactions, or otherwise in compliance with Rule 10b-18 of the Exchange Act. Although a substantial number of shares were repurchased pursuant to the Prior Repurchase Program, any future share repurchases under the 2023 Repurchase Program will depend upon, among other factors, our cash balances and cash equivalents,potential future capital requirements, our results of operations and despite our efforts, we may use them in a manner that does not increase the value of your investment.
We have broad discretion in the use of our cash and cash equivalents, and investors must rely on the judgment of our management regarding the use of our cash and cash equivalents. Our management may not use cash and cash equivalents in ways that ultimately increase the value of our common stock. Our failure to use our cash and cash equivalents effectively could result in financial losses that could have a material adverse effect on our business, causecondition, the price of our common stock to declineon the NASDAQ Global Select Market, and delay the commercialization or development of our product and product candidates. We may invest our cash and cash equivalents in short-term or long-term, investment-grade, interest-bearing securities. These investments may not yield favorable returns. If we do not invest or apply our cash and cash equivalents in waysother factors that enhance shareholder value, we may faildeem relevant. We can provide no assurance that we will continue to achieve expected financial results, which could cause the pricerepurchase shares of our common stock to decline.at favorable prices, if at all.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our capital stock will be your sole source of gain for the foreseeable future.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. RECENT SALES OF UNREGISTERED SECURITIES There were no unregistered sales of equity securities during the period covered by this Quarterly Reportquarterly report on Form 10-Q. PURCHASE OF EQUITY SECURITIES The following table sets forth purchasesshares of Common Stock repurchased under our common stock for the three months ended September 30, 2017: | | | | | Period | (a) Total number of shares purchased (1) | (b) Average Price Paid per Share | (c) Total number of shares purchased as part of publicly announced plans or programs | (d) Maximum number of shares that may yet be purchased under the plans or programs | July 1, 2017 through July 31, 2017 | 1,403 | 12.39 | - | - | August 1, 2017 through August 31, 2017 | - | - | - | - | September 1, 2017 through September 30, 2017 | - | - | - | - | Total | 1,403 | $ 12.39 | - | - |
(1) All of theRepurchase Program, as well as shares were transferred to us from employees in satisfaction of minimum tax withholding obligations associated with the vesting of performance share units and restricted stock units during the period.three months ended June 30, 2023:
| | | | | | | | | | Period | Total number of shares purchased | | Average Price Paid per Share | | Total number of shares purchased as part of publicly announced plans or programs (1) | | Maximum approximate dollar value of shares that may yet be purchased under the plans or programs | April 1, 2023 through April 30, 2023 | 1,855 | | $ | 23.67 | | — | | $ | 100,000 | May 1, 2023 through May 31, 2023 | 3,924 | | | 22.90 | | — | | | 100,000 | June 1, 2023 through June 30, 2023 | 3,876 | | | 22.18 | | — | | | 100,000 | Total | 9,655 | (2) | $ | 22.76 | | — | (2) | $ | 100,000 |
| (1) | The 2023 Repurchase Program was announced on January 4, 2023. The 2023 Repurchase Program provides for the repurchase of up to $100.0 million of outstanding shares of our common stock at any time or times through December 31, 2023. The 2023 Repurchase Program did not expire during the three months ended June 30, 2023, nor do we currently plan to terminate the 2023 Repurchase Program prior to expiration. However, there can be no assurance as to the timing or number of shares of any repurchases in the future. |
| (2) | The difference, if any, between the total number of shares purchased and the total number of shares purchased as part of a publicly announced program relates to common stock withheld by us for employees to satisfy their tax withholding obligations arising upon the vesting of performance share units and restricted stock units granted under our Amended and Restated 2014 Stock Incentive Plan. |
Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. Not applicable.RULE 10b5-1 TRADING PLANS
During the three months ended June 30, 2023, none of our directors or officers adopted, amended, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. Item 6. Exhibits. See the Exhibit Index on the following page of this Quarterly Report on Form 10-Q.
EXHIBIT INDEX
Exhibit
Number |
| Exhibit Description | 10.1 | | Third Amendment to Loan Agreement, dated as of June 23, 2023, by and among Collegium Pharmaceutical, Inc., the guarantors party thereto, BioPharma Credit PLC, and Bio Pharma Credit Investments V (Master) LP, as lenders. | 31.1 | | | | | | | | | | | | 31.1 | | Certification of Chief Executive Officer pursuant to Rules 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | 31.2 | | Certification of Chief Financial Officer pursuant to Rules 13a- 14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). | 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). | 101.INS | | Inline XBRL Instance Document | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
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. | | | | | | | | | COLLEGIUM PHARMACEUTICAL, INC. | | COLLEGIUM PHARMACEUTICAL, INC.
| | | | | Date: November 8, 2017 | August 3, 2023 | | By: | /s/ MICHAEL HEFFERNANJOSEPH CIAFFONI | | | Michael Heffernan
| | Joseph Ciaffoni | | | | | Chief Executive Officer | | | | | (Principal executive officer) | | | | | | Date: November 8, 2017 | August 3, 2023 | | By: | /s/ PAUL BRANNELLYCOLLEEN TUPPER | | | Paul Brannelly
| | Colleen Tupper | | | | | Chief Financial Officer | | | | | (Principal financial and accounting officer) |
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